There's Some Good in Everything
I agree with your Mum, Laurie!
Gold $438.50 Silver $7.35 Monday 20th June, 7pm Sydney
G'day. There is far too much talk about gold in the mainstream press for my liking! I note that the Financial times has an article talking all about the fun and games that have occurred this past month. Whoopee! They have been rather late on the uptake but at least they wrote a sensible article linking oil, inflation and significant rises in price for other metals, to the message. That gold is still some 50% off its all-time high, whilst the others are screaming through to new highs should be noted.
In fact, if one looks at gold in inflation adjusted terms, it's gotta rise by four or five times to equate to a 1980 price at $850. Copper hit a 16 year high and oil has never had a contract trade on NYMEX with a 6 as the big figure, but the December crude contract scored on Friday. Hmmm.
Gold is trading at $440 spot in early Europe. Hmmm. Will take some work to bust through 445 though. Just thinking aloud.
I do get increasingly interested in markets where sentiment becomes "crowded" one way or the other, as illustrated by a Bloomberg poll that I saw on the box this morning. A survey of economists (or some such mob) showed that 78% were looking for a continuation of the gold price rally this week, whereas only 18% were looking for a fall. I guess that the remaining 4% are still trying to work out what gold is. The internal contrarian "radar" started beeping so I will be vigilant of a pullback against the "trend", which on any fundamental analysis seems absurd, but we must be aware of sentiment and mob behavior. Another article popped across my screen which underscores the "crowd" mentality.
The Indians are still comfy importing gold at current levels based off prevailing premiums in major centers. The strong Rupee has helped offset the recent spike. Their stock market is still very buoyant and the wealth effect can only help the planet's largest traditional buyers of gold. The Middle East is soaking up plenty of metal as well, mostly through Turkey, the gateway to all the Middle East markets. Swiss refiners haven't had a let-up in months and don't look likely to get a breather anytime soon. The physical gold and silver markets are very much alive and well. The paper markets are decidedly iffy, though. Open Interest suggests a very stubborn seller, certainly not one who is looking at maximizing proceeds from any sales. Scotia reports big short covering of 10,000+ contracts and UBS reports other buyers in similar size, yet gold only rises a few bucks. A smart seller would step aside and allow the $10 pop that the buying probably deserved. Who is selling to the "short coverers" in such volume? I don't get it, any other market like commodity, currency, bond, equity...that this situation of known shorts needing to cover, the market goes nuts as they "screw those on the wrong side". Not gold, all is very orderly. Hmmm.
The moving averages could provide support for gold with the old $445 level proving stiff resistance. I would expect we'll see a tough test of the $7.45 level which may fail on first go, before we have a crack again at $8 in silver. We shall see...
Gold production has been falling for the last few years and there hasn't been a significant new gold discovery since the great Busang deposit in Indonesia, that Bre-x conjured up back in the mid 90's. What a scam that was! I can understand investors getting pi$$ed off and suing anyone and everyone on that one.
Scams occur in every bull market whether Technology, metals or whatever. The great "Poseidon Nickel Boom" in Australia in the late 60's threw up plenty down here as well. A great book, The Money Miners - by Trevor Sykes explores this period. Salting of drill samples was a simple and far too regular, yet highly illegal, practice. As for spruikers, well they exist all the time in mining. People must be vigilant and do their own research. Don't believe everything you see or hear. Anything that looks too good to be true, usually is.
Anyway, the easy gold on the earth has been found. Apart from Central Banks, women have most of it! Think about all the gold chains, brooches and rings and stuff they've "scored" from hard working males over the centuries (lol). If all the gold in private possession were tallied up, the women would have about 80%, I reckon. They just don't know what they've got and it is interesting how much gold jewelery one can score at "spot plus a few percent", if you hit the right pawn shops.
Going forward, to continue to lavish our women with fine gold jewelery, costs are gonna rise and gold will become harder to find, and harder still to extract. Gold is way cheap by any measure. The dollar, on the other hand can be printed willy-nilly and is getting cheaper to do so by the day!
