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Metals With McGuirk: Silver is Wild


Coeur d'Alene Mines (CDE) has had a good start to the year.


G'day. The expected gold price retracement to 540, as mentioned last week, has been fast and furious and may well continue down to the 522 level at first crack. It will take a lot of physical metal hitting the markets to keep the price subdued for any lengthy period of time. That the dollar was relatively stable suggests this was a simple paper metal play. Funds, being what and how they are, amplify the moves.

Momentum followers will not benefit during sell-offs like they used to, IMO. I doubt we will be sub 550 by the end of the week. Furthermore, the paper markets are susceptible to slamming once London closes and the physical market is done for the week. I expect the London PM fix today to be close to 548-opinion only. Nothing in the macro/fundamental picture has changed to the detriment of precious metals and again I expect the physical market to load up on this dip. There have been some very aggressive paper sellers and most notable was the steep decline, an hour after the London PM Fix at 563 earlier in the week. This reeks of intervention of some kind.

Gold equities are back sub 300 on the HUI – nice if one is looking to build some positions although Newmont Mining (NEM) has been a standout dog. Happy to pick some up around the 50 level but we could well test the 44 area ,but gold would need be close to 500 and, quite frankly, I don't envisage such a move although best we be prepared. The consolidation in the sector continues and I expect someone to gobble up Golden Star Resources (GSS), Nevsun Resources (NSU) and Bema Gold (BGO) amongst others in coming months. The race for reserve replacement is on. Goldcorp (GG) has been a standout as far as reporting earnings go- how could it not be??!!

I note that India has been able to maintain gold imports above the 558 level, judging by the local premiums and we must continue to monitor the London Fixes for signals. Watch the rupee as well. The sell-offs after the fixes are quite extraordinarily brazen and suggest a seller looking to drive prices lower looking for stops and hopefully a capitulation of many old longs. I suspect that history will see this paper selling in the same light as the London Gold Pool of the late 60s.

China is liberalizing its gold market making it easier for citizens to purchase physical metals and there is much conjecture about what they are up to. They are on the right track, I believe. I note German gold sales got another airing a week or so ago but I fully discount any such sale affecting the physical gold market. China will just take it all and it will never see the light of day, certainly not into the physical market, anyway. The ECB have announced recent sales under the Washington Accord that fall well short of their "quota" per week. Maybe some Euro CBs are starting to get a little edgy about their gold and their leased gold???

I have been reading some good stuff on the Kondratieff Cycle and the oncoming "winter" as some people see it. Hmmm, nasty stuff.

This is not a nice development and Sovereign risk is a huge factor when looking at investing in mining companies.

We have seen similar with KRY in Venezuela recently. Hmmmm.

Silver is wild and will continue to be so. I expect we could even pull back to the 9.45 area but reckon we see a teenager this year, for sure- opinion only. The silver equities have had a nice run and putting a dollar profit in the tin might be worthwhile, although the tax implications are always a deterrent to me. Coeur d'Alene Mines (CDE) has had a good start to the year. Minyan Neal has obviously been keeping a tab on what I had to say previously about them.

You did say that it would fly once silver got going. And even though I am long CDE, I disagreed. However, hats off to you mate, you were right.
Now, that being said, CDE is no Apex Silver Mines (SIL) or Western Silver Corp (WTZ). (I have been and still am long WTZ since 6; even though I peeled some off on Friday.)

Hope all is well with your Pops.

Many know I do not like this CDE mob but I have always contended that they would "fly" when silver moved just because CDE is synonymous with silver production and there are so many "funds" who know no better. Management is below average, at best, IMO. I prefer Pan American Silver (PAAS) and Silver Standard Resources (SSRI) as core holdings. Opinion only.

The market is at a crossroad I think. We are stuck in a band of 535-565 for a while and expect we sit here for a month to consolidate- all things being equal. Just working off the over bought technicals. The physical market doesn't give a toss and will continue to buy on all dips, IMO.

Timing is everything and the timing of ones entry will be critical to returns generated in the sector. Be out by a day and it may cost you 5 or 10% on a given equity. I am still very wary of any hedgers in precious metals as their mark to markets are getting worse by the day. Credit managers in bullion banks must be sucking in the big ones whenever gold pops $20 or so. The Barrick Gold (ABX)/ Placer Dome (PDG) hedge book must look like the proverbial dog's breakfast. I had heard around the traps that they have done some restructures of their hedge book but I have seen nothing from the company. The NPV will be massively negative, no matter what they do, so it is just a case of swapping deckchairs, IMO.

I am unsurprised by the weakness even with all fundamentals pointing north- markets do that especially paper markets. Do not be misled- the physical market is buying- by the truckload.

Local News

My folks are as well as can be expected and thanks for the kind wishes. The 23rd of March is when we find out a lot more about Dad's chances of recovery etc. And so we go fishing, he sleeps a lot and we all wait and see what gives.

The Mardi Gras was on just this past Saturday night and Greg, Lisa and I let our hair down (figuratively speaking) after what has been a pretty torrid month or so. We had 30 people at our apartment beforehand, getting ready for the big bash and I got my mate Rick to give me a haircut. I said to do whatever you want (remembering that I had a meeting with a major international bank on Tuesday) and I put on my airplane sleeping mask so I couldn't see what he was doing. Lots of buzzing and cutting and stuff and I did get a little concerned when he said "well, there's no going back now" as I felt huge clumps of hair get cut off my noggin. An hour later and it was done. It was a fantastic cut and created much comment and I got more than a few stares when I walked into the pub across the road to grab a box of beer before we started.

Lisa and Greg flagged with the team and me and 10 others belted drums walking/riding along with them. The Japanese Drums (1 meter diameter and a meter deep) were too big to carry so they rode in the back of a brilliant black Ford Ute. It was all very "tribal." They reckon 500,000 people watched the parade from the streets. It was truly a wild old night that finished lunchtime Monday for most of us. We won't go into what we were wearing but, suffice to say, I got a heap of "requests" for all sorts of favours- mainly to have photo's taken with me after we finished (I must've looked "photogenic"). I was interviewed by MTV during the parade. My appearance in a Flourescent Mohawk, war paint, feathers, etc., and our amazing costumes would've had Mum guessing who it was. To say that I was caught unawares by a TV camera being shoved in my face and to get interviewed by some chick about the whole shebang, is an understatement! It was a great night for those involved.

There is some talk of training me on the flags for the 30 year anniversary parade in 2008, which will be freakin' huge. I'm in as long as I can do it properly. It's hard work and takes some good coordination but I can walk and chew gum at the same time so I guess I can do it. Lisa got it pretty well sorted out with 6 weeks practice and did a fine job (although not quite as "professional" as some of the guys and girls who have been flagging for 10 or more years!!) Hmmmm.

This weekend we play the Bob Harvey Memorial cricket match in honour of a mate from school who died tragically in 1983. It is a big reunion and a great family day- with a little bit of sub-standard sport thrown in for entertainment. "The older we get the better we were" is an appropriate description for the day.

Enjoy the day


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position in gold, silver, GG, NSU, NEM, PAAS, SSRI

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