Wow. We did talk about copping one on the chin trading the metals, but I didn't expect a right hook 4 hours later! Crikey, what's the deal?? I'm sidelined for a couple of days and just look what happens!
So, dollar strength is the cause of the latest gold/silver/platinum sell off. Sorry to sound a bit cynical but the USD Index is only 2-3% off its low. Not exactly a rip-roaring rally. Gold held the 403 level pretty nicely till a little panic sent it to 397ish. India would be licking their chops and salivating at the thought of another bargain being thrown their way from someone. I suspect there was a lot of programmed trading doing the damage across the metals complex. The movements in gold generally tend to be bigger and for longer than we expect. Maybe there's still some more selling to come. I don't know, all I know is that the debt isn't getting smaller, gold isn't coming out of the ground any faster, and paper currency is devaluing...everywhere. Keep gold in perspective, it is still higher than it was in October last year, even with two sell offs of more than $13 in a day in the past fortnight.
I note that the HUI was only off a couple of percent. A $15 sell off would normally have smashed these equities some 10% or more. Hedged or unhedged, it doesn't matter, they're all off. So much for the value of hedging, in a falling spot market. The biggest hedger and the biggest non-hedger are both off almost exactly the same since Jan 1st 2004. (About 18%). In a different market, there will be distinction in the two, and in the next stage, stock selection will become more important. At present it's of little consequence to most.
Central Bank sales are all the talk in Gold. It's my opinion that this is all grandstanding/manouvering. We have central banks across the globe attempting to devalue their currencies. Talking down gold and the dollar up is a short term victory but where does it lead to in the long run? Someone gets cheap gold and someone's country loses its primary financial asset due to what I would consider, financial risk management insanity, by those that should know their economic history.
But the tape doesn't lie. There is some risk of further short term violent downside as spooked funds liquidate yet the transfer to stronger hands will provide further strength in the future. The 200 day moving average is about $378 and I would be surprised if we had a crack at that level, but never say never. Previous support should now be seen as resistance levels so there is much work to be done to get through the $403-08 level. It has been 2 months since we were under $400 so it's no big deal (although I wouldn't want to be long on credit/margin. That can be painful and costly). We could be in for a few months of range trading. Last day of the month so anything could happen.
Silver from $6.53 to $6.10 in 3 hours is pretty good blood sport if you are a spectator. I note we didn't take out the intraday low of this past move ($6.06) and that we are now at $6.25 in Asia. Keeping in perspective, silver was $5.70 at Christmas. We are 10% higher now, even after what some commentators are suggesting was the "Nightmare on Wall St" for silver. I expect that we will see serious support for silver down here and down to $6. I hear there is a very large physical buyer accumulating for physical delivery - well, he will just be grinning and soaking it up. The March contract appears to me to be under some pressure from the physical market. Let's just wait and see what gives on that front.
Platinum and Palladium also got a little kick in the pants but a mere flesh wound to the perceived execution of Au and Ag. Don't believe all you read or hear. If we did, I would have slit my wrists today. Listening to the talking heads on the idiot box, it's all doom and gloom for gold. They can't tell me enough times how bad it is in gold. Silver does not get a mention. Contrary indicators? Maybe.
As usual things are picking up here in Asia and I reckon we could have some fun as we trek through the morning hours in New York.
Will try and get something more out later in the day.
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