Last year, central banks were net buyers of gold for the first time since 1988. In fact, they bought the most gold in any year since 1964. Total central bank holdings worldwide, according to the World Gold Council, grew by 425 metric tons last year.

True, that’s only 1.4% of the gold central banks already held. But it’s the trend that matters: China, India, and Russia all added to their reserves last year. And it fits into a bigger picture – growing distrust of the world’s reserve currency.

“I think we already have a gold standard…created by the marketplace,” says the inimitable Marc Faber. Not just the central banks, either: “We have the [exchange-traded funds] that have proliferated, and we have more and more physical buying of gold.”

At least there’s more physical buying when it comes to the ultra-wealthy who can buy huge bars of the stuff. Retail investors who buy coins? Not so much.

Sales of the popular Austrian Philharmonic gold coins have crashed 80% compared with a year ago. The numbers aren’t as dramatic in the United States, but still, sales of Gold Eagles in February fell 26% from year-ago figures.

“There’s no more upward surge in gold price to titillate buyers,” explains the Austrian mint’s veteran marketing director Kerry Tattersall. Plus, “a lot of people feel more relaxed about the economic crisis.”

Then again, maybe most of the folks who have the means to buy gold have done so already…and those who don’t are buying silver. Sales of US Silver Eagles in the first two months of 2010 are up 40% compared with the same period in 2009, according to CPM Group. Many buyers are waiting up to three weeks for delivery.

Addison Wiggin
for The Daily Reckoning

Gold Role Reversal: Central Banks Now Net Gold Buyers originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Here is King’s latest take on BP:

“Under new management with CEO Tony Hayward, in the past 18 months, BP has been playing a strong game of catch-up. And doing it all while paying out a nice, solid dividend that’s currently yielding a 5.9% return.

“In the past week, BP announced an agreement to buy a large chunk of oil business from Devon. BP will pay Devon $7 billion for hydrocarbon assets in Brazil, Azerbaijan and the Gulf of Mexico. Plus, BP and Devon will form a joint venture to develop an oil sands project in Alberta.

“BP’s Tony Hayward stated that the Devon deal gives BP ’significant additional long-term growth potential with an emphasis on high-margin oil.’ Indeed, the Brazilian asset alone will give BP strong interests in the prolific Campos Basin. This includes three discoveries — Xerelete, pre-salt Wahoo and Itaipu — and the already producing Polvo field.

“Add to this the fact that the Devon concessions offshore Brazil cover much more of that deep pre-salt play. There’s more out there to find, and BP is very strong in deep earth exploration, based on a powerful learning curve in the Gulf of Mexico and elsewhere. By my back-of-the-envelope calculations, BP may be paying under $1 per barrel for future oil reserves.

“Meanwhile, the Azerbaijan deal with Devon also opens doors to BP, which is traditionally strong in the Middle East. Note that BP is also one of the leaders in rebuilding the Iraqi oil industry. So at the very least, BP is locking up access to future flows of Middle Eastern crude oil. And with rising energy prices (have you noticed?), BP is holding a stronger and stronger hand.

“The bottom line is that just with the Devon deal, BP has acquired a terrific new set of oil assets, spanning three continents. It’s immensely foresighted, and great for the long-term prospects of BP.

“All that, and almost lost in the noise was the announcement that BP is putting the finishing touches on a $100 million facility that will process commercial volumes of heavy oil from Alaska’s North Slope.

“The new BP facility, at the Milne Point field, is finally ready to go. It’s due to begin continuous operations in May. It’ll initially process oil from four wells that will tap the vast but elusive layer of heavy oil above the North Slope’s conventional oil reserves. The future potential of this heavy oil play is in the billions of barrels. It’s just immense.”

King seems like he could barely be more content with BP investment and execution right now. In addition to BP, he follows a number of investment opportunities in the commodities and energy space, more of which you can read about by visiting the Agora Financial reports page, available here.

Best,

Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

BP plc (NYSE:BP) – Locks up Access to New Set of Oil Assets originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Traders will say they’re all holding their breath for today’s FOMC decision, which, as our pal Peter Cooper forecast last week, might include a surprise rate hike. But really…stocks are boring these days. So let’s find a bull market somewhere else more traditionally boring.

