Metals With McGuirk: You're On My List
...a few of the major points that people might consider when analyzing gold and silver.
G'day. A very Happy New Year to everyone, and indeed, it has been for us long suffering precious metal bulls. But, I wouldn't be getting too cocky just yet. It has been 3 weeks since I wrote anything and lots of water has flowed under the bridge in that time, and not just in the financial markets. Playing Santa with the kids was great fun and New Years Day was something else too. I have never been in 45 Centigrade in Sydney before but we did that day. Yes, that is 114 degrees on your scale, but more on that a little later.
Every bloody newspaper or financial commentary continues to harp on the "gold at 25 year high" or some such crap. Gold at $540 in 1981 is about $1000 in today's freshly printed bucks. Get a grip, people. This race has a long, long way to go and the metals are still trailing every asset class (Property, Equities etc) when measured over the past 25 years or so. But I suggest the metals are just getting warmed up while the others are getting the wobbles. This is a long race and I know which pony I wanna have my hard earned on.
I note that Professor Weldon is doing some fine work on the whole global macro picture and I would recommend to everyone that they get hold of his stuff as regularly as possible. His recent work on the M3 situation illustrates some of the story of why precious metals are the current flavour du jour. The money supply numbers since 2001 are just plain outright mind-boggling. Anyone believing that inflation is "anchored" as Fed Governor Guyn said yesterday must have rocks in their head. Inflation is out of control, but hey, I've been riding that sorry pony for 3 or 4 years now. That the Fed has now decided that it won't publish M3 is rather timely given the exponential shape of the chart. I said a few months ago that this was something that deserved closer inspection and scrutiny. Increasing money supply with no corresponding increase in production IS inflation. Outsourcing jobs to China and India is not an acceptable answer!
That the metals are ONLY where they are is the surprise to me. Sir Alan has had the printing presses running hard these past five years (actually since 1987 but let's not get distracted), and he only has a couple of weeks to go before he hands the keys to the presses over to Helicopter Ben.
Once HB gets the keys I think he is gonna surprise a lot of people by tightening a couple of times to give the impression that he is not the "hyperinflationist" that some are openly saying. That will just be all smoke and mirrors, IMO, and we shall just have to wait and see how this all plays out. A 5 or 6 % Fed Funds Rate is no big deal in the scheme of things.... except for the maxed out consumer who is swimming in debt and has little or no room to maneuver. I see the Dow at 11k has everyone all gooey- how could it not be with all the bloody dollars in circulation??!!
But enough of all that economics crap, we're s'posed to be talking precious metals. So let's review a list a few of the major points that people might consider when analyzing gold and silver. Listed in no particular order but each is worthy of due consideration in my opinion
1) Bernanke and his Printing Press - Inflation cannot be ignored further.
2) Sir Alan's retirement- who gives a toss? Sentiment.
3) Gold and Silver supply/demand deficit- worsening by the day.
4) Gold Leasing- By who, how much and when is it due to be repaid?
5) Central Bank Buying - There will be NO selling of any substance!!
6) Physical metal purchases in the West - How long will the sheeple remain in the dark??
7) The property bubble - will it pop this year?
8) Chinese and Indian growth - a myth or not?
9) Russia and the "Stans" - is Putin serious about gold?
10) New Goldmine Development and production - yeah right!
11) Israel and Iran - scary stuff with explosive potential for gold.
12) Re: (4) - It cannot be without massive price dislocation.
13) Reserve Diversification - there ain't enough gold to go around!
14) The U.S. Government Silver stockpile- Where did it go and why so cheap?
15) Mr. + Mrs. Singh and Mr. + Mrs. Wong - how much gold will they really buy?
16) Hedgers versus non-hedgers - will Barrick (ABX)/Placer Dome (PDG) etc., ever walk their talk?
17) Mainstream Media - will they ever understand the metals market?
18) Mexico and the Silver Peso - A huge development
19) Australia, England, Canada, Holland etc- Reverse their reserve sales of prior years??
20) The Jets 2006 - playoff bound? Not without a new QB.
21) Global gold company consolidation- smaller rather than bigger??
22) Exploration versus Predation? - reserve replenishment for majors.
23) The Oil price - Too Low?
24) How long will banks carry the negative Mark to market of hedge books??
25) Gold at 25 year highs - not inflation adjusted!
26) The U.S. Dollar - the inexorable descent to oblivion.
27) Oil/Gold ratio - Too High?
28) Physical metal versus paper metal - paper will be powerful but for how long??
29) Gold/Dow ratio - Too High?
