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Golden Chat


Gold $428 Silver 7.12 Friday 1st April, 10pm Sydney

G'day. The gold market has been a little comatose the past week although it appears there may be a little life to it with the $432 level calling in the near term. $422 again looks like support from where I'm sitting at present. Silver looks likely to have another run up to the $7.45 level over the month of April, but then again that is nothing earth shattering in this inflationary environment. $7.45 today is the equivalent of sub $4 in 1980, (when silver hit $50) ...And people reckon silver is overdone and overbought at these "high" levels. Same with oil, although I note Goldies threw a $105 level out for digestion by all the dogs on the street. Hmmm.

Following the little socio-political discussion that we enjoyed the past couple of days we should tie that in with what we are really here for: financial market discussion. With the "perception" being less than optimal of the US Administration, could this affect the markets or capital allocation? Imagine being a fund manager in Hong Kong who wants to invest in a given sector. He has a choice of two companies to invest in. They are basically the same in most respects after he has done his financial analysis, but one is a US company and the other based in Europe or somewhere else. Would his investment decision and therefore capital allocation be effected? Could this affect currency, bond or equity markets if people start to allow this "perception" to influence other decisions? Just throwing it out there for thought.

I did get a lot of comment on the JFK airport incident and this one gave me a chuckle -"Your story bout the airport just makes me cringe.. and ashamed that my country has gotten so outta whack. Hey, you weren't pulled aside cause of your white-boy/dundee looks... You were pulled aside cause you're a goldbug!" - well, mate, they have things called x-ray machines if they were looking for gold! Furthermore, is it a customs/ immigration employment criteria that you have to have fingers as fat as coke bottles? Lisa got a chuckle out of it when I told her what happened and she said "some people pay extra for that sort of service". Thanks luv.

I was having a chat with a real good mate today who knows his stuff regarding Currencies and things. He also knows how to trade them and that's what he gets paid for. He reckons there's a big chance that we get a very serious rally in the dollar over the course of the next few months that could shock a lot of people. I asked "how serious?" and he said 115 on the YEN and sub 1.19 on the Euro. The Aussie, he suggests could easily see 72c again soon. I was waiting for the big "April Fool" call but he was deadly serious.

The conversation went sort of like this:

"And why would that be?" I asked.

"Well Squirter" he started... (Don't ask, it's a nickname I picked up a long time ago).

"Interest rates in the US are heading up, and that cycle isn't anywhere near a advanced as in Europe or Canada or Australia. They are nearer the top of the cycle whereas the US isn't. Interest rate differentials are narrowing. US assets are now rather "cheap" for foreigners due to currency moves. Look at the SP500 in Euro terms."

"Big long-term macro players and trend followers have crowded the "short dollar" space. If the Yen takes out 109 you have breached the weekly trend-line of the last 4 or so years. That may create an acceleration of dollar strength as these guys lessen their short dollar positions and may actually fully reverse their positions and end net long." He said as he continued pulling up charts with all sorts of coded notations with lines all over them reminding me of chicken scratchings in the dirt...

"The focus/justification on the dollar shifts depend on what the recent trend is doing. When it is rising it's because of interest rates and repatriation of dollars etc etc and when it's falling its all about deficits and debt. There's an argument to fit every story out there so we will see larger ranges and more violent swings. Remember the day a while back where the Euro went nuts higher on whatever economic data was released only to close the day significantly lower? The trend looks a little tired, " he suggested.

"See the Japanese Post announcement today where they're gonna chuck a gazillion dollars at international bonds and stuff. That's gonna help the buck, one would expect".

I thought for a minute that this could be very bad for gold and then said "I kind of find it implausible that the inevitable higher interest rates for the US could be kind to the dollar or a good thing for that consumer economy. Unless of course there are massive wage pressures and subsequent rises so as to offset the decline in purchasing power wrought on over-extended borrowers by those same high interest rates. The consumer is tapped out as far as increased credit lines are concerned and only home equity releases will be able to help - if property prices don't come down, or at least stay the same. I can't see it myself, but you know how I am more fundamentally predisposed than most".

