Adrian Day: Is the resource boom over? A resounding no! - This is an interesting and topical article from Mineweb. Here is the opening:

Not surprisingly - given metal price performance at the time - the audience at the New York Hard Assets Investment Conference was a little depressed. With gold heading down to the low $1500s - the lowest for several months and, of course, junior mining stocks, which is the sector most of the audience would be there to hear about, having been particularly hard hit.

What the audience really wanted advice on was addressed in one of the earlier keynote presentations by Adrian Day. Is the resource boom over? was the title of his talk and he prefaced it with an immediate No! In particular he made some very salient points about global copper production and the copper market itself. He pointed out that the shortest full copper price cycle in recent history was 17 years, while the current copper cycle only started in 2001 - so if this is the end of the current resource boom this would be the shortest such cycle in over 200 years by a very long margin - which he did not see as likely.

Also he made the very apposite point that most of the world's copper production comes from old mines where production is declining - either for technical or falling grade reasons - while it takes at least a 10 year lead time - mostly a lot longer to bring a significant new copper mine on stream so it is relatively straightforward assessing he future production scenario given that almost certainly there will not be a new major copper mine opened in the next 25 years which is not already known about.

He also pointed out that the longest and strongest booms in resource history have occurred when a new industrial giant emerged - and he pointed to China as epitomising this in the current scenario where the changing pattern of consumption has had a huge impact on global copper demand and pricing through major changes in consumption patterns. For example, China is already the world's largest automobile manufacturer, while 26% of Chinese questioned in a recent survey said they would be purchasing a new car in the next six months - this can't happen as there aren't that many cars available - but it does demonstrate the potential.

My view - Adrian Day is a very experienced analyst and he makes some good points in this article.

Fullermoney has been writing about a commodity supercycle for over a decade. It emerged from the ashes of a generational-long bear cycle and is fuelled mainly by the China-led growth economies. Historically, most commodity supercycles have run for several decades, although the last one persisted for only ten years before Paul Volcker, who was appointed Chairman of the Federal Reserve by Jimmy Carter in 1979, slammed the door in 1980 with his progression of higher interest rates.

I have always felt that globalisation and the adoption of capitalism in its various forms by most of the world's emerging markets would result in a lengthy commodity supercycle during the current era. I have also pointed out that it would be punctuated by slowdowns in global GDP growth, as we saw in 1980 and also over the last year.

This item continues in the Subscriber's Area.

Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies.

Initially, the fund aims to keep about 1.5 per cent of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to "escape sovereign risk".

The move into a non-yielding asset comes as funds in the world's second-biggest pension market are under increasing pressure to meet promised payments, as domestic interest rates remain rooted near zero. This year, the first of Japan's baby boomers turn 65, becoming eligible for payouts.

Mr Kiguchi said the lack of yield was a concern for the fund's investment committee, but he persuaded them that "from a very long-term point of view, gold may be one of the safe currencies". He added that he had sold Australian dollars this month to meet his initial target allocation for gold for the fund, which has 20,000 members.

Mizuho Trust & Banking, a unit of Mizuho Financial Group, has begun to offer investment schemes allowing smaller pension funds to invest in gold.

While few fund managers are counting on a crash in core assets such as Japanese government bonds, said Takahiro Morita, head of the Tokyo arm of the World Gold Council, a producers' association, they were increasingly receptive to the idea that gold could act as a buffer against shocks. "Last year's tsunami and the eurozone debt crisis shows that it was wise to expect the unexpected," he said.

Historically, institutions in the $3.4tn Japanese pension market have clung to traditional assets. Bonds accounted for 59 per cent of industry assets in 2011, the highest share in the world, according to Towers Watson, a consultant. Just 6 per cent - the lowest share - was invested in alternatives such as property, private equity and hedge funds.

Within Japan the image of gold has struggled to recover the lustre lost after a scandal in the mid-1980s involving Toyota Shoji, which duped thousands of elderly investors by promising gold bars that were never delivered. Now, though, households are showing more interest.

Nomura, Japan's biggest wealth manager, added a gold option to its monthly survey of 1,000 randomly selected retail investors in February. Every month since, gold has been ranked the third-most desirable addition to portfolios, well ahead of competing assets such as investment trusts, bonds or foreign securities.
With institutions warming to gold, too, demand could grow further.

"If you look at assets over the past couple of decades, equity has been a loser, while fixed income offers tiny coupons," said Yoshio Kuno, Japan head of Newedge, the futures broker. "Gold is becoming an acceptable currency substitute."

My view - It is tempting to regard this as a contrary indicator because the smart money was buying gold over a decade ago as it completed a generation-long bear market. However, perhaps Japanese pension fund managers have good reasons to question the sustainability of multi-decade trends for JGBs and the yen.

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Australia hates El Niños, which bring drought and wildfires. The good news is that both the large Pacific Decadal Oscillation and the IOD should minimize the adverse effects if a La Niña develops. In the five most similar years, Australia enjoyed a near normal winter with slightly cooler weather.

With all three major oceans in transition, the globe faces a few pleasant months where most weather will be closer to normal (if anyone can remember normal!). This means there is a very high probability of improved crop production and a gradual reduction of food prices.