Buy food, Chris Mayer told his Special Situations readers yesterday. “The world has an increasing demand for food,” he wrote, citing some nuggets from the CEO of one of Chris’ favorite ag stocks:

• The UN’s estimate that world population will grow from 6.8 billion people to 9.1 billion people by 2050, with Asia and Africa making up 80% of the increase

• The world will need to produce an additional billion tonnes of cereal crops and 200 million tonnes of meat. That’s a 70% increase in food supply

• Global diets are shifting from one heavily weighted toward rice to one that includes more meat, which has an exponential effect on grain demand

• Scarcity of arable land and clean water mean that most of the new production (about 80%) will have to come from increasing yields from existing farms.

“In that kind of world, a global agriculture powerhouse with a focus on bringing food to markets is the stock to own. This next chart shows you what the global trade flows for grain might look like over the next decade. Note the large import markets of South America, Africa and the Middle East and Asia.”

Here’s another global bull market, this one a little more explosive – weapons. The average volume of global arms sales rose 22% over the last five years, the Stockholm International Peace Research Institute reports.

Interesting details in this report… The US, the great global police force, remains the world’s biggest exporter of arms. We are responsible for some 30% of the global trade. Russia’s bombs and guns are close behind, with a 23% stake.

The world’s biggest importers rank in this order: China, India, South Korea, the UAE and Greece. South America saw a stunning 150% spike in arms sales (ahem, Hugo Chavez). Exports to Southeast Asia, notably Vietnam, are up quite a bit, too.

And just how much money is the world spending on weapons? Heh, c’mon… Governments don’t disclose that information anymore. It’s none of your business anyway…right?

Addison Wiggin
for The Daily Reckoning

Guns and Butter: Two Bull Markets Worth Watching originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

“The oil and gas company Canadian Natural (NYSE:CNQ) reported good results last week. Oil production was up 18% from the same quarter a year ago. The company continues to generate a lot of cash and still has a huge inventory of projects to fuel further growth.

“One of the reasons I liked CNQ was because of the management team, which acts like owners — because they are owners. One of my favorite charts on CNQ is this one, which shows the dollar amount management has invested in the company:

“Owners tend to make better long-term decisions for a business than renters, the same way it works in real estate. So CNQ is good with managing its capital intelligently. It’s hard to quibble with its track record. The company has boosted cash flow per share at a 17% annual clip since 1999. The company continues to be a low-cost producer. And it continues to beef up reserves and production, as this next chart shows:

“For 2010, the management expects to generate nearly $7 billion in cash flows — or nearly $13 per share. That’s a 12% increase on a 7% increase in production. And of that, about $2-2.6 billion will be free cash flow. The first priority for excess cash flow is to pay down debt, building more equity in the company in the same way paying down your mortgage does. In 2009, debt fell $3.3 billion, to $9.7 billion. (Keep in mind CNQ has a $40 billion market cap.) So the debt level here is fine.”

For Mayer, Canadian Natural appears to be a solid oil and gas holding, which he indicates by later sharing that the net asset value, according to his calculations, comfortably exceeds $100 per share.

If you’d like to follow more of his research, you should consider subscribing to his Capital & Crisis newsletter. To review the options for signing up visit the Agora Financial reports page here.

Best,

Rocky Vega,
The Daily Reckoning

P.S. Chris Mayer will also be sharing important advice in person during the month of July when he will be speaking at the annual Agora Financial Investment Symposium in Vancouver. You can find details about how to attend the event here.

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

Canadian Natural Resources (NYSE:CNQ) – Management “Acts Like Owners” for Better Decisions originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Chris Mayer, editor of Agora Financial’s research newsletter Mayer’s Special Situations, has been able to cut through the noise to make several determinations today:

“We got earnings out of gold miner, Northgate Minerals (AMEX:NXG). Northgate produced a record amount of gold last year and $187 million in operating cash flows. The market values Northgate at only $880 million. That means NXG trades for less than 5 times cash flow. It also finished the year with $253 million in cash and no long-term debt.

“The big cloud that hangs over Northgate is that its Kemess mine is in its final days. Mine life has been extended to the first quarter of 2011, but after that, Northgate will lose a lot of cash flow. Its remaining two mines, Fosterville and Stawell, are high cost. They produce gold at cash costs of $655 and $633 an ounce, respectively. So the market worries about that.

