Gold $395 Silver $6.00 Wednesday June 2 , 1am Sydney
G'day. Pretty interesting time for gold and silver the past few days. With the further geopolitical instability caused by explosions across the Middle East, record oil prices, rampant inflation, liquidity overload, a falling dollar and rising interest rates, one would expect that there would be a little more oomph to the attempted rallies. $400 appears a tough nut to crack. Unfortunately there seems a few big sellers around at strategic levels and the buyers appear to run out of money and/or conviction and the rally promptly stalls and reverses. The fundamental picture is pointing the way north for the metals yet the market action says otherwise. Todd mentioned in the Buzz that there are some converging moving averages at about the current price, which could be interesting both for bulls and bears, although I am still firmly of the opinion that we have seen the low for this current pullback down at $371ish(not advice). Fundamentally.
Technically, it's another game. We could well see a pullback to the mid $380's in the near term but I can't see what would be a catalyst for that. Oil lower would help, but that appears unlikely from my perspective. Then again fundamentals have been disregarded the past 3 months so why should we take any notice now?
Gold hanging around $395 all day but silver back below $6. Looking maybe back to $5.85 on the dip and if we get some real dollar strength and some inherent weakness in commodities, we may retest the $5.60 level. My guess is $5.90 and then to $6.37. Not advice by any stretch, just sharing my own thought process.
India is only a marginal importer at present, judging by the premiums in major centers. The financial markets over there have been wild lately. Watch the Rupee fluctuations. Interestingly, India was a bigger buyer at $415 than now at $395.
The open interest in gold is still strong with no evidence of any capitulation selling by the bulls and there is some evidence that there has been some substantial new short positions opened at lower levels than today's. My local real metal dealer here in Sydney told me today that she has never, in 30 years, seen so much metal walk out the doors. People are leaving standing orders in volumes she has not seen before. No one is selling. People are slowly but surely awakening and placing their savings in precious metals rather than paper.
The Amex Gold Bugs Index (HUI) poked its head above $200 for a brief 24 hours or so but has been bopped back down to $195ish. Some corporate activity, which we shall touch on later, is muddying the waters. The compilation of the index will be altered whichever way this all pans out. Expect more corporate activity going forward.
I have been asked by a stack of people for my take on the two takeovers announced last week in the gold/silver sector. Coeur d' Alene (CDE) and Golden Star Resources (GSS) both launched bids for mid tier producers that were already entangled in takeover actions. I really shouldn't comment on this as it may be perceived to be advice and we don't do that. I won't say whether it's good or bad or who I think wins or loses in the deals. I look for what synergies there are in the players and what's in it for me. I had mentioned months ago that I expected further consolidation of producers in the market and that I thought it would generally be on a "regionalisation" basis. This fits one of the two proposed deals. I also look at operational synergies, combined resources/reserves, infrastructure synergies, management structure, additional sovereign risk, price assumptions used in calculations, cost of production, debt load, hedging, settlement ( ie cash or scrip) etc etc... Lots to look at and I generally prefer cash deals in commodity actions, as the whole arb thing gets just too tiresome!! I see that both targets have initially rejected the bids. Just remember that two middies (mid caps) don't necessarily create a maxi (large caps). (although in beer terms down here, a middie is a 10oz beer and a maxi is a pint!).
The high oil price is just plain old inflation to the U.S. economy. It hits everything and there is no escape.. Maybe we see a $35 again this year but I wouldn't be holding my breath waiting. Look for new fuel "levy" or "surcharge" on goods that you never thought would attract such.
The CRB index was up strongly yesterday with grains and energy leading the way. It appears that there is always some real asset sector that is stressed in some way, either way. Base metals one day, energy the next, precious metals, softs, grains... they are all in play. It's just picking which ball is going in which direction that is the hard part. My contention is they could all be moving one way pretty soon... up.(not advice, just opinion). It's called inflation and there is nothing that can stop its inevitable destruction of savings and wealth, without causing a heap of pain through high interest rates. This could get very messy once there is a sentiment change and the debt noose starts to tighten. But this is not a one day phenomena. It could take years more of this before what must happen, happens. See Japan 1989-2004 and they aren't done yet.
Great hockey finals series... would love to see a game 7. The Pistons... they're in what??!!!
Enjoy the rest of your day....
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