Takes from the Kangaroo Court
George Bernard Shaw in The Intelligent Woman's Guide to Capitalism and Socialism, 1928.
Sorry I couldn't get anything out yesterday. See a silver chart as to why. Occasionally, education will have to take a back seat to the market for a brief period. Yesterday was one such day. My apologies.
Gold again solid around the $410 level give or take a buck or two although the Euro was busting 127.50 at that point in time, at about 3am New York time. There has been a disconnect of sorts with the USD, and gold is lagging. Silver had a wild ride with an initial smashing back to 6.15ish before a serious reversal that took it back up to $6.40 an ounce during the session, fast! The "Bin Laden captured" rumor mill played havoc as well. Current price is 6.33 and looking like it has more upside to go this evening although the little puppy is very skittish. Not for the faint hearted.
Early this morning in the States, Palladium was trading at near 12 month highs around $260 an ounce. It was $450 in Jan 2002, and $1100 in Jan 2001. This metal could go berserk. Platinum at $860 makes me smile as it wouldn't surprise me for gold to trade higher than Platinum as a matter of course in the coming decade. Platinum is not money, gold is.
Copper, Lead and Ally are still pushing their peaks although Nickel is 20% off its highs but still trades about 50% higher than it had last October 1st. Maybe this is just a breather for Nickel. Crude oil at $35 and Nat Gas at a close of $6 does not bode well for inflation or the US economy.
The 412-13 resistance in gold I have talked of these past few days appears under threat. We may well be able to push through to the $418 level where there should again be another round of sellers. Support has and will be still around $406-8 and second support level kicks in just above $401. Silver again has resistance 6.40-45 level and support at 6.15-18. Silver's violent retracement was impressive especially as US Investment banks had smashed it early and were also prominent sellers at 6.40ish on the spike. Silver chart is explosive.
Anglogold (AU:NYSE) CEO , Bobby Godsell, speaking at the Davos shindig on Bloomies TV, was bullish on gold and talked highly of their prospects. They hedge. Other significant hedgers are Barrick Corp(ABX.NYSE) , Placer Dome (PDG.NYSE), Newcrest Mining (NCM :ASX) amongst others . Barrick has about 16million ounces forward sold. Gold has risen $20 since their strangely abrupt turnaround on their hedge policy. The world's biggest exponent and advocate for hedging announced "No More Hedging" as gold breached $400 a few weeks back. Whilst they have great reserves, the hedge book mark to market (or close out cost) must be very worrying. The breakeven on their hedge book is about $310. Gold at $410 has a negative mark to market which would be worrisome to their bankers. Credit lines get chewed up because their banks are in effect funding that mark to market position. Hedging is great in a bear market but in a bull market things can get pretty nasty pretty quickly for the hedgers.
Compare say Newmont(NEM:NYSE) (Unhedged) stock price performance with Barrick (Hedged) over the past 5 years. It sticks out like the proverbial sore thumb.
When I look at a gold company, there are only 3 real issues that I focus on. The rest is all noise.
1) Operational risk: i.e the mine collapses, grades don't measure up, extraction circuit failure, type of ore, etc.
2) Commodity price risk: hedger or not, margin/cost of production, currency exposure with costs, etc
3) Management risk: mining engineers and geologists don't automatically make good CEO's and many a nice mining company has been screwed by poor management.
Obviously things such as sovereign risk, market sentiment and perception of a company also need be taken into account, but the bottom line is Reserves and Resources. An unhedged goldmine is a call option on the price of gold, which has no maturity. Hence the higher-cost producers with large resources at higher levels also draw my attention.
There are reports of the Indian Central Bank attempting to curb the strength of the Rupee through intervention. Sound familiar? This could dampen gold a touch as they are the world's largest consumer and Rupee strength makes gold cheaper for them. When gold made its first aggressive move higher from $320 to $390 early last year, Indian physical buying stalled at $350. Conversely, they are still hoovering it up on dips here with gold above $400. (a Hoover is a brand of vacuum cleaner down here.)
Silver again is on the warpath. Concerted bank selling yesterday capped it at 6.40 but it appears it's only a matter of time for a breakout up to 6.80 and beyond. I would be surprised to see silver trade below $6 before it hits $7. Demand, demand, demand is the name of the game. It has outstripped supply for the last 15 or so years and this has created the explosive situation that silver now finds itself. Tick, tick, tick ...one can almost hear it and the shorts must be seriously concerned. The paper silver sellers cannot beat physical demand. Where did that one billion ounce stockpile that the US Government had accumulated leading up to 1971 go? Gone, used up over the last 30 years. I contend that this will come back to haunt them.
I note that consumer debt in the US has recently hit $2 trillion according to the Fed's own numbers. It was less than 1 trillion in 1995. This has gotta be a problem, but apparently not according to the economists of the world. Maybe I'm just old fashioned.
It looks like we are gonna be in for some fireworks today with the currencies all advancing against the Dollar. Fridays are always interesting, especially the last hour, after London is in the Pub. It is the only time each week that the paper players get a free shot at the downside because the London PM fix is done and there are no more physical markets open. Be careful on Fridays.
Happy Chinese New Year and a good weekend to all. We have a national holiday here in Oz on Monday. Australia Day. We'll blow the froth off a few cold ones with some mates down at the beach, but will still be in for the Comex session.
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