"Yes" he said, "fundamentals are the basis but there is so much more to consider when looking at currencies".

I agreed. "Currencies are different from commodities because there is no underlying physical asset that must be delivered at some point....." and his eyes glazed over because we had covered that a million times before." But we can use some similar technical analysis until ......" as he was speaking a little light bulb appeared above my head.

I wondered aloud, "Maybe this is the scenario that delivers the result I have been looking for, for quite some time - gold, due to the massive physical market demand and inflationary concerns, actually marking time or slightly stronger in USD terms, whilst rising in all other currencies. I believe that we will see this market behaviour in the future, when, I dunno, but it WILL happen, I reckon".

"That is a very possible, in fact likely, scenario", he said.

And so off I went, feeling better about the fact that someone's opinion whom I respect greatly was so different to mine about the dollar, yet we ended up with the same sort of scenario unfolding albeit via a totally different process. My fundamentally impaired brain was working overtime and so we headed for a beer.

The silver market fundamentals are still pretty good. I note that silver warehouse stocks at NYMEX are at/near multi year lows of about 103million ounces, or less than 800 million bucks to clean out the whole inventory.

Yet there are (as at 22/3 COT report) 103,400 open futures contracts = 5000 x 103,400 = 517 million ounces of silver open position. By straight logical deduction one can see that if, for any reason, 20% of the longs decide to take physical delivery, the warehouse is cleaned out. Just what such a catalyst would be, I dunno, but the short side of the equation had better hope that someone doesn't do a "Buffett" 'coz that will cause a massive scramble for physical silver that would send the price nuts.

Gold shares caught a bid or three yesterday although there's a sheetload more required to grab back the market capitalization of many issues that have been cruelled by recently.

I was amazed at the buoyancy of the market for Yearling Thoroughbreds at the recently concluded Easter Sales here in Sydney. A new record price (A$2,500,000) for a yearling was paid and there were a half-dozen over $1 million. That's a bit steep for me, although I'd love to sell one for that sort of wedge! I know plenty of fast $20,000 horses but even more slow Million dollar ones! When a horse gets locked away in the barriers, they don't know who their parents are or what price they cost at the sale. They just run. We had a horse down here that cost only $800 who beat a star studded field of horses in a big Group one race, just a month or so ago.

Notably, they were all by the same stallion except for a notable few. Talk about a crowded trade. Redoubte's Choice is his name, a son of the all-conquering Danehill and a relative newcomer with only 2 crops of kids at racing age. His kids won every major 2 year old race in the country this season. Sheiks and Princes from the Middle East, agents from Ireland, Japan, Honkers and the USA all turned up to buy these locally bred animals. His fee last year was A$44,000 a shag and this year it is A$250,000! Now that's supply and demand at work, people. Royal Academy and Gallileo were the other stallions to throw a million dollar baby up. Hmmm. I guess I picked the wrong stallion to shag my mare!

The Broodmare sale is on next week and hopefully Vouvray can add a win in the Queen Elizabeth Stakes tomorrow to enhance the appeal of my mare, Jactris. The thing holding her back from an acceptable (to me) sale is that she is carrying a Desert Prince foal. He was world Champion racehorse in 1998 and his kids are winning good races all around the world, but apparently people are "cold on him" as his kids haven't hit the heights they were expecting from such a well bred and performed animal. Whatever! Sentiment affects all markets. I need the cash as I lost the dueling accountants battle with the tax department today. Forget me buying gold with the proceeds, I just wanna stay solvent. Our tax system is a joke! I hate those Fokkers!

We are not having fun with Lisa's residency application. What a huge pain in the ar$e it is. I have never seen so many forms and statutory declarations and whatnot that we need to prove that we are in a genuine relationship. Surely the fact that she knows where my keys, phone, wallet, sunnies and lung-busters are at any given moment is a give-away. Oh well, best we just jump through the hoops like we are being asked, and do it with a smile, no matter how much she wants to go "postal", whatever that means.

Enjoy the day and avagudweegend.....

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