Keep the Faith
Gold $425 Silver $7.05 Thursday 28th July, 11pm Sydney
G'day. "Ho-hum", says just about everyone I speak to regarding precious metals these days. The annual summer slumber in the financial markets is certainly in full swing and this appears to have made a few people very comfortable, maybe just a little too comfy. I do note, as did Prof Succo in yesterday's Buzz, that many are having to assume more risk than they normally would, to achieve desired returns due to the metal market's lack of volatility. This, coupled with the sizeable recent liquidations as shown in the COT,could be a precurser to an outsized move to the upside, especially if we manage to break back thru $428. The sellers will be busy keeping gold below $428 from what I can see from down here.
I did catch up on the last Greenspan blurb of last week and was astounded that the bloke could keep a straight face when he spoke. I believe the quote which made me giggle most was "indeed since the late 1970's central bankers generally have behaved as though we were on the gold standard." Whose leg is he pulling? Further to that, he then went on and added, "... we have behaved as though (there) are indeed real reserves underneath the system." Bring on our new Maestro - "Helicopter Ben" and let's see how he goes following in Sir Alan's footsteps. Just remember that Greenspan and Bernanke are on the wrong horse. The U.S. Dollar is following the inevitable path to destruction. It is no secret. History says so. Every fiat monetary system in the history of mankind has failed. It financially and socially destroyed the countries that embraced it, from right back in Marco Polo's days in China, through to John Law in France, Weimar Germany and plenty more. Interestingly, the last 25 years is the ONLY period in history that there has not been ONE metal backed currency on the face of the planet where one could seek refuge or safety. The spin doctors will be working overtime in the next few years, so get yerself some metal, it is the only alternative to paper.
Regarding the spot gold and silver prices, the ranges are the ranges and so have 2/5ths of bugger all to add. Other commodities are also consolidating at these sorts of higher levels with the CRB back close to 310, base metals like copper at historic levels while oil just sits just under $60. I think there is a good chance of a short sharp spike up to $66-68 or so in oil, before Melbourne Cup Day. Winter is gonna swing around pretty bloody quickly. Not advice, just sharing the vibe.
There's plenty going on with companies reporting their recent performance, and it is notable that many companies are getting hit with seriously increased costs. This from the Australian Financial Review regarding Lihir Gold, and may illustrate how big a deal Oil is in the cost equation for many producers -
While higher oil prices contributed to an 8.1 per cent increase in operating costs in the first half, unit costs were expected to fall in the rest of the year due to improved efficiencies and geothermal power cost savings.
Placer (PDG) was a notable inclusion in this group and I note they also copped a bit on the hedging side of things. As a sizeable global copper and gold producer, in the current higher price environment, one would expect a rosier picture. At least they are delivering into their hedge book, no matter that it's a little painful. If they defer delivering into the hedge book, it'll be heaps more painful, IMO. I just prefer to deal with stated "non-hedgers".The prices of the metals they produce are gonna have to rise (inevitable, IMO)... or costs be cut further (highly unlikely, IMO). Where are cost reductions gunna come from? Not from lower Oil (a major expense for mining companies), or lower wages or lower interest rates. Hmmm.
Notwithstanding the "Empowerment" issues in South Africa for DRD Gold, I'm getting more and more uncomfortable with the number of mining companies who just issue more shares at the drop of a bloody hat. That doesn't mean I don't like DRD anymore, au contraire, but it's just those little things that pi$$ me off. Dilution sucks.
DRD Gold's production was significantly lower for the last quarter but their costs were down some 20%. I would always prefer lower production at a nice margin than optimal production at little or no margin. Furthermore, I can't believe that companies would ever exploit a resource for next to no profit. Care and maintenance of existing unprofitable operations is a much moiré attractive proposition in my opinion.
Newmont (NEM) beat the Street estimates. No real surprise there. Indonesia could be an issue to keep and eye on. I still see them as a core holding or "must have", in any gold portfolio (not advice).
Anyways, trying to catch up on all that's been going on and quite frankly, without any company earnings to comment on, there's bugger all to say. I did note though, that an Australian racehorse broke the North American record over 6 furlongs, last weekend. The "old" record was set in 1990, and was broken by a significant margin, carrying more weight. Keep the Faith (how appropriate for us gold/silver investors) is a nicely bred, very expensive animal that didn't get within a sniff of our best sprinters when he raced here. Don't worry about him, there's a heaps better Aussie horse about to hit US-CAD tracks in a week or so. Alinghi. She's a seriously, seriously smart racehorse that would give the aforementioned pony a cold as she blew past. There is a 1million dollar, mile race, on turf in Canada in early September that she will contest, and win (if she races to her Aussie form). You have been informed.
Looking forward to the MIM at Ojai , but not the flight to get there.... 3 weeks and counting.
Enjoy the day
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter