Shrimps and Barbies
"If Marco Polo were around today, he would no doubt comment on the remarkable resemblances between the dollar and the output of Kublai Khan's mint. Yet we have no assurance that the dollar's hegemony is any more permanent than the sometime dominance of Kublai Khan's paper money, Offa's penny, the bezant, the dinar, the ducat or the pound sterling. In the frantic inflationary fevers of the late 1970's and early 1980's, frightened and even sophisticated people turned to gold from dollars. In the inevitable moment when such turbulence reappears, that history might well repeat itself". Peter L. Bernstein from his fantastic work - The Power of Gold: The History of an Obsession.
Mr. Bernstein hits the nail on the head with his comments. Is the dollar headed the way of EVERY fiat currency in the history of mankind. Well, the form line suggests so and we all know that history tends to repeat itself. Except we don't have any inflation so there's no chance. Yeah right. We've only had this particular fiat for the last 33 years, so who knows. Keynes said gold is a barbarous relic; well it appears the barbarous relic still has some life in the old legs. Sure it's just shuffling along after climbing off its 20 year death bed, but those old legs are gaining strength and the shuffle could well turn into a skip, then a jog and when it breaks into a sprint, look out. Whoosh. The inflationary Fed policies should ensure it, it's then just a case of when. Next month, next year or in 5 or 10 years, I don't know, but something's gonna give, one way or the other.
The gold markets had a nice run up with a softer dollar throughout the US session as many would have seen. Did you notice that although gold closed near its high, some $8 (or nearly 2%) off its intraday low, Silver closed down some 9 cents (1.5% from its intrude high) and only just above the low for the day? Maybe there was some gold/silver ratio plays being unwound, but one big seller came out with over 10 million ounces and just creamed the bids at 6.40 and it was goodnight nurse. Maybe just a stale long although it seemed like someone was bailing out in a hurry. At present, 65 ounces of silver gets you an ounce of gold. It was 75 a couple of weeks ago. I could argue for a lot lower than 65.
Reuters reports that India has been a very aggressive purchaser of physical on this pullback. Imports are up 2 to 3 times the volume from last week, based on price alone. Encouraging news for the bulls and seriously bad news for those wanting lower gold. Platinum still solid above $850. Base metals all still hanging in there and it would surprise if we weren't higher in the next few sessions. Asia today was stuck in a very tight range in the metals. London went after gold, even with the dollar dropping again. Same with silver.
Same as yesterday basically. Resistance on the topside is strong here at $412-13 and would expect the previous $418 support to be the next resistance should a breakthrough occur. The downside should have solid support again at $406-7 from the physical players and although I really want to see a test of $400, it's looking less and less likely from my perch. Unless of course some Central Bank clown does something unexpected.
Germany said something about wanting to sell 650 tons of gold over the next five years. Deer Spiegel had an article on the weekend that they weren't gonna sell. Sounds like there is a little bit of confusion in the Black Forest. Best they get their scripts sorted. Austria came out and said they aren't selling anymore. Rumors are that France will sell too, as well as Italy. Fair enough for all of them and good luck to them. Sounds like it's lotsa gold but China or Japan could buy it all with a few months trade surpluses. They have gazillions of dollars stashed away and any CB gold sales could be a big fat bonus for them. They would be able to get a fair chunk of dollars away from US paper assets, quietly and without any market disruption. Just specking on my part but if I had a stack of dollars, going backwards fast, I'd be exploring other options.
The HUI was on fire from the giddy-up, finally settling some 9 points higher or about + 4%. Fair enough too, as some have been pole-axed the past few sessions. Every one of the 15 stocks was up on the day. I'm not a great fan of the HUI because of the presence of Freeport(FCX:NYSE). It is 10% of the index and it's more a copper play. Sure, they produce a stack of gold but they aren't a gold company. With silver trading in a very dodgy manner, why were some silver equities bid up by 5-10% yesterday? Hmmmm, seems like someone is keen to get 'em in! Expect more of the same as this is a very small market as far as capitalization is concerned, so just a little capital inflow to the sector can be explosive. To futher my opinion, I don't care for the AMEX gold index(XAU) either. I won't get into hedging here yet, but nearly 40% of this particular index is made up of producers who forward sell their gold. Not for me sorry. A goldmine is a call option on gold that never matures. By forward selling the gold that is yet to come from the ground, the blue sky is gone. Hedged companies have no value to someone expecting to benefit from higher prices. Watched the short positions growing over the past few months in the gold equities, especially in a couple of the mid-tiers. Someone is gonna be right, and soon.
Watched the State of the Union address. You're kidding. My mum said if I can't say anything nice, keep your mouth shut. Okay mum, you win.
The CRB index or in other words the "shopping basket of the world", is at all time highs. But there's no inflation. Softs leading the way.
Today we should see some wild old FX moves with the Euro already putting on a nice show. Expect we test 127.25 and 125.75 and maybe a few times, both ways.
I expect silver back at 6.40 in short time but maybe not today. Let's see if the big seller keeps on keeping on. Early action suggests he's not done yet. Many have said that the increase in spec buying is at record levels versus the short commercial position and so it could break down. Who cares, for every long there is a short. If there is a record long in the market, there must also be an equal short position. Someone's gonna be right and it's gonna be a great spectator sport for those not directly involved.
Gold feels like it is trying to get shoved lower in the paper markets but the forces of the physical buyers are stuffing the plans. Paper, rock, scissors.... whatever, nuthin' beats gold!
Will drop a note before COMEX close.
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