Fireworks are literally metals blowing up in the sky.
Metallic powders are commonly used to color fireworks; the proportion of metals and chemicals determines the color of the firework being made. How does it work?
The color of light is essentially determined by its wavelength. The flash of light you see from a firework occurs when the ingredients are heated to extremely high temperatures — by blowin’ ‘em up real good!
| Metal or Element | Color or Effect |
| Strontium or Lithium | Red |
| Titanium or Magnesium | Silver |
| Copper | Blue |
| Barium Salt | Green |
| Sodium | Yellow |
| Calcium | Orange |
| Barium Oxide | White |
| Iron | Gold |
| Lithium with Copper | Purple |
| Antimony | Glittery Effect |
| Aluminum | Loud Bang! |
The higher the temperature, the shorter the wavelength of the light and the nearer it is toward the blue end of the color spectrum.
That means blue fireworks are very hard to produce because they only occur at very high temperatures.
And since copper is used, you can also imagine how much more expensive it’s become to make blue fireworks.
That doesn’t mean other kinds of fireworks – using titanium, iron, or
lithium – are cheap.
Reason: Even taking the recent correction into account, virtually all metals prices have been on a tear.
And I think they’re headed even higher. Leading the way up …
Gold: Riding High on
The See-Saw of Pain
Gold is in the lead right now. It’s outperforming silver. It’s the most liquid and largest of the metal markets. And most important, it’s directly linked to the sinking dollar in what I call “The See-Saw of Pain.”
Let me explain: Since gold is priced in dollars, as the value of the dollar goes down, the price of gold usually goes up.
Last year, it seemed like that relationship was no longer valid … gold rose 18% and the dollar rose 14% against a basket of foreign currencies.
But that was the exception to the rule. Rising U.S. interest rates gave the dollar a boost. And geopolitical worries sent many investors into both gold and the dollar for safety.
Now, I see plenty of signs that the “See-Saw of Pain” is at work again:
First, the dollar looks sick. It was sinking nonstop in 2004. It barely managed to get back on its feet in 2005. And now, in 2006, it’s suffering a relapse. I can tell because on the weekly chart it shattered its 2005 uptrend. And now, even after a feeble attempt to restore that trend, it’s sinking again.
Second, at last week’s meeting, Fed Chairman Ben Bernanke had the opportunity to raise interest rates by 50 basis points. He even seemed to encourage rumors that he would do so.
But, in the end, the Fed raised its benchmark rate by only a quarter point, saying, “Inflation expectations remain contained.”
The dollar slipped like an elephant on rollerblades.
Silver and gold investors threw back their heads, laughed, and charged up the hill. “Yee-hah!”
Third, with the Fed apparently softening on interest rates, international investors are going to focus less on interest rate hikes and more on the other fundamentals of the U.S. dollar. The picture is downright awful:
- The government is paying its bills by printing more money.
- The U.S. needs to attract $2.2 billion per day in foreign funds to keep the value of the dollar stable — if that flow of funds slacks off just a little bit, then the value of the U.S. dollar is going down!
- The trade deficit is running at an annual rate of $810 billion. That’s also about 6.7% of GDP, and anything over 5% is considered unsustainable.
This is one elephant that’s going to be awfully tough to turn around!
Fourth, gold’s weekly chart looks very positive.
Gold jumped $28 last week. Not only was that a 4.8% climb, but it decisively ended its recent downtrend.
What’s more, gold has successfully tested an uptrend that started back in January.
As Martin told you on Monday, in just one day last week, gold made its biggest gains since the 9/11 attacks. That’s the first time the metal has closed over the psychologically important $600 level since June 12.
Fifth, big jewelry houses, who were temporarily scared out of the market due to the sharp correction last month, are now coming back in.
Last week’s large move higher should convince them that they risk missing the boat if they don’t start buying.
A Few Ways to Play
Gold’s Next Leg Up
Sure, investing in precious metals stocks can be profitable, and even a lot of fun. But unless you do a lot of research, you can get burned by dud bottle rockets.
If you want to catch the next phase of gold’s bull market (and you want to go it alone) seek the safety of a good mutual fund.
The advantage: Mutual funds can do research that you can’t. Among my favorites:
American Century Global Gold Fund (BGEIX): This no-load fund has a total expense ratio of just 0.67% (less than half the category average). Its portfolio is stuffed with gold companies, but many of them produce silver as well. It’s up 61% in the last year, beating the performance of the Philadelphia Gold and Silver Index, which is up 54% over the same time frame.
U.S. Global Investors World Precious Minerals (UNWPX) is another no-load fund. It has a total expense ratio of 1.48% and holds companies that produce not only gold, but also platinum and silver. It’s up 90% in the past year.
Talk about fireworks!
Yours for trading profits,
Sean Brodrick
For the latest on what’s happening with precious metals and energy, check out my blog at http://www.redhotresources.blogspot.com.
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About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.
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