Enjoy!

My comment - The global outlook for crops is generally more favourable than in recent years, according to Evelyn Browning Garriss, although she mentions risks for India and South America.

Ms Garriss will be speaking at The 50th Annual Contrary Opinion Forum in Vermont in early October, as will Eoin Treacy. Highly recommended.

My personal portfolio: A trade reopened - Details and charts are in the Subscriber's Area.

Additional commentary by Eoin Treacy

Mean reversion amongst Japan's stock market leaders – The adoption of an inflation target by the Bank of Japan earlier this year initiated some much needed Yen weakness against a host of currencies. However this has been resisted at every turn by the governor of the Bank of Japan. While the stock market has pulled back sharply over the last few weeks, the Yen has been comparatively steady in the region of ¥80 when compared to the US Dollar. A sustained move below ¥79 would be required to question medium-term scope for additional Dollar outperformance. I last reviewed Japan's upside leaders in Comment of the Day on March 9th . Following a volatile period for the stock market I thought it would be opportune to revisit those shares. Also see David's piece on Japan yesterday.

This section continues in the Subscriber's Area.

Email of the day – on gold:

“I have been away from my desk for a couple of weeks and could hardly believe what I saw when I opened the gold chart this morning.

“What's up with gold? It's acting like any other metal at the moment. Gold has not performed as expected in light of the present financial mayhem in Europe. Any comments?”

My comment – Thank you for this question which I suspect will be of interest to a number of subscribers. Gold has now been in a corrective phase since late August and has yet to demonstrate a convincing return to medium-term demand dominance. We have hypothesised on a number of occasions that as participation in gold increases, in line with the secular bull market that has been evident for the last decade that it would perform more like a risk asset. This has certainly been the case over the last month as prices have returned to test the December and September lows.

This section continues in the Subscriber's Area.

Eoin's personal portfolio: gold long initiated –This section continues in the Subscriber's Area.

Email of the day – on creating chart templates:

“Is there a way to put the RSI beneath each chart instead of the $/CHF? Many thanks for your response.”

My comment – Thank you for this question which others may also have an interest in. The Chart Library remembers your last operation and applies it to subsequent charts. To remove the $/CHF from below the chart area, the easiest solution is to hit the ‘Reset' button in the charcoal bar above the main chart area. If you would like to create a chart which will always apply the RSI you will need to create a customised template. Here is a step by step guide on how to do this:

1.  Choose any instrument you are interested in from either the menus or the search facility.
2.  Click on the ‘Charting' tab located in the charcoal bar above the main chart area.
3.  A popup window will appear.
4. Select the Sample (daily, weekly monthly, etc.) and Period (3-month to 50-years) you wish from the appropriate dropdown menus.
5. Select ‘Relative Strength Indicator' from the ‘Analysis' dropdown menu.
6. An extra line item will be introduced so you can customise the period of the RSI if you wish.
7. Hit Apply to ensure you have the type of chart you were looking for.

In order to save this chart as a template continue with these steps

8. Click on the Charting tab located in the charcoal bar above the chart area to open the popup window.
9. Click on the ‘Save' tab, located in the aquamarine bar at the top of the popup window
10. Give your template a name and click on OK.
11. Next click on Apply
12. Refresh the page

Your template will now have been added to the Chart tab at the top of the page so that you can apply it whenever you look at any chart.

Email of the day – on definitions of Fullermoney terminology:

“I was wondering whether there was a place on the website that give definitions on some of your technical descriptions of the market like trend acceleration, upward dynamic or key day reversal? “

My comment – Thank you for this question which comes up from time to time.

Here is a link to a detailed description of Type-1, Type-2 and Type-3 trending ending characteristics from Comment of the Day on November 16th 2004.

Here is link to an explanation of what we describe by short, medium and long-term as well as a definition of “dynamics”.

Here is a link to a section of the Subscriber's Forum, dated April and June 2004 where definitions of key reversals and dynamics are discussed.

Email of the day – on additions to the Chart Library

“Can you kindly add Lucky Cement (LUCK PA) to the Fullermoney library?”

My comment – Thank you for this suggestion which has been added to the Chart Library.

Email of the day – on additions to the Chart Library:

“Thanks for the continuing balanced and objective commentary, David and Eoin. Here in Australia I listen to the audio on the tram to the office, and it never fails to put in perspective the dramas of the overnight news, and to point to some corner of the global beauty contest where a new face may be not fully appreciated by the media!

"P.S. please could you add KDR Kidman Resources, ASX and ORS, Octagonal Resources to the charts?"

My comment – Thank you for your inspiring comments. I look forward to taking The Chart Seminar back on tour to Australia in the first half of next year. KDR and ORS have been added to the Chart Library.

The Chart Seminar 2012 - Following a well-received tour of the USA I am looking forward to our next venue in London which now only three weeks away. Anyone interested in securing a place at any of our events should contact Sarah Barnes at: sbarnes@fullermoney.com.

The remaining dates and venues for The Chart Seminar in 2012 are:

London - May 24th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

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