I have been keeping an eye on the gold ratios that I take particular note of. The Gold/Oil, Gold/Silver, Gold/HUI and Gold/Dow are of most interest to me. At present the Gold/Oil ratio is looking bloody attractive at about 7 and a bit. Go have a bo-peep at the last 40 years of this ratio. It wasn't more than 5 years ago that we were at close to 25 barrels per ounce and that was with gold below $300!!! There is a lotta gold changing hands for not much oil these days. Gold/Silver is back at 60 again and I would be surprised if we didn't see some smart operators starting to get their feet wet again with long silver/short gold trades. I've said many times that I think we'll see south of 20 for this ratio in the coming years, yep, only 20 ounces of silver per ounce of gold. There is only 12 or so more times the amount of silver than there is gold, in the earth's crust. It is pretty much market neutral as far as I'm concerned. I'm targeting a little higher, maybe 63-65, but would be making sure I had some of this stuff at current levels. Just opinion as usual and never advice, but remember that there is currently more above ground gold than there is silver available to the world. Gold is cheap but silver is lots cheaper, I reckon.
From 1913-1960, the Dow cost (on average) less than 5 ounces of gold. Today it is about 25, and it set the all time record back in 1998'ish at 42ish. A big fall, for sure, but I think there's more to come. We know all the mess that happened in the late 60's and 70's, the London Gold Poll fiasco ending with the default of the US dollar, the advent of a global Fiat currency system, the ensuing Volcker-led inflation war and the profligate splurging of recent US Administrations while the Fed stood back and allowed it all to happen.
Sir Alan seems to admit, through his own actions (or inaction), that he got it wrong with his essay in 1966 Gold and Economic Freedom. I still think he was 100% correct and that it will all play out in due course. All of which has brought us to where we are now. I reckon we will see the Dow back costing 5 ounces of gold sometime before my young bloke finishes high school.
I was surfing the net the other day and ran across an interesting article on asset bubbles. I mentioned earlier in today's blurb, the great Poseidon Nickel Boom down here and anyone who wants some good history on "bubbles" then this article should be compulsory reading. Maybe Sir Alan should have a look at it too, as he reckons ya can't see one till it's been one! Whatever. History repeats.... lots.
The weekend sports results down here were a revelation of sorts. Australia's cricket team, current world champions, were beaten fair and square by Bangladesh in a match in England. This would be one of the greatest upsets in sports history, in any sport. Our guys were 1-500 with the bookies. It was equivalent of the Yankees being beaten by the St John's High School girls softball team. Seriously. And to top it off, they were beaten by the Poms the next day. Maybe our 15 year domination of world cricket is coming to an end? Nah, we're just warming up.
Our soccer team was beaten by Germany and Argentina (by a combined 8-5) in two games of the big FIFA Confederations Cup. No big surprise there, the surprise is that it wasn't 20-0!
The biggest games of Rugby seen anywhere in the world this year, are on over the next 4 weeks down here in New Zealand. The All Blacks are playing the British Lions. The Lions are the best players from England, Ireland, Scotland and Wales selected into a combined team. They are a very serious rugby team. The All Blacks hail from New Zealand. They play a best of three series. My money says the All Blacks 2-1.
My fortieth birthday is fast approaching and I have decided to get out of town for the week that it falls on. Lisa and I are headed about 6 hours up the coast to a little place called Grafton for a big country racing festival. I will at least be able to pretend to still be young and no one will know me to dispute it!
Mums femoral by-pass operation has been delayed again, now slated for 1 July. The health system, even for the privately insured, is in total disarray down here. We all went down to Oyster Bay on Saturday to celebrate Dad's birthday. Mum came out shopping with us and she seemed to get around ok and she is getting very good with her metal walking stick. We went to the mall and she used her cane with great skill as we negotiated the crowds. Kids certainly know it when she gives them a whack in the shins when they get too close to her feet! I was waiting for a good old NHL cross-check one time as we wandered past the ice-cream shop! I think she needs a flashing light on her head so people keep clear. She is pretty happy that she gets the special window sticker that allows us to park in the prime parking spots at the mall.... Handicap parking. Mum always finds that there's some good in everything.
Enjoy the day
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