“The big positive is the Young-Davidson deposit, on which construction will start this summer. Production should start in 2012. This should be a very good mine with cash costs of only $306 an ounce and a 15-year life. It has 2.8 million ounces of gold, about 75% of NXG’s total reserve base.

“This will be the next great source of wealth creation for Northgate and is its most valuable asset. NXG has a good track record and the stock is a solid way to play gold. With its strong balance sheet, low-risk profile and the Young-Davidson project, NXG should be able to deliver good returns to shareholders even if the gold price goes nowhere.”

One key Northgate mine will soon be going offline, but the Young-Davidson deposit should be the “next great source of wealth creation” for the miner. If you’re interested in learning more, the best way to stay up-to-date on this and other findings by Mayer is to review the options available at the Agora Financial research and reports page.

Best,

Rocky Vega,
The Daily Reckoning

P.S. Speaking of Vancouver-based opportunities… Chris Mayer will also be speaking at the annual Agora Financial Investment Symposium in July. You can find additional details about the event and how to attend here.

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

Northgate Minerals Corp (AMEX:NXG) – Soon Building a “Great Source of Wealth Creation” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Like today, for example, when I am told that it is “essential” that I curtail my frenzied buying of gold, silver and oil this month so that one of the whining kids can go to the doctor (or dentist, I forget which) for some real or imagined discomfort, ache, pain, open wound, bloody discharge, festering sore, oozing abscess or gangrenous limb, like I am made out of money or something.

Normally, I would explain, with the patience of a saint, for the thousandth time, how the Federal Reserve is creating waaaaAAAAAaaaay too much money and credit so that the federal government can borrow and spend waaaaAAAAaaaay too much money, which is this selfsame “waaaaAAAAAaaaay too much money and credit” created by the Federal Reserve in the first place, which is a kind of strange circular logic, I admit, but which I think only serves to prove the bizarre, incestuous nature of the whole thing, but without any bodily fluids being exchanged.

And I told them, “If you don’t think so, just wait until the inflation in food and energy prices really gets here, good and hard, and when you look at the horrors this will create, you can tell me again how you don’t believe that inflation in the money supply leads to inflation in prices when all this new money enters into the marketplace, like a flood, adding massive amounts of money to the bidding for goods and services, which makes prices rise”, but they just kept whining, “No, daddy! I need to go to the doctor now, not when inflation is raging so that the cost will be higher and you will not want to pay those higher prices! So you want to send me now, when prices are lower!”

So you can see that there are two sides to every story; on the one hand this whole incident with crybaby kids and their whining, and complaining, and blacking out, and getting blood all over everything, and on the other hand there are “essentials” in the world, as in “essential insights”, which, in the case of Money Morning, is apparently true, as we note with surprise that David Stevenson writes in the newsletter that, in the United States, “Prices of commercial property – real estate – are down by 43% overall since the October 2007 top, says Moody’s Investors Service. Retail rents have plunged by a third from the peak. For offices, rents are down 40% and vacancy rates are as high as 18%.”

Now, most people, like me, and maybe like you, too, look at that paragraph and say, “Whew! That seems like a lot of numbers, which are already confusing by their very presence, which explains why I don’t understand!”

Being the peach of a guy that I am, I am going to show you – free! – the essential information in there, which is: If you own commercial property, you are screwed, and if you do not own commercial property, then it is getting cheaper and cheaper.

In the meantime, just keep buying gold, silver and oil stocks, not because I say so, which I do, and you should, too, but because we have no other choice, because if we did, I am sure that I would have read about, or heard about, someone buying it to successfully protect themselves against governmental stupidity at least one (pause) freaking (pause) time (pause) in the last 4,500 years of the economic history of the Whole Freaking World (WFW), especially since the whole thing seems to be about economic stupidities that flow from continual, ever-worsening government fiscal malfeasance, just like we have all over the world today and all over the world in all of the rest of history, but, in a word, I ain’t.

And, so, investing doesn’t get easier than that! Whee!

The Mogambo Guru
for The Daily Reckoning

Gold, Silver and Oil: Buying the Essentials in Tough Markets originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

The short answer: No.

In general, the mail-order gold people are paying about 10-25 cents on the dollar.

