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Metals With McGuirk: This is Gonna be a Difficult Bull to Ride

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Holding physical metal is just prudent risk management.

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G'day. Lisa and I were walking around town this morning looking for stuff for a big costume party this weekend - that has a theme of "Celebrities Behaving Badly" - when my phone rang. My old mate Roscoe was on the line and he just said "Congratulations." I didn't know what he was on about. What had I done and with whom? He said, "Gold's a pair of Levi's - 501." That gave me a chuckle. Ross is my son Billy's godfather and I am godfather to his daughter Victoria. We worked together from 1988-2002. I insisted he buy physical gold when she was born nearly 5 years ago and he got long at $267. He reminded me that I said to him at the time "It'll be $500 by the time she's 5," and we bet a nice bottle of red on it. I had forgotten the wager but don't-cha just love it when a plan comes together? The next doubling won't take nearly as long, IMO.

Well, there's been plenty happening in the metals markets the past few days but notable was the rejection of the downside thrust in Comex(IAU) yesterday and the willingness of Asia to immediately take Gold through the "psychological" $500 level today. Japan has been aggressive buyers in the last few days from all accounts and India has slowed its buying but still is taking in all dips. I think we head lower for a few sessions, but that's just my best uninformed guess.

I don't quite understand what is so special about this 500 level, being that it's just a dumb old round number, but hey, whatever rocks your boat. Many suggest that this is an 18-year high blah, blah, blah but we know that we are not comparing apples with apples. Today's $500 is roughly the same as $300ish back in 1987. Monetary inflation is a bugger, isn't it?

There's a long way to go till we take out the "all time high" that many are now suggesting is in the cards. For the gazillionth time, $870ish in 1980 equates to over $2000 today, if one adjusts for inflation. (And that's just the CPI, not the real inflation rate which we all know to be understated, especially in the last decade.) In 1971 an ounce was $35, and today it is $500. It's the same dollars and the same ounce of gold. How much has the dollar devalued against gold? And clowns at the Fed keep harping about price stability blah, blah, blah. How bloody obvious do you want it????

Maybe we do see a continuation of the advance up closer to $520 but there will be some technicians who will be loading up on the short side when we are close to 15% above the 200DMA. Whatever, I sent a one-liner to Toddo yesterday suggesting we would see $503 on a blip and then back to $478 - let's see what gives. I watched today's news on a number of local and international channels and was amazed at how many new gold "experts" have bobbed up and how many bandwagon jumpers have been drawn to the old yellow dog. It might just be time for a nice, nasty pullback to shake some of these hangers-on off.

Plenty of people are talking about the gold rally as just being a puppy and that there's plenty of growing before it turns into a big dog. I don't disagree with any of the sentiment although we should be mindful that in the last "big one," gold had numerous declines of 20 to 30%, with a couple greater than 50%. Don't get too cocky cuz this is gonna be a difficult bull to ride. Sure, trade paper metal and associated equities for leverage and speculation, but have a core holding of physical metal! Holding physical metal is just prudent risk management.

Open Interest numbers as Minyan Suhas suggests below could easily see more longs pile in, especially the "mug punters" and day traders. The General Public is blissfully unaware of what gold is telling us, and there is still a lot of water to flow under the bridge before they run with whatever capital they have left at the gold market. Property is still their "game" and plenty are starting to lose to "the house." The "Mania" is still far off, IMO. I'm not calling for an intermediate top, just a cooling period that may take us back to the mid $470s before we head onward and upward- but we don't necessarily need a pullback, it's just that having played this market every day for over a decade, when sentiment is like it currently is, something usually gives.

Laurie,

Everyone who is calling for intermediate term top in gold seems to have forgotten the open interest figures. The speculative net long position was just 140k last report. This is nowhere near the 288k we had on previous tops.

So, in my humble opinion, we have further up side before all these non-Believers check their premises at the least.

Regards,

Minyan Suhas

The Denver Gold Conference must be buzzing and I see a few old mates are getting some print, as always occurs when we get a bit of wind in our sails. These people are not "Johnny-come-lately's" unlike most others appearing all over recently. Most still just don't get it about gold (and even fewer regarding silver). Beware of paper gold!!

It is good to note that a few people are now well aware that gold has risen in ALL currencies and that suggests a flight to quality not seen in 30 years. The London Gold Pool is where you will find the historic precedent of what is coming, IMO. This article, from Australia's own independent financial markets commentator The Privateer, spells out a good whack of it. Note any similarities with what's going on in the financial and geo-political world today??? Remember that I have cautioned many times that if everyone who reckons they own gold due to a future claim on physical metal, be it repayment of leased gold or just outright IOUs, that there just isn't enough to go around?? Hmmm.

Anyone thinking that gold is not a "political metal" might be interested in the following documents released in 1998, regarding gold and the dollar way back in 1968. Gold is the antithesis of paper money and scares the crap out of politicians who wish to control "money" or control the appearance of strength in paper money. It has all failed before and this one can be no different.

