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Metals With McGurk


Markets Ebb and Flow, and This is Just an Ebb.

Gold $463 Silver $7.53

G'day. Well, gold copped a hiding yesterday in ALL currencies, bar none. A fall of approximately 2% was seen across the board while silver was clubbed as well and finished 3% lower. It is now nearly 5% off in 24 hrs. I contend that, in both metals, this is all paper metal changing hands as we had the London AM Gold fix set around the $468 level and silver above $7.70. Futures (paper) selling was relentless, especially in the final 15 minutes of the session. At the $462 level, I had that nasty feeling that we were gonna see one of those $12-13 down-days on some "get me out" trades. It may still eventuate as there are plenty of "latecomers" to the gold party who will be "in the red" below $460. We still have a week and a bit before reveal time for the hedgies month end and any further weakness may see some hands "fold."

One cannot complain too loudly that the metals have been creamed in all currencies in the last few sessions, as we have had a good run up on the same basis. Markets ebb and flow, and this is just an ebb. Racehorses, after a good hard campaign of racing, need a rest to regenerate and recover. Markets are no different. I mentioned a week or two ago that I wanted to see a month or two of prices above $450 so as to gather strength to forge ahead again. I would be very surprised (and a little concerned) should the shiny yellow stuff trade sub $450, especially in the current inflationary environment that the Fed says doesn't exist!

Note how many Fed Govs are out running around telling us the obvious inflation we are all seeing/wearing is not an issue. Sorry? Families are being hurt by higher food and energy bills that just don't count according to Officialdom. These increases are eating up what's left of their income after their mortgage repayments, massive personal debt repayments and medical expenses.

Indian physical demand has been restrained due to the weakness in the Rupee. Rupee gold is higher at present than when gold was $472 in late September, so keep an eye on the Rupee as much as the gold price in Dollars. Maybe we will see some slackening in demand in India because of this, but Professor Sanjay highlighted the Y/Y increase in Indian demand yesterday in the Buzz. Wedding season is upon us and I guess there are a few nervous Fathers of Brides out there hoping for a rally in the Rupee in coming days, without a corresponding increase in dollar gold!

Silver is back testing the $7.50 level and looks as sick as a dog technically. Given the state of the silver physical market, I would be surprised to see this weakness last for very long, but I can't discount it heading into the 7.35 level for a brief stint. My expectations for a burst through $8 in the paper silver market by close of play on Friday, as suggested on Monday, looks fanciful today. Fair enough, I will just buy some physical silver for my personal stash, while given the opportunity! Physical silver at 22c over futures suits me fine with futures at $7.50ish!!
Make of this conversation what you like and some food for thought.

Gold stocks across the board were hammered down to the HUI 220 level by Comex close but climbed off the canvas late and halved the loss for the day, closing above the 224 level, which was nice to see. The shares have led the metal in recent months/years although I doubt that the late rally is a presage to a nice gold price rally today, but ya never know. I guess it was just some position squaring before heading home. I did put my hand up yesterday before Comex closed, and spent half of my remaining personal bullets on a junior producer that I think has wonderful upside and bugger all downside at the price. I would like to think we have tested the low on the HUI but I think we're a 70-30 chance of heading down below 210 in the near term. Relative strength of shares versus metal price will be a good tell for near term direction, IMO. Not advice.

South Africa seems to always have some sort of "new law" or proposal to contend with that impacts, threatens or destabilizes the industry. Production from SA is at multi-decade lows, which, as the world's largest gold producer is not a bearish scenario for gold. Couple that with rapidly increasing demand from the worlds largest consumer, India, and the laws of supply/demand suggest higher prices unless the widening differential is filled by more "Official sales."

Speaking of Official sales, how do you reckon the Central Banks of Canada, Australia, Holland, England, Portugal, Switzerland etc., etc., etc. are feeling about their gold sales of the past decade? Not one ounce would be "in the money" and all they have to show for it is a few paper IOU's yielding 5% or so (1% if it's Yen paper). I'm sure a credible financial journalist will do some investigation of said sales and work out how much these sales have "cost" the citizens of each country.

I proffer that the Aussie's are in the hole for 247 tonnes at about $100 an ounce or about AUD $800 million down- and that does not count the fact that we now have only about 20 tonnes left in our whole reserves. But we have Yen, Dollar and Euro IOU's at bugger all yields instead!

I hate to say "I told you so" to those who asked about Aussie gold exposures, so I won't, but I wasn't far off the mark. I have previously said I wouldn't own Newcrest down here, due to its hedge book and the Telfer mine. Back in the late '90's when I was heavily involved in the gold market, Telfer closed after a prolonged period of very high cost gold production. I couldn't/can't see how the company could get it back working economically without way higher gold prices. It went from a live-in minesite/town to a fly-in /fly out operation to try and cut costs. It pared back everything yet nothing worked and, if memory serves me correctly, when it shut the mine down, the last gold poured there was at something like AUD $730 an ounce. Sure it was an open cut operation in those days but it appears there are still many technical issues to be addressed. Maybe it will be economical one day but I think significantly higher Aussie gold prices are required. I have always had doubts about Telfer as an economic orebody at sub-AUD $750. But that's just my uneducated opinion--do your own digging. Cadia-Ridgeway is a beaut deposit but Telfer's problems trump Cadia's riches, IMO. It is a pity as there are so few Aussie producers of any note left to invest in.

So the World Series baseball combatants have been decided. I like it when two teams play that haven't won in such a long time (the Astros never). I think I want to go for the White Sox. Why? I dunno, but hasn't Clemens and Pettitte won it a million times before?

Have a great day,


No positions in stocks mentioned.

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