You Get the Drift?
Is Johnny Walker a Minyan?
Gold $426 Silver $7.22 Wednesday 15th June, Sydney 6pm
G'day. Well the body is almost back to 100% shape after the big kart-race weekend, although the shoulders are still a bit dodgy and I wouldn't be that keen to tie on a pair of rugby boots for a game, either. Actually, that's just about how I felt on Monday - that I'd played a game of rugby, rather than driving a kart around a track for 5 hours out of the 24. No matter, the next race is in 6 or so weeks and I guess I'll be ship shape by then.
Gold looks stuck back in its old range of $422-428 but I am wary of a push lower if the Euro pukes. India is still comfy buying real metal as is most of the rest of Asia (although Japan coughed up lots of paper gold the last few days). Remember too, that the FX market sees shorting gold as a dollar bullish trade. This could add pressure in the short term but the physical market suggests it will be a short-lived spike downwards if it eventuates. I reckon it's a better than evens bet that the trade is attempted.
Silver held the mid-teens again and looks unlikely to trouble the scorers with a $6 big-figure area but we must be on our toes because it's when you think you have it all sorted that the little bugger bites you. I like the 100DMA at $7.15 as good support and we need get through the seller at $7.30 before I get too excited.
The big talk the last few days has been the apparent liquidation of many long gold TOCOM positions, by the investing public of Japan. TOCOM is the Tokyo Commodity Exchange. The gold price, in Yen terms, is at decade long highs and there has been a big liquidation of "speculative" players. The speculative players in their COT refer to the general public. The COT is published daily and we have seen a decline of some 50 or 60 tonnes in the last couple of days. The price has only fallen a few bucks on this large scale selling, so this might be gold friendly should these specs re-establish their long positions on any further strength. Normally such selling would see gold significantly lower as Comex would take the bit and run with it. Not so, these past few days but I am always looking over the shoulder.
There is so much chatter these past few days about the dollar and the Euro. The Yen has kinda slipped through the nets and is still sitting below 1.10. The Euro, on the other hand, looks like it wants to head to 1.15 or maybe lower to 1.12. Be careful of a savage swing back towards 1.25 as everyone is talking the same game-plan and maybe the contrarian play at present is to be short dollars! There may still be some big dollar shorts out there who are writhing in pain who may, on a break through 1.1750, cut and run and send it on a very steep slippery slope.
Gold has broken above the Euro $350 level - an all-time high. Is this the start of the realization that neither the Dollar or the Euro are a store of wealth and that this whole Fiat Currency sham is beginning to be tested? I did note that gold got hammered about 24 hrs ago in ALL currencies, just the opposite to what we saw in the previous week and a bit. Whatever. The physical markets are still very buoyant and I would expect that we will see European traders looking at this space now and not necessarily from the short side.
The IMF gold sales got a mention again this past week with the G8 or G7 or whatever bunch was meeting last weekend. Gordon Brown left the door open for further discussion about said gold in the future, but I think that horse has been shown to be dead. Keep on flogging Mr. Brown! I still reckon that if they even went close to dumping that 900 tonnes of gold that he monotonously waffles on about, China would just load up the truck and it would never see the light of day. 900 tonnes isn't that much in the scheme of things. 1 tonne = 32,150 ounces so do the math yourself. I get it at about $13 billion bucks give or take, but I did it in my head so I could be wrong. That's about a week of US deficit! With China and Japan having a gazillion bucks worth of US treasuries, they'd be happy to swap it for some "real money" not an IOU from a country with serious structural economic problems, no matter how important or impregnable it thinks its economy is.
I note that one of the highest cost gold producers (and therefore most leveraged to gold price increases) DRD Gold (DROOY) is reported to be facing legal action over statements to the exchanges a year or two back. For transparency and disclosure, I own this company personally. DROOY faces a class action by US investors or something along those lines. I haven't delved too deeply into the facts of the claim, but my initial reaction is that this is a case of "sore losers squealing like stuck pigs". Did DROOY force the Rand to halve? Have not the rest of the South Africans been hammered by the same events, Rand hedging or not? There are a lot of risks involved when investing in gold companies and DROOY is one of the most risky gold companies in the world. This also makes them one of the most attractive to me, due to a number of factors, mostly the massive reserves at higher prices. It is a gold call option that never expires (unless they fall over completely). Their Aussie and Pacific Rim assets are of some good value, but you wouldn't know it judging by the price action. They traded as low as 35c or something ridiculous a few months back.
I know I could lose the lot if the rand gold price continues further south, but, should gold head higher, which everyone knows I expect, they should be a significant market outperformer. We have discussed why I think so in detail, previously. Is everyone who loses money on a "bet" gonna sue in the future? Fair dinkum, this stinks of someone trying to protect themselves due to underperformance and they're grasping at straws to try and justify a loss. The risks for DROOY were and are patently and blatantly obvious. It's a big boys game and if you can't take the knocks then go play with dolls! But hey, what would I know?
Sovereign risk is still a big issue when analyzing gold companies, especially in Africa and parts of South America. Asia (Indonesia excepted) isn't quite as bad, IMO. I don't mind Ghana or Tanzania, but that's just a personal opinion.
The Amex Gold Bugs Index (HUI) still can't crack it for a double century and has failed a few times these past few months. Be careful.
OPEC seems to be a toothless cartel these days. You don't honestly think they want a lower oil price, do you? People have gotta understand just how bloody cheap oil is, even at $80 a barrel. A barrel of crude oil is 159.11 litres and thus costs about 50c a litre. A litre of milk costs $1.00. A litre of my favorite Aussie beer is about $5. A litre of premium "tree specific" olive oil costs about $40. A litre of Johnny Walker Black Label Whiskey costs about $50. A litre of Yves Saint Laurent "Opium" perfume costs about $800 a litre. Only one of these is a non-renewable, natural resource and it's the cheapest of the bloody lot! You get the drift?
My great mate Hong Kong Long has said repeatedly, and we have shared his thoughts, "that oil under $50 is a buy, buy, buy". He also became the proud father of a 7lb 14oz little girl on Tuesday. Giddy-up Longy.
Lisa is off to do her mid-term examination for the Gemology Association of Australia course in half an hour. She is freaking out about it, but I'm sure she'll be fine. I'll just sit back here and watch the annual interstate Rugby League match here on the tube, which would have to be the most violent professional sports event played on the face of the earth each year. Hmmm, beer? I think so.
Enjoy the day
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