Precious Metals Prices Should Be Higher Than They Are
We learn much from the past yet so few take much note of it.
There's been plenty going on affecting the precious metals markets recently and none of it is unexpected or surprising. See my previous columns from September 14 and September 27. It took six weeks rather than "a few weeks or so." The physical market made its presence felt again with India leading the charge on the dip to sub 580. Much physical metal changed hands. I picked up a bag full of sovereigns of all sorts for the kids while the getting was good. Buying silver sub-11 is a no brainer, IMO. The post-election metal price behavior is somewhat puzzling.
Precious metals prices should be higher than they are--significantly higher--in my opinion. (Yeah, I know I'm always bullish, no matter where the price is.) True enough, I'm guilty on that count... then again, I'm yet to hear a convincing argument from anybody that can offer a stronger case for owning ANY other financial asset. My opinion is simply a result of my own experience in the precious metals markets, wide and varied reading, analysis of both sides of the trade and most importantly for Precious Metals, the history books. (Sure I take close note of some technical analysis but for me the bottom line comes down to the physical market and its behavior.) In the movie V for Vendetta, a very powerful moment is capped with the words "No one escapes their past." Hmmm.
We learn much from the past, yet so few take much note of it. Precious metals are bloody cheap historically (more so a couple of weeks back when the smart people bought gold at $580 and silver at sub-$11.00). Why? Compare the demise of the London Gold Pool circa 1966 and the "FEAR" of the 70's sending gold from $35 to $852 (+2500% in 15 years), versus the FACT of 2006 with a gold price of $625.
2006 FACT is significantly more Precious Metal bullish than the "FEAR" of a few decades ago by almost any relevant measure, in my opinion. Look at stuff like the oil price, US manufacturing versus consumption economy, excessive liquidity and asset price inflation, debt and deficits, a global fiat currency system with no alternative, paper metal versus physical metal ownership, M3, the Middle East, the real estate bubble (its depth and subsequent risk and consequences), interest rates, peak oil, central bank reserve diversification, peak gold, Alan Greenspan, peak silver, water, derivatives and leasing of precious metals, US Silver stockpile depletion, global confidence in the US administration, counter-party risk, Russia, China, India, Iraq, Iran, equity market versus metal price anomalies, the "Japanese experience" of 1990-2007, war, drought, leverage, mob mentality, Ben Bernanke, globalization; there's heaps more to look at but you get the drift.
Just in real terms, gold is currently about 30% of the 1980 high when inflation is adjusted. Check out your world today and all its unserviceable debt versus that of the "worst" period of our parent's lives and the case for gold ownership is compelling. History says so. More so for silver, but you know that already.
Mindful that I haven't been watching the ticks and clicks as close as usual, the downside is 580ish due to the physical market, again. I reckon we'll probably travel back close to 595 before a significant shot higher. Why? I dunno, it just feels like it wants to test sub 600 again for reasons best known to others with bigger pockets, greater leverage and less grey matter. That said, I wouldn't be short here, the fundamentals don't support it, IMO. There's maybe $50 to win but everything to lose and I don't like them odds. Put some hedges on, sure, take some profit, but outright short? Not even with your money!
The equities have been fun and games and we see more "consolidation" in the sector with a few corporate plays. Bigger is not necessarily better when gold mining. I wonder how long it's gonna take for someone to snap up Golden Star (GSS), especially after its recent improved performance and somewhat rosier outlook. How else is a major gonna replace its reserves being depleted by current mining, 'coz it certainly hasn't been drilling and looking for itself this past decade. Suck up the explorers. There are plenty down in Australia that haven't caught any bids and that is changing by the day. Look to buy call options on an HUI on pullback to 300ish. I like Sept/Oct '07 maturities, but do your own digging.
Summer has started down here and The Lisa and I took the kids to Manly Beach on Saturday. Great weather and the kids loved the surf. My little 4-year-old bloke startled me when I pulled out some sunscreen to protect his nose and he proudly pointed out "there's Hoofy the Bull and Boo the Bear" on the container. I asked him what/how he knew them and he said that "They live in New York and buy gold at your work."
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