I guess we will hear the Bundesbank, IMF and France jawboning about gold sales again, but I think the Russians, Koreans, South Africans, Arabs, Argentineans and other South American countries who are openly looking to buy, will trump them. Oh, and let's not forget Mr. and Mrs. Singh in India who are always on the bid!

The "sophisticated" central banks of the world who have recently ditched their constituent's gold reserves at somewhere south of US$325 per ounce, like Australia, England, Holland, Canada, Portugal blah, blah, blah must be feeling pretty "crook in the guts" at present. And rightly so!! I wonder when they are gonna admit they've screwed up and rush to get our national gold reserves back?? My guess is that hardly anyone in those countries even took note that it happened, let alone holds anyone accountable for such a misguided and disastrous swap of infinite wealth for paper IOUs!!! My kids deserve significantly better management of our national "treasure" than what the clowns at the Reserve Bank of Australia have done this past decade. Seriously!

I have no idea where gold is headed. We know that gold is now some $70 above the 200DMA, and at 15% above, it has had a tendency to revert. I would be surprised if we don't get a pullback into the $478 level but, quite frankly, it could continue to run for another hundred dollars in quick time. I'm long physical in my own possession, and so I couldn't give a toss what happens.

The gold price has made a new high for this move by about 10%, yet it is remarkable that silver has not even taken out last year's high of $8.52. I don't get it, especially when silver is in such a significantly more dire position than gold if one looks at available physical metal. Silver looks like it is building a head of steam and I think it will pop like a big old zit but probably not till the New Year. I believe we are gonna see silver trade in double figures and it's gonna be quick when it zooms - ETF or no ETF. It's gone kinda quiet after all that ETF talk, hasn't it???

I still like the sell gold/buy silver at 66-68 and will add more IF, but I wouldn't be holding my breath waiting. It may not happen. Silver was officially quoted at 15-1 versus gold back in the "old ." I bet we see it back there again sometime in the next decade and am quite happy to wait it out. Better still, own both metals (physically) and then ya won't give a toss which goes higher first or fastest.

Platinum cracked $1000 an ounce for the first time in god knows how long and Copper nudged through $2 a pound for the first time ever. Silver did bugger all and that strikes me as insane given what we know about it.

The metals shares are just not keeping pace and I guess it is an indication that nobody really believes the strength or longevity of this metals bull market. I contend we haven't seen anything yet and that dips are there to be bought aggressively. Mid-tiers are where I reckon the biggest bang for the buck is. The Newmont (NEM)-Placer (PDG)-Barrick (ABX) deal is just a sideshow at present. I think the hedge-books of Barrick and Placer should be enough for anyone to steer clear of both. I doubt that Mr. Lassonde would wanna get stuck with someone else's hedge-book especially given his rather bullish interview in Melbourne's The Age newspaper, that Toddo included in yesterday's buzz. I think he must've been reading the last few years of our Minyanville scribbling as he covered a few topics that readers will be familiar with. Unless NEM can come up with the wedge to close out the hedges on day one, why would he take the risk? I think NEM would get pounded if they actually do bid and win. Lassonde alludes to many of the negative issues himself. He should go find other non-hedgers to buy and be done with it.

I saw somewhere that a couple of analysts from major banks have also become somewhat concerned about the deeply out of the money hedges that are in some companies' balance sheets. Hedged producers are not for me. I think metals are gonna rise, so why have a price locked in today? I want 100% upside exposure, not 75 or 50% - I'm a greedy bastard and I want full value for underlying commodity price movements. But that's just me. Others can and do have other opinions. That's what makes a market.

Local News

Our little filly, Maitrise, had her third career race start after her encouraging run a few weeks back when she placed third over the mile distance. She raced a similar grade over the same distance and ran 2ND this time. She started at 3-1 favourite and did a great job, just getting run down after racing up on the pace and in "blinkers" for the first time. She is really starting to look like a racehorse and her trainer is very happy with her. She was in the front four of the 14 horse field the whole way, and the other 3 with her ran in the last 3 places, as they really kept the speed on throughout. She gives every indication that she will get further as she gets stronger and the $1 million Australian Oaks in April over 12 furlongs seems a likely target for her. She will have one more start this preparation, over 9 furlongs on Friday at Royal Randwick, and then be spelled and brought back for the big races in the autumn.

The big costume party on the weekend is gonna be one for the ages. 200 people on a 300 acre "summer camp" type property about an hour out of Sydney centre, starting on Friday at 7pm and finishing Sunday at 4pm. Car keys are to be handed to the property manager on arrival and you get them back at their discretion on Sunday, so there will be no one getting caught DUI (driving under influence). I'm going as Hugh Heffner. Lisa is yet to decide who she is gonna defame but I have heard some of the options and it's gonna be a wild old weekend!


Enjoy the day.

Posit in gold/silver/nem

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