On June 25, Bernanke left key
short term rates unchanged at 2%, citing "considerable stress" in
financial markets and tight credit conditions. The Fed also cautioned about
the upward pressures on prices caused by rising oil and other commodity
prices. On the same day, Mr. Warren Buffett fingered "exploding"
inflation as the biggest risk to the economy. Buffett said on CNBC "It's
huge right now, whether it's steel or oil. We see it everywhere."
The markets spoke convincingly
on Buffett's side as oil has zoomed up and set new highs while the Dow has
been in a freefall. Clearly the Fed has not done enough to calm inflationary
fears. As more data emerges on the plight of the financial sector, we see
that there may be more bank bailouts coming in the near future. As we saw in
the case of Bear Stearns, the banks own so much equity in one another that
the collapse of one bank could lead to a chain-reaction collapse. Because of this,
there's every reason to expect that bailouts will be extended to the troubled
financials stocks that can't cover their losses. Meanwhile, the costs would
be paid by anyone holding dollar-denominated assets.
Gold has been buoyed by oil's
rise and is now sitting around $920/oz after Tuesday's step back. More
interestingly, gold stocks measured by the XAU index have defied the general
equity downtrend and held fairly steady.
On the junior gold stocks, one
company that caught my eye on the volume gainer board is Axmin Inc. (AXM), a
gold explorer in West Africa.
Axmin was a favourite of
several fund managers in 2003. The stock went from 30 cents to $1.7 by the
end of 2003. Since then, it's been treading water and reached a 3 year low of
40 cents on heavy volume in late June. The company was 40% owned and locked
up by a private group, which makes it a tight shareholder structure.
At roughly a $100 million
market cap for 4 million oz of gold of decent grade, AXM is a good
speculation. Note that they recently closed a private placement at 40 cents,
therefore a good entry point is the low 40 cent range with profit taking at
200 DMA of 70 cents within the next 4 months. For disclosure purposes, I'm
not affiliated with Axmin in any way.
Right now, I'm in Singapore
speaking at Terrapinn's Commodity Investment World 2008 Conference. Rising
prices, US inflation, and the banking sector are hot topics, and I did
interviews with people from both Dow Jones and Bloomberg, who quoted me in an
article this morning: http://www.businessday.com.au/
Click here to find out more
about the conference and the speaker lineup: http://www.terrapinn.com/2008/commodity/
I'm also excited to announce
that we've done a complete renovation at my home site, Goldmau.com, giving the site and updated
look and added a news headlines feed with only the most relevant economic
news. In addition, headlines are accompanied by exclusive commentary from
myself and other Goldmau analysts as they're published.
