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Metal Grind


Gold $392 Silver $6.70 Thursday 5th August, 4.30am Sydney

G'day. Another day of asinine market action in the metals. Notable was the inability of gold to break below $390 once the 1.20 Euro level gave way. I would've expected some further pressure on the Euro, but further support from Chinese buying is providing a good backstop at present. Euro appears capped around 1.2075 and has rejected that level a few times in the last few sessions.

The market is waiting for prompts either from data, geopolitical events or straight out currency moves. We should be rangebound at $390-396 in gold until Friday's numbers, which if one believed many commentators on the idiot-box, are the "most important numbers ever released"... whatever. (Note I always talk about spot gold, not the active futures contract which is currently December maturity. Dec gold trades at $2.40 over spot at present - A simple future value calculation). My hourly indicators have support just on $390 at present. Different timeframes are producing mixed signals, therefore dampening my confidence and therefore am mindful of risk until a cleared picture appears.

India is still an importer with gold above $390 and the Rupee getting belted again. Good. If they're still hoovering up physical with all the bad news lined up against them like local currency strength, monsoonal disappointment, seasonality, alternative investments options etc etc. Japan recently announced massive increases in gold imports during June. No surprise there either.

Silver just keeps on grinding higher, with the odd spike to clear the sinuses, although it should run into some resistance here at 6.80ish. Looking for a pullback into the $6.45-50 level. Technically silver looks better than gold at present and I am looking for a $7.20 level to trade in coming weeks, of course, not advice. The daily indicators show support at $6.22 and the hourly at about $6.45. Shorter term are turning down. We don't want to see silver get too far ahead of its averages like we did earlier this year.

How crappy are the silver equities trading? I see silver roar some 20c higher in the session, yet the equities are down for the day and looking like the dog's breakfast. It's got me stuffed why they get smashed in the last 20 minutes of the day with zero underlying metal movement, yet they don't follow aggressive bullish metal moves. Don't people realize that future revenue cashflows for silver companies will change as you put in a different silver price? All a share price reflects is the present value of those cashflows.

So Pan American Silver (PAAS:NASD) or Hecla Mining (HL:NYSE) aren't gonna throw off any more cash with silver at $6.75 rather than $6.25? Their share price behaviour says not. Obviously observers of such stocks believe that these metal prices are unsustainable and will generate no benefit to these issues. Whatever. This isn't bloody rocket science, people, it depends what silver price you plug in for your revenue stream. I guess when a metal has traded in a $3 range for 20-odd years, it is a little hard to get excited about a breakout. The question is why did it trade there for so long? The US Govt stockpile of over 1.25 BILLION ounces was consumed in that period. That silver is gone now, forever, and it ain't coming back. Where is the new supply gonna come from to replace the stockpile or just make up the mega annual global supply shortfall? I guess the only LAW of economics will come into play - Supply and Demand.... Everything else is just THEORY.

Whoever is selling silver equities must be disregarding the metal price itself. A lack of buying pressure could also be cited, although volumes are not significantly lower than the last month or so. A distinct lack of interest and maybe there are a few "observers" on the sideline who are still wringing blood out of their jocks after their last foray into the silver market?? .... Definitely.

I note crude slipped a buck late in the day and that gold is back under $392 and silver sub $6.70..... hmmm.

Well team, my girl just rang from O'Hare on her way to LAX and then Sydney. 16 hours till she lands. Fittingly, this Saturday in Sydney, we have a massive rugby match with the Wallabies playing the NZ All Blacks for the Bledisloe Cup. 90,000 people at the Olympic stadium will be huge. First beer is at 3 O'clock for an 8pm kickoff. As she is a Wallaby "test match virgin", I promise to be gentle.

Ski Lodge raced today. Guess what? She ran 4th .... For the 14th time in 26 starts. Still no word on the sale of the mare..... hmmm.

Good luck Friday with whatever Beeks delivers. I have a sneaking suspicion that it will be a non-event and we'll be left scratching our backsides again, looking for the next clue... enjoy the rest of your day.

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position in gold, silver, yen, euro, paas, hl

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