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Any Old Excuse

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I could use some more bling Laurie!

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Gold $425 Silver $7.42 Wednesday 8th June, 7pm Sydney


G'day. It seems to me that whoever was the seller at $428 a month ago, is back. Sure there's been a nice move higher in Euro terms, up nudging the $350 an ounce level, but the selling has been relentless and far too consistent to be anyone looking to maximize returns. We see that some of the European Central Banks have put their hands up and owned up to selling a bit less than 15 tonnes of gold, a month or so ago. This doesn't translate into what we have seen in the paper market where a meager 15 tonnes is hardly worthy of comment. The Central Banks will run out of gold if they continue at that pace, at these levels, especially while they're printing the bucks that we use to pay for the same gold, willy-nilly! It appears to me to be the London Gold Pool revisited. I see Rothschilds are no longer in on the London Gold Fixes.


I have read half a dozen reports on different news services including Bloomberg and Reuters, about consistent and large physical buying out of the Middle East (which should continue to grow due to seasonality), and more confirmation of India backing up the truck down in the teens and low 20's. Real metal is changing hands very quickly with many reports of delays in delivery and significant tightness in the market. Swiss refiners are still running flat-stick and this would usually suggest that inventories and warehouses would be chockers, but they aren't. Even the WGC has its eyes open these days.


In the paper market, the 100 and 200 DMA converge around $428 and that seems to be a pretty hard nut to crack. Should we see a break up through $430, we may go for a little run higher to maybe $436-8ish, as those sorts of breakout levels attract new players and more importantly, some shorts will probably be forced to cover. But $428 holds for the time being, although I can't see for that much longer with the physical market so buoyant. India never stopped buying on the way down and as such we weren't down there for long. Even when we hit $445 a few months back, gold wasn't this cheap in Rupee terms. Hmmm. Gold should find initial support at $422 and then again at $418 for those that care.

Silver ran into a solid ceiling at $7.60 and looks like having trouble punching through it on this run. I would expect a pullback into the high $7.20's and a relaunch perhaps. Just the typical ebb and flow of a market. It can't go one way every day. It is still THE most undervalued commodity / asset that I know of.

I'm watching the gold / silver ratio and the gold / oil ratio as usual to try and snag a bargain on that low risk, high reward trade, IMO. Oil for gold is a super trade for all those Sheiks sitting on a pile of petro-dollars that they can't do much with. The long term average of about 18 is some way off. When we get the significant shake-up in the financial system with a flight from paper dollars, silver will return to its mantle as the "money of the world". Why? Because there isn't enough gold and it's too hard to carry around. Silver has always had a monetary role (except the last handful of decades) and will again. It won't be $7 an ounce though, I am betting. Just a humble opinion from down under.

I know that we look for leverage to the price via the equities but it is very hard to line up the gold price movements with the equity action. It certainly looks like the equities are lead indicator, but I'm still of the opinion that they are way "unders" when compared to the gold price. It's very hard to hedge the downside when you get a 35% fall in equities versus a 6% fall in the underlying gold price. There seems a reluctance to attack the 200 level on the Amex Gold Bugs Index (HUI). I think we may be in for a quiet period for a bit of the summer while everyone hits the beach or wherever you Northern Hemisphere people go, but think that things will heat up again later into August. The metal markets will bide their time, they have for nearly 20 years, but when they get the giddy-ups, they will be hard to contain, even at the old highs of $270ish, IMO.

Sentiment in the metals sector is awful, still. Many are waiting for some sort of "capitulation" in the price of gold because they are hearing how good everything is in the mainstream press. I disagree with the press, but then again, you all know that. Even one of the bigger bulls for metals that I know, suggested he throw in the towel till he gets some confirmation that we haven't seen the end of this bull. I contend that this bull has only just started. Back in the mid-late '70's run up to $850, there were a few retracements of over 50% in metal price, whilst still maintaining the bull-market. Falls from $200ish to $100 in very short time, were all the rage. It happened a few times from higher levels as well. We haven't seen close to an exponential blow-off top and I keep coming back to where the physical markets of Asia are marking gold. We will know when the paper market gets too far ahead, and it's not close to here. The fundamentals that I work off have not changed to alter my view, furthermore, it is only strengthened by recent market activity. At bottoms, everyone is pessimistic, at tops, they're wildly optimistic. I suppose we're closer to the bottom than the top, for metal equities (not advice).

Bonds under 4% with the deficit situation is unfathomable, apart from people having nowhere else to stick their freshly printed dollars. I dunno, but I can't see a Japan 0.25% long bond rate for the life of me. They had savings and nowhere near the offshore debtloads that the U.S. has. I will repeat for those who may have forgotten - "I think we'll get inflation of what everyone needs, and deflation of what everyone wants". Commodites, food, energy and water are always needed. Boats, Plasma TV's, Holiday houses and cars and stuff are only wants.


On the local news front:

Mum's going well and all is set for her 24 June by-pass operation. Left leg first, I understand. We're still waiting on the word from "Roddy" on the big legal issue.

Maitrise ran a great trial on Tuesday morning, jumping perfectly as the gates flew open, sped across from the wide alley to be sitting on the shoulder of the leader after 100 metres, and stayed that way for the first 600m of the 900m trial. She was never pushed by the postillion and cruised home under a stranglehold. She has now earned a 9 week holiday up at Woodlands Stud. Her trainer says we have a "nice one" and that "we'll win some races with her". Her first race will be in late October, if she doesn't run through a fence, and, if she has the ability, will have another little holiday and come back for the Big Ones in the month or so leading into the massive Easter Carnival. We had a chat with Rod Quinn, her jockey, and he likes the way she moves. He is a big race jockey who, at 44yrs old, has seen his fair share of horses, and ridden over 1650 winners. He was surprised when we informed him she was only a 2year old as he thought she was 3. But she is mentally immature and will come back a different horse, he reckons. The trials were all about experience and learning. The trainer should know as he has trained some of Australia's very best horses in the last 15 years. He was very happy, therefore I am.

As I mentioned, Lisa is now an Aussie Resident. I know she must've soaked up a bit of our "culture" because today she said to a friend in the U.S., "If I could do just two things for U.S. females, it would be to introduce them to TimTams (a favorite aussie biscuit) and Australian Rules Football" (something to do with the bodies).

We're off to do the big Kart-race with my brother this weekend, practice starts tomorrow arvo at 5pm . It is a holiday long-weekend down here. The Queen's Birthday holiday, I believe. Kinda strange when she was born April 21, 1926, but we'll take 'em on any old excuse!!.

Enjoy the day,

Laurie


No positions in stocks mentioned.

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