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Gold $422 Silver $6.57 Tuesday 18th January, 10pm Sydney


G'day. How typical was the Jets performance on Saturday? Was there any doubt that they would choke at the last moment? Some people get paid a million bucks a year, just to kick a football straight. One should never miss a dead straight, 40-yard kick. Ever. But to go and miss two of them in 10 minutes to win a monster playoff game is just so very Jet-esque! Thank goodness they lost at this stage because, even though we all know that the disappointment is coming for any Jets fans once January 1 rolls past, it still feels worse when they get closer to the big one. Oh well, maybe next year.

Everyone seems to be copping a fair share of inflationary pressures, except of course, the USA. Whatever. The Poms just copped 1.6% for the quarter. That's over 6% annualized versus a 1 year Gilt at 4.3% or so. Hmmm...Negative Real Rates and they aren't much fun for investors but great for debtors. I think we can see where the U.S. will steer their boat, seeing as they are the biggest debtor in the world. Rates must rise, bigtime, eventually.

It has been a relatively quiet start to the week with gold holding its head above the $420 level and defying the many calls for a sub-$400 gold price. You know my feelings on that happening for any time long. The daily indicators appear to be settling down a little and this $418-21 level appears well supported. The 200DMA coming in around $411 should provide further support should it be required. I don't think it will, but what would I know... I still think we should be $440 at present! Just opinion as usual.

The dollar movements of late have been fun to watch. I have little to say except that anyone who thinks the dollar should be stronger than it currently is, must be looking at very different deficit figures amongst many, many other reasons not to own the dollar. That GWB is running around saying the words "Bankruptcy" and "Social Security" in the same sentence, not just once mind you, is not confidence inspiring. That a whole bunch of Fed-Heads also hit the lecterns to talk up the dollar, as well as Mr. Snow, suggests that there's more hot air to this rally than many would like to admit. I dunno, but the timing of this and the swarms of "officials" all out spewing the same "strong dollar crap" prompts me to suggest that this could be a very short-lived dollar spurt. Fundamentally the dollar must weaken but the market will do as it pleases until it changes its mind. Should the dollar be in the "Too Hard" basket? Possibly. Physical gold is the safest way to bet against the dollar, in my opinion. But it is also the safest bet, in the whole investment world. Finished.

The silver market is at a very delicate juncture. I understand that the physical market has made quite a stand at around $6.40-60 with India stepping up to the plate as well as trade buyers. I think buying here at $6.55 is very low risk. Risk appears to me to be a dollar downside (maximum, in my opinion) and many dollars upside. Very fair odds I reckon, when taking into account the multi-decade supply-demand imbalances and lack of strategic stockpiles. It all depends on the timeframe one is looking at.

The contrarian trade in silver is currently to be long, if anyone had any doubts. A quick ring around of a few colleagues and others has 90% responses looking for lower, some looking for a big figure lower. Fair enough and some reasons are valid, even to me as the biggest bull in the freaking world. But, and in no way criticizing anyone's view or methods, most have little knowledge of the physical market or precious metal history and I believe that this will surely dictate price terms in the coming years. Paper trading in the short term may do anything, though, and I will look like a goose again. I console myself by rubbing my 3 kilo silver bar that sits on the desk here to remind me that this is a different market to the financials and currencies. Someone has gotta turn up with the silver, eventually! I do not believe we will see physical silver under $6.00-5.85 but may be wrong, have been before and will be again. Either way, the market surely can't smash the associated equities much harder, can they?

The AMEX Gold Bugs Index (HUI) can't buy a friend these days. Even Newmont Mining (NEM) is back near $40 again. I note that Golden Star Resources (GSS) is trading at levels not seen since September 2003. The gold price at the time was $375 per ounce. I suspect that since the "corporate debacle" late last year with all those mergers and takeovers that people are just giving them a wide berth. Valuations don't appear to make sense, although with so many new shares on the shelf registry, this could well alienate another investor group. Pan American Silver (PAAS) has held up best of the silver guys, as one would expect. There are many, many more companies who have had similar stock price experiences and I am confident that the HUI will again become one of the main games in town and that this price action will be seen as an aberration, providing one of the biggest "gimmes" seen in equities in a long time. So what to look for?

I watch production and reserve/resource base in the first instance. Have they changed for the worse? What is the debt/cash position? What is the free cashflow generated? What recoveries are they getting? Infrastructure? Sovereign Risk? Hedging? Management? Exploration potential/upside? Plenty to consider.

These are just the thoughts of a hemorrhaging metals equity investor that has not seen one reason to alter my view of the macro world at all. Time will tell but you should be in no doubt as to which way I see the resolution. I am personally 100% invested and may have found a buyer for my mare. The "tyre kicking" begins tomorrow and if all goes well, settle in a week. (I bet the sale falls through and the metals equities do nothing! Just my luck these days! ... or metals will rally 20% before settlement!)

The oil markets are doing some wild old things and expect more to come. I can't believe it went down to $40 last month and reckon there's every chance we see a new high before Memorial Day. Paper games in oil don't work anywhere near as effectively as in metals.

The mare sale is the biggest thing on my plate at present. The timing is extraordinarily good although I suspect disappointment is in the offing. At least her 1/2 sister by Carnegie won a good race last weekend in Melbourne so that will help, as will the fact that her ½ sister yearling by Traditionally was written up in the top 20 lots to be sold (of 1100 horses) at the New Zealand National Yearling Auctions next week at Karaka. Maybe someone will take this incredible bargain that I am throwing out there because, at any other period in my life, I wouldn't sell her for anything.

I found a nice 18ct gold pocket watch at a pawn shop today. Made in 1834 and in working order. I didn't buy it as I need to talk with a mate of my Dad's who is a world renowned clock and watchmaker, to see what the deal is. Dad's mate found a watch about 10 years ago while scrounging around in a junk/pawn shop here in Sydney. He knew what it was and paid $750 for the "gold content", as the watch didn't work. He went and made some new movement pieces so that the watch would work perfectly. He sold it for over $25,000 a few months later. Since then, I have always had a little bo-peep in the window of any of those sorts of places. Ya just never know what you'll find.

Looks like we may get a few dollars higher in gold today and even 10 or 15c in silver, from my best guess. I would like to see silver regain the $6.80 handle very soon and gold back through $432 before getting too excited though. I'd be really happy if someone bought some gold and silver shares though!

Lisa grew up in Pennsylvania. The Pittsburgh Steelers and Philadelphia Eagles are her teams. Have you any idea how bad that Jets loss was for me? I will never hear the end of it if they meet in the Superbowl. Go Falcons!

Enjoy the rest of the day.

Laurie
position in gold, silver, nem, gss, paas

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