Forget diamonds--metals are a cow, er, girl's best friend!
Gold $421 Silver $7.75 Oil $36ish 30 March, 3am Sydney
Gold copped a few uppercuts yesterday from the big US investment bank that abruptly turned tail (during late Tokyo trade and into London today) and emerged as a buyer in some size. Maybe yesterday was a fishing expedition for them, hunting out some stoppies on the downside whilst the market was very quiet. Seems to me to be some sort of defense of the $422 level at present. Oh well that's no big deal, the market will always go where it wants to... in the end.
Indian premiums in the major centers suggest they aren't too keen to be buying gold at these sorts of levels. With the wedding season upon them, Indian fathers of the bride are probably feeling a bit crook in the guts. This provides me with some confidence that there will be some good physical support on any sort of significant retracement in the price of gold.
The chatter making the rounds is Newmont (NEM:NYSE) takeover of Barrick (ABX:NYSE). This has been pooh-poohed by Barrick and the typical "no comment" from Newmont. Sure, it sounds like a mega deal that will create a gold behemoth, but there's a few snags in my humble opinion. Barrick has a monster hedge book and it's underwater in the billions. Sure they reckon they generated over $2 Billion in additional cash from hedging in the past, but that could look pretty hollow if the mark to market losses start outstripping the "benefits" of the hedge book.
My best guess is that it kicks in at $460-$475 gold. I know Pierre Lassonde's mob did a great job eating the Normandy/Yandall hedge book (and sticking the knife into a few bullion banks along the way), but this is way more than a mouthful. I don't think a 50 cents in the dollar payout to Barricks' bullion bank counterparties will fly. The numbers are too big and too concentrated (a disproportionate amount of hedge contracts are with only a couple of counterparties ) But, imagine what would happen if NEM did have a crack at them, got 'em and then made good on their "NO HEDGE" policy for the new company? Buying back say, 10 million ounces, isn't gonna send the price back to $350, believe me! I think there may be easier targets for NEM but am keeping a close eye on developments. The reserve base out of a NEM/ABX deal would be mind boggling and, if totally unhedged, would be a "gotta have" in any portfolio, in my opinion. Then again, maybe ABX should be just tossed in the "too hard basket".
I note that the Central Fund of Canada announced it is issuing more stock and raising cash to buy a truckload more gold and silver. Not paper stuff, but real bullion! Dunno where they are gonna get the silver from. Silver cracked it for a pulse today. Up some 2% as I write and we could be building for our first serious shot at busting the $8 level. Now that would be exciting and maybe a few people will take some notice of what's going on with the "poor man's gold". It is still my contention that there will be a significant delivery problem at some stage at the next few futures maturities.
No one can ramp up silver production in any meaningful volume, so when/if it blows up, it will be up for some time. The long term supply-demand deficit won't help either. Mexico will be watching closely as they have the pure silver mines but they're still a few years and a few dollars away from production. Remember that unlike gold, which basically comes out of the ground and is then stored or worn, silver gets used in industry and it is irretrievable in most cases, certainly not commercially at these prices. The US Govt silver stockpile was 1.1 billion ounces in 1971. It is now ZERO. Nada. Zilch. The big duck egg. 5000 years of production sucked up and gone in a few decades.... Hmmm.
If I'm wrong on silver, my little Jacqui will walk around with her hands dragging in the dirt like an orangutan from the weight of gold and silver jewelry ..... and if I'm right I'll need another shotgun to keep the boys away - blond hair, blue eyes and precious metals are a pretty attractive combo ..... apparently.
Gold seems to be finding a solid support around 415-416 and resistance up near 422-4... reckon we may well trade the range for a while. A break above /$426 sees the 432 level and then it's off to the races if we can kick up through there. Downside risk is negligible from $412, in my opinion. Silver's 50 DMA at about 6.60 and the 200 DMA is miles away down near 5.55....
I note the HUI is up a couple percent with GSS, CDE, NEM and GFI leading the way. But it is still some 10% below the early January highs ... I think that is a telling little tidbit.
Enjoy the rest of your day ...
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