Do Your Digging, Carefully
G'day. Gold sub $390 must have the physical buyers of the world smiling. On Friday we saw a surge in Shanghai Gold exchange premiums, signifying strength in demand for physical metal. Indian premiums still reflect a strong appetite for imports. The physical market is very much alive at these lower price levels.
I mentioned late last week that I don't know how deep this selloff will go. My contention is that it won't last very long. If it does (say 6 months), it will mean substantial physical gold deliveries, not paper gold cash settlements. This is what finally killed the London Gold Pool in the late '60s-early 70s. To have the price down below $390 an ounce for long will cost a lot of REAL physical gold... whose? I dunno. But we know where the buyers are and what they are happy to pay for physical.
The gold price has broken many technical supports yet sellers haven't followed through on the dollar strength today. I suspect we will retest the $384 level on some more dollar strength and further long liquidation. A close above $396 would help somewhat on the technical side of things. Silver briefly broke the 200DMA, yet is currently looking well supported in the mid-teens. I suspect we will have a crack at the $6 level before long and it would surprise if we hung around down there for very long, same argument as gold... Someone will lose a lot of physical silver while it is down there.
The AMEX Gold Bugs Index (HUI) is a mess and looking for its feet. I expect we'll see an attempt at a new low judging by the last 3 months price action. I hope Prof Reamer gives the next heads up on what he thinks about the HUI on a technical basis. His analysis has been eerily spot-on. I see that the South Africans are again the only greens on my main screens (oops, not any more). Watch the Rand. Newmont Mining (NEM:NYSE) has dropped nearly 10% in the past week. The bellweather goldstock has effectively paced the fall- it is 15% of the index. There are some stocks that appear extraordinarily cheap compared to a few weeks ago, but that doesn't necessarily mean they ARE cheap. Do your digging, carefully.
I note that the silver equities got hammered again today and, in the interests of full disclosure and transparency, I bought some silver equities for my personal account earlier today. It may be a case of premature speculation but am happy with the risk.
Gotta fly .... Enjoy the rest of your day.
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