30) Gold reserves in the ground are valuable-no matter how or if it's extracted!
31) The London Gold Pool - history repeating itself.
32) Flight to quality - paper currencies versus "real stuff". What stuff???
33) Gold/Silver ratio - Too High?
34) Water and Food - how valuable?
35) Gold/silver production cost
36) Iraq - what a mess and how costly, funded by whom? See (1)
37) Underfunded pension plans coupled with imminent baby boomer retirement- ouch
38) U.S. Interest rates - see (1)
39) Toronto win the Stanley Cup at 15-1? - I would like some of that action.
40) Japan - is the 15-year recession really over?
41) The Bird Flu pandemic- fact or fiction and what does it mean for the world economy??
42) Silver as an industrial metal - nanotechnology, superconductivity and medicine.
43) Technical analysis - who cares when there are no chart points to look at?
44) HUI 400??? - there are so many reasons why yes.
45) The 200 DMA - Do moving averages matter in Gold anymore??
46) Minyanville 2006 - the true source of honest analysis and opinion- that is the only certainty!
And so, after not looking at a screen or chart for 3 or so weeks I'm gonna give my best read on where I see the game at this stage. Silver is very well supported at $8.75-80 ish, but with a tendency to look for a trade back to $8.40-45 and an absolute base at 7.78. I hope we get the cleanout to that sub $8 again coz that will be time to absolutely "Load Up" with the real metal. Paper silver may head south for a few more days from there but I wouldn't be counting on it for long. Physical silver is very, very tight. The silver market will be more and more volatile with daily ranges of 30 or 40 cents likely on many sessions as paper traders looking for return in any market, who don't know a bar of silver from a bar of soap, get caught up in the game. Silver will not be a game for the faint hearted and I expect we will see a two-digit price by March.
This typing stuff is getting tiring - I must be outta practice. Lisa, get me a beer please luv. Actually, today I got a call from an old mate who I used to do some stuff for over the last 12 or so years. He asked us out to lunch with his Mrs. to catch up and all that. We headed out to Cockle Bay for a great afternoon of reminiscing and great food washed down with a cool ale or two. This "old bloke" (he'll kill me for that) used to be the CFO of BHP Billiton (BHP) America's and knows his stuff better than most. He's known what I've thought for a long time about the metals and he's finally coming around to my way of thinking. Smart fella!! But I digress....
Gold, on the other hand looks like it might be getting a bit tired running at near on $100 over the 200 day moving average. I am sure that there are plenty of paper traders looking for the same and expecting a 70 dollar pullback or so. They will be wrong, IMO. The physical market is very comfy buying gold at $520 ish, and so the downside is limited, IMO. India and Japan are buying physical metal even above $530 and the Middle East through Turkey and Dubai are very active.
Before lunch, I spoke to the lovely Janie, my long time mate and counterparty at The Australian Bullion Company here in Sydney. We were yabbering on about the physical market strength. She has seen unprecedented interest in the physical metal this last month or so. Her phone rang non stop throughout the Christmas break even while she was on holidays and had the "shop closed." Call divert is a bitch sometimes! Interestingly, she said that there were many people making "enquiries" and wanting to know all about the stuff, but that they are looking for a pullback in price before buying the physical. We discussed this at length and it appears there is a queue of money lined up at $480 or so. I wonder what happens when we don't get that pullback and at what price do these people "jump in" and decide that "it ain't gonna get back there" and effectively stop themselves out. I guess it will be close to $580.
The HUI is at 300 - yippee. Need some more time to look at that puppy but I note that Newmont (NEM) is finally making a run at $60 and should be $70, IMO, but hey, a winner is a winner these days!!! Will take a day or two to get a handle on the individual stocks, sorry.
Christmas was great down here and having the kids for a few weeks was very special. We all piled in on my parents place for Christmas Day and it was only 100 degrees in the U.S. scale. Santa Claus bought the kids (and Lisa and I) a tent and sleeping bags and they had a great "camp out" with their grandparents on Boxing Day night. Lisa and I held an "orphans dinner" that night at our apartment for a few friends of ours whose families live out of town. A great win-win situation for all.
We've had some very good times and good news in the last few weeks and also some that is not so good. It is always like that, isn't it - the ebb and flow of life.The good news is that my children are moving back to Sydney from Brisbane and are recommencing school at their old school in two weeks. The bad stuff, well, it's just bad and we'll leave it at that for the time being.
I can't say that it's good to be back from holidays, but hey, who would with weather like we're getting down here in Sydney. We just have to dodge the sharks!
Enjoy the day and let 2006 be Golden for us all....
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