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Opportunities to Buy Cheap Physical Gold


Watch the physical market for all sorts of signals.


G'day. Wow. Wasn't that some week for precious metals and their shares? Down here we had a public holiday weekend spent with my kids, down at my parents' place. We had a rugby International in Sydney and then the big soccer win and resultant party. I've spent much time in accountants', lawyers' and bankers' offices the past week and the new venture is stuck in a regulatory holding pattern. I did manage to keep one eye and ear on the metals. "It's all paper games" was my initial reaction. Bernanke will not do a Volcker, he can't.

My physical metal didn't change. It was unconcerned by Helicopter Ben's newfound vigilance regarding inflation. On the other hand, the share portfolio was positively gruesome. Waking up to that sort of mess really sucks. What's different? I went over my analysis carefully. Was there anything new to add to the mix? I had a chat with a few people, listened, and finally put the results into action. I went out and bought some more – and some physical metal. Call me crazy, plenty do. The horse sale was very timely. What's your time horizon?

The 200DMA acted like a bloody big magnet and the paper market went after it. Leveraged players, momentum followers and opportunists were bailing out faster than corn through a goose. The speed of the move from 700 to 550 was pretty scary, hey, but scarier still if you're leveraged. The "Exit door" is very skinny in the precious metals show and Bernanke screamed "Fire!!" Sellers couldn't get out fast enough. I woke up the other day to the radio saying "gold was down $45 dollars overnight… and is currently trading at $544…." Hmm. Physical metal came to mind as I stubbed my toe on a 5kg silver bar that moonlights as a door-stop. I thought about buying a few more sovereigns or a small bar of gold for the kid's stash. I just take the most gold content for as few dollars, whatever the form - coins, bars, chain - whatever is priced closest to the spot price.

I first looked at the previous London Fixes around 590ish. Then I waited for the AM fix which duly printed at 567. As I suspected, the physical buyers were gonna go nuts at $540 and the futures rose into London. There was only a $20 dollar down day in the physical market but gold was on everyone's lips for all the wrong reasons. The "plunge" was very well reported across all media. My cabbie told me all about it on my way back from a meeting. Hmmm.

The desire for dollar diversification by some of the largest dollar holders on the globe effectively underpins the physical market making a $50 fall between two London Fixes, highly unlikely. I like to think of the large dollar holders as a big trampoline under gold. They will take any volume of physical gold that hits the market, IMO. The IMF "overhang" is rubbish. If I were a big dollar owner, I would too! I think we have found a very significant level here. Time will tell.

The physical market and the simple law of supply and demand always wins. Eventually! The London Gold Pool collapse in 1968 is testament to the power of inflation and physical gold demand, and this $520-- $550 area will be seen in time to be one of "those" opportunities to buy cheap physical gold. The reasons not to hold/own the US dollar are compelling (I reckon that's being very kind to the Dollar). Everyone's looking for alternatives. Some are buying mining companies across the globe. The oil for gold swap is very attractive. Some Sheik would do well swapping his "finite resource" (oil) for an infinite store of wealth (gold) at sub 10. Check the history of Gold in Oil terms. Large holders of dollars will swap paper for gold in a pinch. Russia. China. Watch the physical market for all sorts of signals.

I reckon taking delivery of some physical metal in your preferred form, buying some shares in your favoured gold/silver stock and sitting back and relaxing over summer is a bloody good option. Not ever advice. Just my two fingers worth. Loz.

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