We’re seeing monetary psychology at work here. It’s the feel of cash in hand. We have relatively unsophisticated people sending in “old” jewelry, and they don’t know what they have. The mail-order gold buyers are sending back a check, and the crinkle of that check makes people think they got a good deal.

Don’t sell your goods to the mail-order crowd, unless you want to get taken to the cleaners. If you sell your old disco chains at a reputable jewelry store, you’re likely to get a reasonable deal for the gold content [up to 75 cents on the dollar], as well as for any precious stones.

We’re living in tough economic times. There are a lot of people who are desperate for immediate cash. So they send in their “old” gold and such. But the process we’re seeing is a classic case of valuable goods flowing from weak hands to strong ones.

Byron King
for The Daily Reckoning

Don’t Mail in Your Gold originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

The demand for uranium is building in intensity like a heap of hot coals. There are already 436 reactors up and running today. And there is a surge in demand coming in the next decade from the hundred or so new reactors expected to come online. Yet the industry is about 400 million pounds short of meeting that demand, as shown in the chart below.

The market has been in deficit for years, as it burns off Cold War stockpiles, which are finite and dwindling. Another way to look at it: Uranium demand is on its way to hitting 226 million pounds per year. Yet last year, the top dogs – which make up 90% of the market – produced only about 110 million pounds of uranium.

So essentially, the industry needs to produce almost four times that to meet the estimated new demand through 2018. On an annual basis, the industry will need to about double in size.

A sidelight to this is the fact that 63% of all uranium comes from just 10 mines. This means that the global supply of uranium is susceptible to supply shocks. If one big mine floods or goes down for whatever reason, it’ll make a big wave in the uranium market.

It gets even more interesting…

Most of the best mines are already in production. As with everything else in the resource world these days, the low-hanging fruit is all gone. Future grades will be lower, meaning we’ll have to mine a lot more ore to get a given amount of uranium. Furthermore, the new mines are in more geologically and politically challenging locales.

All of this means that costs will go up, which bodes well for a higher uranium price in the future. The current spot price is around $45 a pound. Only around 10–30% of the uranium traded in any year is sold on the spot market. Most uranium is sold to utilities via long-term contracts. The longer-term price of uranium is north of $60.

For some perspective on uranium pricing, consider that when uranium got hot in the summer of 2007, the spot price hit $136 a pound. It’s done nothing but go down since then. If you are a contrarian thinker, that fact will attract you. I can tell you with great certainty that the uranium price won’t go to zero. That downward trend will reverse, and based on all the data I presented above, it looks like a higher uranium price over the next few years is as close to a sure thing as you can get in markets.

Specialty Metals – Thompson Creek Metals (NYSE:TC) is our molybdenum miner. Molybdenum, or moly (pronounced “molly”), is an important metal for strengthening steel and for all kinds of energy applications. It is sometimes known as “the energy metal.” The recession took a big bite out of moly pricing, but it is on the rebound.

Thompson Creek is the best way to play the rebound in moly. It is a financial Sherman Tank, for one thing. It finished the year with $511 million in cash against debt of about $13 million. The market cap is about $2 billion. At present moly prices (about $17/lb.), Thompson Creek should generate over $240 million in operating cash flows this year. At today’s price, the stock goes for only 8 times cash flow. Maintenance capex – just to keep things going – is only about $60 million. So Thompson Creek should do $180 million in free cash flow at current prices. The stock goes for less than 10 times free cash flow, which is a cheap multiple.

Of course, you get all the upside should moly prices continue to climb. At a moly price of $30/lb. – which is what it was for most of 2004 to 2008 – Thompson Creek’s cash flow explodes.

There are good reasons to see moly prices rise. First, there is the long-term demand curve, which TC showed during its latest presentation:

That’s roughly a 75% increase in a decade. And that assumes historical demand is the best guide. But there are good reasons why moly demand might rise more. This demand is mainly from energy uses and infrastructure investment. Nuclear reactors need moly. Deep-water wells need moly. Tar sands and heavy oils use moly in their pipelines.

So these are strong new sources of demand that did not impact demand as much in the past. And then you look at where the moly will come from. The financial crisis halted or delayed the development of new mines. China is a potential source for new supply, but its mines are on the higher-cost side of the scale. They will need higher moly prices to encourage investment and bring the new supply online.

In the meantime, Thompson Creek has a window to make a lot of money.

