Physical Gold Won't Be Held Down
There are just too many physical buyers out there for the price to stay below $595 for any real length of time.
My pontification of June 7th that gold would be back at $680 by Bastille Day didn't really factor in the recent mess in the Middle East, yet we still missed out by a tiny bit. I don't wanna make money out of violence, bombs and loss of life, but it makes me wonder what has to happen to send gold up $100 in a week if what we've seen recently is worth $30 an ounce. Some very cheap, short term OTM calls paid off pretty handsomely though, and a big "Goodonya" to anyone else who had a crack at them.
I haven't been watching anywhere near as closely as I would like to recently, but I reckon the $620-30 level looks like a fat target for this pullback and I wouldn't be surprised to see a $595 print again this summer, especially if recent tensions subside. Then again, I can easily justify significantly higher gold and silver prices today, no matter who's shooting at each other. Inflation, not war, is gold's best friend and any goose can tell that inflation is not at the low levels that we are expected to believe from official channels. The Greenspan legacy is nothing more than outright inflation and the bloke who has taken his place isn't gonna slow things down without dire economic and social consequences for many. Be quick if that downside move eventuates, because a couple more people are talking about gold in inflation adjusted terms and some are realizing just how cheap gold is versus those "highs" of 25 years ago.
Interesting to me was the $20 difference between the AM fix and the PM fix in London yesterday. Obviously there was a truckload of physical metal made available to affect the market in such a dramatic fashion. How could the World's physical metal buyers be so wrong in the space of a few hours, especially with no material change in the state of global affairs? The same sort of move occurred on May 19, when the BOE was the provider of sizeable chunks of physical metal to the market. Be mindful that the BOE is possibly the best inverse indicator in the gold market - check their form over the last half dozen years! Are we in for another $100 fall like the last time? Not much chance in my books but we should never say never. There are just too many physical buyers out there for the price to stay below $595 for any real length of time. For the millionth time, we will continue to see steep pullbacks as a matter of course but they won't last long. The physical market will step in, again. Mr Putin wants gold, lots of it, and he has heaps of petro-dollars to spend, at the right price.
Silver is pretty wild and that is no surprise. So many paper players in a market with so little physical metal keeps everyone on edge. Silver is still controlled by the paper market but for how much longer, I dunno. At some point, delivery will be demanded and there won't be enough to go around. Check the open interest versus total global production if you want to get an idea of just how much influence paper has over the real metal. Hmmm. Maybe we will see a single digit price again, I dunno, but I'll be jumping all over some physical bars if we see a 9 big-figure. Physical silver is a gimme down there, IMO. Are you watching the gold/silver ratio creep up close to 60? Silly stuff, IMO, but hey, what would I know? Happy to be wrong on this one for a while, at least until I get the settlement check from the recent sale of my colt (and our Australian Financial Services Licence is issued by the local authorities).
Metal shares have been somewhat disappointing but I don't really expect much else these days. Many got burned a couple of months ago and are unconvinced that precious metals are up here to stay. The market capitalization of the whole precious metal sector is insignificant compared to some individual companies out there, many with very optimistic outlooks for the future. We shall see as time goes by as to which are the better "value" at these levels. Keep in mind how small the entry door is when everyone rushes to get in. It works the same on the way out as we have all experienced. The HUI could well head back to the high 200's on a gold price at $595. I wouldn't own a hedger as hedging kills the inherent optionality of the precious metal producer.
Sovereign risk is a big issue that many overlook when assessing mining companies. Has anyone heard of a company called Bougainville Copper Mines? There is much to learn from that 17 year old mess. I like companies with multiple producing mines as this eliminates some of the operational risks associated with mining companies. Better still if the mines are in different countries and that the company is incorporated in a Commonwealth country. Just the way I think, not advice.
Anyways, I haven't added much to the 'Ville recently and for that I apologize sincerely. I will make up for it in Vail, believe me. Only a catastrophic complication with Dad's surgery will alter our plans. We are due to arrive in NYC on the first of August, just in time to see my Toronto Blue Jays whip the Yankees. Where can I buy a pair of tickets for any of those games? I am prepared to sit on the roof of the grandstand. Now, where is that old 1993 shirt and cap I bought at Game 2 vs. Philly at the Skydome?? Yes, I was there.
Best to all and we're getting back into the swing of things down here….
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