Up the Stairs
Have a nice move Laurie...
Gold $426 Silver $6.90 Tuesday 29 March, 11.45 pm Sydney
G'day. I hope everyone had a good Easter break and didn't go overboard on the chocky eggs and such. It has been a tough few weeks for anyone bullish / long precious metals, particularly for some of the associated equities. I have been running around like a blue-arsed fly this past fortnight working mainly "Aussie time" and have kinda missed out on the day to day action, although those wonderfully disorienting phone calls at 3 or 4 am kept me in the loop. Therefore I have been able to sit back and observe the lastest downside move "from a distance".
There's lots going on here on the professional and personal front and it will continue for another month or so from what I can see. Lisa and I are currently dealing with Immigration and her residency application amongst a few other little issues. Her visa expires in 5 weeks. What a freaking nightmare, and that's another long but amusing story for another time, maybe once she has residency! My apologies to anyone who may have missed my daily drivel but things will be sorted out very soon down here and normal transmission will be resumed. I haven't missed the Australian Derby here in Sydney once in 22 years, but I didn't get there on Saturday. That's how life is at present.
Fundamentally and historically, the latest move makes bugger all sense to me, but hey, that's what markets do, especially in this period of massive liquidity flooding the world, totally due to the suicidal monetary policies of the Federal Reserve. Fast money, looking for quick gains especially from the hedge fund world, suggests that volatility will continue. Risk is not being priced or appreciated. Gold has a $20 downside and unlimited upside from where I see things. Who'd wanna be short at these levels with that sort of risk profile? There are many paper gold traders playing with futures contracts that have a physical delivery as settlement. OTC derivatives may well be cash settled, but Comex futures aren't. They can't see any instance where maybe, just maybe, they may actually be forced to deliver physical gold. It is a risk that is totally ignored.
For the thousandth time, I want everyone to focus on the strength of the physical market and not get too worried by the "paper gold" moves. They hurt for sure but on the other hand paper gold falls allow us to buy physical metal on the cheap. The dollar and its perceived value are the drivers at present with many focused on interest rate differentials. High interest rates combined with massive debt loads are not a good thing, ever.
Sure, the paper gold market will continue to be volatile, with my expectations that rallies will continue to be stopped up near $450 by a flood of paper gold, yet downward moves will be exaggerated due to capitulation by disaffected paper longs. Remember the old "up the stairs and down the elevator shaft" analogy we have talked about numerous times previously. Just keep in mind the massive and growing appetite for physical metal throughout Asia and the Middle East and how this market continues to provide significant support during price reversals like we have just witnessed. I'd be surprised to see gold below $412 anytime soon as India is comfortably importing gold at levels higher than what we currently trade at. The downside is very limited in my opinion although one must not discount the ability of the paper market to force its will upon us. The COT has shown a significant fall of over 40,000 contracts resulting in a $20 fall. Interesting that similar sized increase in Open Interest only saw a $5 rise, back when we were bumping into that massive resistance around $445. Someone doesn't want to make the same mistake that Volcker recently admitted - "not controlling the gold price".
Inflation is now a concern to the world's greatest currency printer, Sir Alan, yet the gold price behaves oppositely to every other inflationary period in history.
I understand the illogical conclusion that many have come to - that inflation will bring higher interest rates faster to the U.S. and therefore the USD appreciates and gold falls. And this is supposed to be good for the most over-leveraged and, in my opinion, overpriced economy in the world? Show me any period in history where high interest rates and high inflation has been great for an economy, good for an unbacked piece of paper money and bad for gold. Remembering, also that the last 30 odd years is the ONLY period in history where the whole world has been on a fiat currency system. Yeah, I know, I sound like a broken record but I can only reiterate my reasoning for maintaining such a bullish outlook for something that "everyone" thinks is just a piece of useless, but pretty metal. This useless, pretty metal is real money, the only kind that I want to own especially in the current macro environment.
Anyways, that doesn't help us make money at this stage, although fundamental analysis must be at the center of anything I'm doing. Technically, I haven't had much of a look at the two metals I'm most interested in but I guess they look a little sickly. I'll be heading across the Harbour Bridge tomorrow (I have also moved apartments, remember) to suss out the models we use at Endeavour, and expect that the daily won't be looking that flash but will have more on that in the next 24hrs. Again, not having been so close to the action the past week, I suspect gold will head back towards $435 with initial resistance around $432. Support should be seen around $422 and again at $416-7 if required. The oil / gold ratio is about 8. 17 seems a long way away but that is the historic valuation. Hmm.
Silver copped a few uppercuts as well and is back under $7. Whatever. I expect the $6.70-80 level to be well supported and that physical will be aggressively acquired at these sub$7 levels. The silver / gold ratio is back over 60 again.
Gold shares are being treated like lepers. The Amex Gold Bugs Index (HUI) back under 200 is disturbing. Sure, Golden Star (GSS) and DRDGOLD Ltd (DROOY) have been significant contributors to this less than satisfactory performance but it appears that the whole sector has been given the cold shoulder. Some of the mid sized guys have been hit hard in the last few days and I see that the South Africans have copped a nasty 3 or 4% hit today on the JSE. I still see DROOY as a very cheap gold call option that we discussed a few weeks ago. The Rand will be the key and I can't see why it is below 8 against the dollar, let alone down here at 6.3ish. I expect that we will see a significant re-rating of many issues in coming months but it's no use standing around saying the market is wrong, no matter what I think. I keep focused on reserves, reserves and reserves and will continue to accumulate positions in given issues at appropriate junctures. I think we are at one now. The 180 level is still 10% away and I'm comfy with the bet I made last year. Photographic evidence will be provided should my "streak" be required.
I managed to watch a few of our big races down here on the idiot box. Vouvray ran 3rd behind Makybe Diva and Grand Armee, again, in the big one. These two are recognized as the best horses in Australia, so she's doing pretty well but a win would be helpful. Third prizemoney of $350,000 isn't bad for my mate Brent who owns her, but as I own her big sister, I need wins in the book! She races again this Saturday in our Queen Elizabeth Stakes and has to take on Grand Armee, again. Bugger it!
The richest race day in the world was held in Dubai on the weekend just past and an Aussie horse won one of the big races on turf worth U.S.$2 Million. Elvstroem is his name, winner of our Caulfield Cup and Victoria Derby amongst other top races and he is headed to England to contest a few of their big races in June-July. He will be joined by a few of our best sprinters, Fastnet Rock and Alinghi, as well as Makybe and GA in leading an assault on the world's richest races from Hong Kong to England and then to America. Someone's gonna make a lot of moolah by backing our donkeys, I reckon!
Enjoy the day .... Watch the physical market!!!!!
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