Chris Mayer
for The Daily Reckoning

Uranium and Specialty Metals: A Few of My Favorite Things, Part II originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Once again yesterday, investors demonstrated their preference for paper over the shiny yellow metal. The Dow Jones Industrial Average notched a slight 3-point gain, while gold tumbled about $17 an ounce.

This divergence between stocks and gold is not enormous, but it is telling. Most investors believe the credit crisis is a mere memory, and that an economic recovery is underway.

Your editor is not persuaded by this conventional wisdom. As a homegrown Californian, your editor is as eager to embrace a feel-god vibe as anyone. But this particular vibe doesn’t feel that good…or logical.

The worst of the credit crisis may have passed, but serious credit problems continue to beset the US banking system. Everywhere you turn you see an impaired loan dressed up like an Academy Award nominee.

And the economic recovery that so many folks pretend to see is nothing more than a mirage wrapped in a chimera. This so-called recovery is not a recovery at all; it is a Fed-induced bounce from “superbad” to merely bad.

Your editor is not buying this storyline, dear reader.

If he were buying anything at all he would be buying gold and/or the shares of companies that haul monetary metals out of the earth. No matter whether the US economic recovery is real or not, the tsunami of cash and credit that the Fed has unleashed on the US economy is very real…and the consequences are likely to be very inflationary.

But even if this logic eludes the Ivy League educated minds on Wall Street, it does not elude the minds that control the national balance sheets of India and China.

“On February 24, Reuters reported that the Reserve Bank of India was ‘set to be a buyer’ of the 191.3 tonnes (6.74 million ounces) of gold the IMF is selling,” reports Jeff Clark, Senior Editor, Casey’s Gold & Resource Report. “Although the bank wouldn’t comment directly on the possibility, they did say, ‘We are closely looking at the gold market…gold is a safe bet.’

“The article then quoted an unidentified official from the China Gold Association as saying, ‘It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.’

“But the next day,” Clark continues, “Finmarket news agency in Russia reported that China ‘confirmed its intention’ to buy the IMF gold. ‘Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market.’

“While they’ve been silent since,” says Clark, “both India and China have publicly hinted they want this latest batch of yellow bars from the IMF. There’s no way to know if a competitive bid would spring up between these two countries, but…can you imagine the ramifications if one did?

“When India bought 200 tonnes of IMF gold last November 3, it set off a buying spree that saw gold rise 14.2% in 4 weeks. What if this time around, a couple central banks both want the gold for sale? What if China says to India, ‘Not so fast, guys. We’d like to bid on that, too…’ and word of that clash leaked out?

“Pure speculation, of course,” Clark concludes, “but competing for gold purchases isn’t a far-fetched idea. This sale is not pre-arranged; it’s an open market sale. Also, there’s only so much to go around. These two countries have only a tiny amount of their reserves in gold. Throw in the fact that central banks worldwide are already net buyers. A pretty intriguing thought, wouldn’t you say?”

Yes…quite.

Eric Fry
for The Daily Reckoning

Investing in Gold During a Fed-Induced Bounce originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

The “retaliation” he refers to includes trade sections on 100 US goods, ranging from cars to milk powder. The tariffs are in response to cotton producer subsidies the US has kept in place despite a 2008 WTO ruling that found the practice discriminatory.

From the BBC News:

“The World Trade Organization (WTO) approved the sanctions in a rare move.

“Brazil published a list of 100 US goods that would be subject to import tariffs in 30 days, unless the two governments reached a last-minute accord.

“It said it regretted the sanctions, but that eight years of litigation had failed to produce a result.

“It said it would raise tariffs on $591m (£393m) worth of US products – from cars, where the tariff will increase from 35% to 50%, to milk powder, which would see a 20% increase in the levy.

“Cotton and cotton products would be charged 100% import tariff, the highest on the list.”

As a rising economic force Brazil is taking a strong stance on the issue. It’s not insignificant to begin a trade confrontation the largest economy in the world. We’ll watch closely to see how this aggressiveness plays out.

Read more of the history behind the subsidies and about what the response means in the BBC’s coverage of Brazil’s US trade sanctions.

Best,

Rocky Vega,
The Daily Reckoning

Brazil Launches Salvo of Trade Sanctions Against US originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."