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Metals With McGuirk: Silver Remains a Better Bet


Be long or be wrong...

JPMorgan (JPM) is calling for $810 gold. That is a big jump from their weak $525 of 3 months ago. What has changed for them? UBS have upgraded a stack of gold equities in recent days. They cite increased margin and profitability – Of Course! The investment/banking/brokering world is starting to wake up to the yellow metal. It is a pity that most banks, etc. axed their precious metals people in the late 90's and have little clue as to what has been and is happening. They have also forgotten about gold's little brother, silver, who remains a better bet, IMO. Both will rise but given all publicly available information, silver should outperform.

Putin says Russia will not allow ore to be shipped and refined offshore. Are they worried they won't get their refined metal back? You bet. How worried are the dumb central banks who no longer have their gold or who "lent it out" for years at next to no return? There are plenty on the public record that should and eventually will be called to account. It is a different world now.

The HUI is up at 345 and I think I wrote something about HUI 400 when gold breaks $600. The shares haven't really caught a sniff of the bids that are to come, IMO. The market stripped $20 Billion off Google (GOOG) the other day in 10 minutes. That sort of money would buy the biggest gold producer in the world (and the upside - its 100 million ounces of reserves) for cash and change. I note that Minyan Santoli even gave gold a healthy mention in Barron's recently. The precious metals equity market is so small that a minor allocation shift in global funds under management (let's say 2 or 3%), will see phenomenal moves across the sector, IMO. Be long or be wrong (I love that term).

How many times have you heard this in the Ville over the past however long?? (Here, here, here, etc.)

Speaking of Google, I recall recently penning something about comparing gold and Google. Down 20% in price in minutes is just IMPOSSIBLE with PHYSICAL gold, given market dynamics. The physical market will not allow it. Even if, say, the IMF decided to ditch all its gold, the price would hardly move, IMO. Everyone looking to diversify out of dollars (that reserve diversification thing we have touched on many times) would just say "thanks fellas" and back up their trucks to take it away. Sure GOOG may come back to where it was and go higher, but unlike gold there will always be the risk of destruction in many different forms.

The yield curve in the U.S. is basically flat at 4.50% out to 10 years. I find this astounding when one looks at the U.S. debt to GDP numbers and look back in time when we had 18% interest rates here in Oz with a smaller percentage of debt. The answer is in the M3 numbers that will soon disappear from view. How long will people take this sort of return for the risk?? I wouldn't own a 10 year piece of paper yielding 4.5% even if the bloody Queen of England herself issued it, certainly not these days. Higher yields are gonna hurt and there is a lotta hurt to come for many overleveraged and more so for the financially irresponsible.

Many people are calling for a pullback but the worst I see is a $522 level (which is a fair way lower). But in the scheme of things it will be seen to be a mere flesh wound when we look back in a few years time. I can't see much below 540 in the next couple of weeks but who am I to say. Paper gold does funny stuff all the time. I've mentioned a few times that I reckon technicals are going to prove to be less effective than they are in other markets. But, managing the downside when everything looks rosy is what we are paid to do. I'm happy paying away a bit of profit so as to make sure it is not all given back - no matter how unlikely I think an event is. Professor Succo can tell you more about "outlier events" and pricing of low delta risk than I could ever hope to impart.

Silver runs into some tough sellers every now and again (more now than again), especially at critical psychological points. $10 is one of them. It is a foregone conclusion that we bust through it in the next couple of weeks but paper players can delay the day of reckoning for a little while longer. February deliveries will be critical to silver's performance in the near term.

I have a lunch tomorrow where I am getting most of "the old band back together." The old band being some colleagues from my old commodity derivative days and I am sure the recently released Credit Agricole report on gold will feature somewhere in discussions. I have heard much but I am yet to see it. If anyone gets a copy please send it through.

Enjoy the day

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Positions in gold, silver

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