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The Golden Slipper


Thx Laurie!


Gold $443 Silver $7.47 Monday 14th March, 11pm Sydney

G'day. No, I didn't need a week off after the big Sydney Mardi Gras as some have alluded to in emails, although I may just have to stay away from the 'Ville more regularly if a couple weeks' absence results in $25-30 gain for gold each time. A short mental health break was fully required. What would've occurred if I had not been back until April?

There wasn't one piece of economic data released that even remotely swayed my opinion of the macro world and in fact confirms just how nasty things are getting. The data and its associated commentary (spin?) confirm that we have a serious inflation problem. Debt doesn't matter according to many. How much longer will the world support this unsustainable consumption / debt monster that is the U.S. economy?

There are rumblings of discontent about the U.S. dollar emanating from some of the most powerful influencers of that currency's strength. China, Japan, Korea, India, Russia amongst many others have all talked reserve diversification away from dollars. The great "vendor finance scheme" that is the U.S. economy may well be in its final stages of global acceptability. These few nations that I mentioned are massive dollar holders and any sentiment change, let alone actual concerted action could be disastrous for the dollar. Greenspan or no Greenspan. Retirement can't come fast enough for the greatest currency printer in all of history. He must be looking forward to watching the results of his "work" - from a very safe distance.

I note that many commentators / economists from "financial institutions" are still only ever talking about gold moves in terms of dollar strength or lack thereof. There is an abysmal understanding of the physical gold market. Demand is out of control. Refineries across the globe are backed up to such an extent that not even one of Granny's milk and glycerin enema's could unplug this in a hurry. I noted today that my "sovereign" man down here in Sydney has doubled his premiums to spot price. Taking delivery of physical gold at less than $460 is nigh on impossible at present.

I expect that many paper players will have profited from this nice move given the obvious bottoming that occurred around the $412 level combined with the massive buying of physical metal by many of the usual suspects. But, further gains may be harder to realize, in the short term, as profit taking in the paper precious metals markets continue to use their massive leverage to drive the price around. The paper market is still in control of the physical market up here, but for how much longer? The physical market is in control below $420. I stated sometime late last year that we wouldn't see sub US$400 again this decade. I'm still happy with that call although the paper players might be able to drive it down near there on a freak confluence of events. But in the current environment given all publicly available information, I'm happy to give 400 green bits of paper for an ounce of gold - any day.

It should be noted that the lows for each down leg these past few years have been higher by $20-30 bucks each time. Consider the following chart. That is one fine looking chart in anyone's language. My best idea going forward is that we struggle here for a while around the $440-50 level before making a new high around $475 and slip back to around $435-40 again to keep the pattern going. Timing is everything and mine generally sucks so take it for what it's worth.

Fundamentally, gold should be somewhere north of U.S.$800 an ounce at present, based off historical and fundamental commodity price performance comparisons. People are all yabbering about the CRB Index that has broken out to all-time highs even with precious metals and grains relatively docile in comparison to base metals, oil and other raw materials. Real money will catch up soon and I expect it will be a spectacular break higher. I just dunno when. Just keep in mind what ex-Fed-Head Volcker said about the inflationary disaster of the 70's and early '80's - "The mistake we made was not controlling the gold price". Someone has been listening to him and there has been some "invisible hands" playing in the gold paper markets. I contend that, similar to the London Gold Pool debacle of the late 60's, the physical market will win out and we are in for much, much higher gold prices in coming years.

It's the Ides of March here in a couple of hours so I better go out on a limb for this year.... I reckon we will see $522 this year, before Melbourne Cup day (The first Tuesday in November) - not intended as advice.

Others may still be wondering when / if the gold equities are gonna find some serious upside momentum? I'm certainly surprised at the performance, or lack thereof, of some of the metal shares. The Amex Gold Bugs Index (HUI) is still some 20% off its highs of last January and there are a few notable culprits that stand out as the significant contributors to this dodgy looking performance. Golden Star Resources (GSS) and Durban Deeps (DROOY) are right up there. Even old Newmont (NEM) hasn't cracked $50 with gold up here, although their Indonesian legal issues may have had some effect.

I am very bullish on all three, each for different reasons, with each satisfying a different risk appetite. I own them personally and professionally, fyi. Sentiment change is required which I feel isn't far off, especially GSS. Unless there has been a significant reserve downgrade or major sovereign risk that I don't know about, I think they're a gimme. Yes, I bought some more at $2.80 a week or so back. There are many, many good companies out there at present that afford fantastic opportunities depending on your risk appetite, time horizon and financial goal. There are also plenty of shonky, dodgy outfits in the exploration sector as well. Do your own digging and ask yourself the right questions. Not advice in any way and just sharing what's going on inside this old skull.

I note BHP-Billiton (BHP) has upped the ante for WMC Resources (WMC). It looks a fair deal and keeps the asset in somewhat Aussie hands. More later.

I haven't had too close a look at silver in the past couple of weeks, but off the top of my head I reckon we'll struggle at $7.65-80 again. I expect we'll see $7.22, again, on the downside BUT expect we see a double digit silver price also before Melbourne Cup day. If Rhodium can triple in a year then silver can double in a month! Fundamentals for silver are still so bullish that another 10 years mine supply hitting the market in the next 2 years won't alter the balance, IMO. Physical silver is in such short supply versus industrial and monetary demand that it isn't funny.

Minyan Mike Shedlock sent me through the following silver article of some note - Hmmm. Mexico. A bigtime silver producer, but not so much at these current U.S. dollar prices. This will be rather disconcerting to the U.S. monetary bigwigs if it comes to pass. This is seriously flipping the bird at fiat currencies. Thanks Mike.

Anyway, I better get some sleep because this week looks likely to be a wild one in metals. Furthermore, this weekend sees the richest 2 year old horserace in the world, run here in Sydney - The Golden Slipper. I don't have an interest in that race but I have a huge interest in The BMW on the same day. Vouvray, the ¾ sister to the mare I'm trying to sell ran 2nd to Grand Armee in the big Sydney race 2 weeks ago. Vouvray is up against him again and also another champion racemare, Makybe Diva, who has won the last 2 Melbourne Cups and last weekend's Australian Cup. It will be a great mile and a half race and I'm fingers crossed that little Vouvray can outdo these two multi-million dollar winning racehorses. Geez I love these big racedays when you've got something on the line!

Enjoy the rest of your day....

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position in gold, silver, gss, nem, drooy

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