Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Desert Prince


Good Luck Laurie!


Gold $429 Silver $7.02 Thursday 5th May, 5pm Sydney

G'day. Has everyone noticed how strong the gold shares have been the past few sessions, even with 2/5ths of bugger all happening to the gold price? My sale of physical gold on Monday to buy selected shares was rather timely and the rebound was not altogether unexpected. Of course, the fact that I elected not to buy any Golden Star Resources (GSS), due to having plenty already, was typical. They are the best performed on this move up (from $2.34 to $2.70) ... that's up close enough to 20%. Oh well, it's not like I lost money, I just didn't make as much as I could have. It makes sense that the most cruelled should be the biggest rebounder. But is this just a dummy move? I don't think so but.....

Now the quandary I'm facing is "do I take an 11% profit in 2 days and buy back the physical, or do I let the shares run for a while longer". Normally, I'd be banking that sort of return in a flash, but these aren't normal times and so I think I'll let 'em run for a while (not advice). A trailing stop will ensure that I won't give it all back.

The metals equities had a super couple of sessions with many issues up over 10%, yet if one looks at the historical price action, we see that they are still nowhere near their January '04 highs when gold was $426 and silver was around $6.60. Let's look at a few examples: Hecla (HL) was $9.25 and now just shy of $5. Golden Star Resources was $8.40 and now scratching at $2.70. Pan American Silver (PAAS) was pushing $20 and now $14.50. Goldcorp (GG) was around $18.20 and now about $13.50. Even old Newmont (NEM) was $50 and still can't bust $40. Silver Standard Resources (SSRI) were nudging $17 and now just above $11. Pick any issue and the pattern will be familiar. I am not gonna say we have seen "the bottom" at this stage, but things are looking a little brighter for we beleaguered precious metal investors.

Some of the moves in this space have been quite staggering in percentage terms, up from Mondays lows, but the fact remains that you're still sucking wind if you bought gold / silver stocks basically at any time in the last 18 months, apart from the last week or so. The current Gold / Amex Gold Bugs Index (HUI) spread (gold price minus the HUI) is at the highest level in the last decade. Gold's gotta fall or the HUI rise significantly as it will sooner or later revert to the mean. There are other measures such as the Gold / Philly Gold & Silver Index (XAU) spread and funny enough it's very similar. I suspect the HUI is headed back to 195 before having to do a fair whack of work to bust back through 200. That is still very cheap, given the gold price.

But that won't take back the fact that I was wrong in my assertion regarding the HUI and it traded sub 180, not by much, mind you, and not for long either, but wrong enough to have to drop my pants and do a runner. 174 was the low close, I believe. Maxwell Smart comes to mind..."missed it by that much". Bear in mind that we are still only at 184 HUI, so it's not like we've gone berserk to the upside! That's why I'll stay long the shares versus gold, for the time being at least (not advice).

Silver has quite stealthily snuck its beak back over the $7 level and I'm looking for it to trade back up to the "rubber duckies" (22) in short time, with the 50% retracement of the recent range $7.45-$6.79, coming in around $7.12, as a first stop. I'm also keeping an eye on the gold / silver ratio. I like it at 65-70 to be long silver / short gold with expectations that we see sub 20 over the next decade. Currently it is 62 ounces of silver per ounce of gold. Do some homework - not advice.

The $6.80 silver level held superbly and I'm pretty comfy that we won't break down through there without something disastrous happening - like the Fed forgetting to tell us that they own a billion ounces of silver and are going to dump it next week. That would be just an "oversight", I guess, a bit like forgetting to include the inflation statement in their FOMC dribble of Tuesday. As I said in yesterday's short buzz, I'm still gob-smacked that the Fed could make such an "error".

Gold is doing plenty of work around the $428 level and appears to be building another good base with which to skip a little higher. The last one was down at $422 just a few weeks or so back. These "cleanouts" during this generational bull market, beginning in 2000, have all had higher lows each time. This sequence will continue, IMO, due to the physical market stepping in on these dips. I see that some are calling for a retracement back to $370. I can't see it myself because of the physical market's ability to soak up real metal. Anybody can buy or sell a futures contract because they never have to deliver or take actual physical delivery. Real metal changing hands is what destroyed the London Gold Pool back in the late 60's. The similarities to today's precious metals markets are frightfully obvious to me. Wars, deficits, inflation, and government intervention. Hmmm.

For the gazillionth time, it's all about the physical market. The physical market tells us more than any other metric, IMO. Sure technicals come into play with the paper gold / silver market but Mrs. Singh in Bombay, Mr. Al Fallah in Dubai and Mrs. Chang in Shanghai wouldn't know an Elliot Wave from a tidal wave, let alone where the Fibonacci's are coming in or what the stochastics are indicating. They just buy it when it's cheaper than it was the other day!

I didn't realize how many of the Minyanship have exposure or interest in Thoroughbreds and some have missed the odd reference to these beautiful beasts. Apologies, but it's a quiet season for racing down here at present although the big Queensland carnival heats up in a month or so. Anyway, I received in the mail today confirmation that my weanling colt out of my super mare, is actually a thoroughbred and that his parentage has been verified. The DNA proved it was Commands who took her virginity (on my nickel)! They microchip them these days, too, for security. Anyways, he's been branded and he has the immediately recognizable "Woodlands Stud" marking on his near shoulder, and 46 over 4 on his off shoulder. The numbers are important as it gives us much information about the animal. It tells us that he was the 46th foal born on the Woodlands property in the year '04. Woodlands best ever performed home-bred horse, the champion Lonhro, who now stands at a fee of $66,000 a shag, was number 344 in 1998. The lower the number on top, the more mature the horse should be as a two year old. It depends on the stud and the number of foals they have per year on a property

Down here the breeding season starts on the 1st of September. The gestation period of a horse is 11 months and 5 days. Thus the earlier the foal is born, the more mature it will be as a racehorse, compared to others who foal in, say, November. Those 3 months can make a huge difference if you're racing them as 2 year olds. Potential buyers want early foals. But it all depends on the mare, her cycle and whether she gets pregnant on the "first shot". My mare is a natural and everything worked perfectly, first go. Anyway, our little boy dropped on the first of September '04, so we're happy. The mare then gets 21 days off and then "bingo" back to the breeding barn for a 30 second tryst, costing more money than many make in a year. I want a job like that. We're due again on the 1st September again this year, this time the lucky stallion was Desert Prince.

Take a look at their properties on the website if you get a chance. It is amazing - up in the Hunter Valley, just a few hours drive from Sydney. It's all wine and horse country. I took Lisa up there about 6 months ago and she reckoned that "if she comes back as a horse, then she wants to be at Woodlands". It is that nice. (Arrowfield Vineyard next door makes the trip all the more pleasant).

Mine are for sale at the right price, I just need a few bids as I'd prefer the dollars be in metals and their shares, than horse flesh and blood. But there's no rush. Yet.

London is about to kick-off and I'm heading out for dinner and drinks.

Enjoy the day...


< Previous
  • 1
Next >
Position in gold, silver, gss, nem, gg, ssri, paas

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos