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Metal Bears vs. Metal Bulls: Who's Gonna Blink First?


There's more dollars to buy it than there is gold to sell.

G'day. It should be obvious to even the most hardcore precious metals bears that there is a load of physical metal being bought around this $580 level. For the bulls it is apparent that a large seller is sitting around $595. Who's gonna blink first? There's more dollars to buy it than there is gold to sell so you know where I lean. A one month chart of the London AM Fix (physical settlement) illustrates the flat line support that even technical philistines like me can see standing out like a sore thumb. More than enough to repel another determined effort to bring the price of gold to heel. Each probe lower by the paper metal players have been stopped by the sheer weight of paper dollars buying real metal. I like the price action. It is quite bullish from my perch, especially combined with my longer term investment horizon.

It is my considered opinion that gold is trading lower than fair value today due to many longs having to ditch their positions due to margin calls and irresponsible leverage. Forced selling below $630 combined with a "nudge" from official selling by Euro CB's has presented us with a wonderful buying opportunity, opinion only. The latecomers to the recent precious metal party got their wings clipped, again, and it will take some time to get their nerve back. For people who are bullish Precious Metals, it's becoming a case of buy 'em when you're nervous and sell 'em when you think they're off to the races! A mate said just as the best horse I've ever owned was about to jump in a big race down here, "If your hands aren't shaking and you can hold the binoculars steady for the jump, then you haven't got enough on." It feels like that in markets occasionally and I guess I haven't got enough on at $580 coz I'm certainly not nervous while this $580 level is tested hard. At $530 there would probably be a call for some diapers on stand-by coz I see $530-40 as THE crucial level going forward. Hmmm.

I stand by the levels I threw up in the brief Buzz of 9/22, especially the HUI back at 320ish.

India is sucking up physical gold and silver in large volume with reports of significant import volumes over recent days. In Sydney, my bullion people have never been busier, outperforming even the recent "historic" demand they saw back in June at $540. My contacts throughout Asia from Hong Kong, Bangkok, Manila, Hanoi, Singapore and Shanghai tell me that the demand is quote "massive" on any dips in price. (I wonder how that "Purple Gold" stuff is selling up in Singapore. Some may remember that alloy I encountered when I visited Hong Kong long back in my May article). For the billionth bloody time, check the London Gold Pool of the late 60's to grasp the significance of such physical metal purchases versus "official" selling. The end result will be no different, IMO.

Golden Star (GSS) at $2.50 with those reserves/resources? You're kidding! Load up boys and girls, I am personally (and so is their CEO) - opinion only. Keep an eye on the "insiders" in the metals space.

Long time Minyanville readers and most recently attendees at Minyans in the Mountains 3 (at either formal presentations or over a brew or two) will have heard all this before from some guy down under.

The buy silver/sell gold trade (currently 52) on a ratio play is something we've thrown around for some years now and I definitely love the trade up in the high 50's, but you have to be quick. Furthermore, forward gold in contango with flat silver makes the trade even more attractive in the long dates. Time decay also works in this trade's favor. I'm looking for it down at 12 to 16 in coming years and am very patient. It's definitely a tradeable position that doesn't need to be a "set and forget" deal with ranges from 60 to 45 and back in the last 9 months. Just my opinion.

Silver has strong support in the physical markets sub $11 and I reckon the downside is limited to 10. 15-22 on a serious spew. I dunno what would force such a "tiger" but hey, I'm just flagging the levels on my radar. Overheard at MIM3: "Air, water, then silver" – strike a medal for whoever said that. I'm looking for $12 in early October and a new high during the first quarter of 2007. Silver is not a base metal and quite frankly, there is 2/5 of all metal around, thus I see very limited downside. The LAW of Supply and Demand always prevails…eventually. Increasing demand and inelastic supply. Hmmm. Opinion only.

The rush for long term physical supply of metals continues with this latest corporate play.

The Barrick (ABX)/Novagold bid has been upped and I see former Goldcorp (GG) chairman Rob McEwen has taken issue with the Goldcorp/Glamis (GLG) deal. This consolidation stuff can get messy, ey? Maybe this deal is not such a good one for Goldcorp and the market certainly has spoken with the stock halving in a few months. I own it in my retirement portfolio due to some great assets, but management is a definite concern. McEwen is one guy in the gold industry who I do respect...a lot. Opinion only.

Anyone got any hard info on the re-weightings in the Goldman Sachs Commodity Index? By whom and why?? Sounds like very dodgy timing to me but what would I know? A little transparency would go a long way.

Speaking of transparency, some may be interested to know that I have been found by our financial market regulator (ASIC) assessors as being PS 146 Compliant, meaning that I am suitably experienced and knowledgeable to be the "Responsible Officer" for the new Precious Metal fund I intend/expect to launch shortly. Go figure. Starting a fund down here is a little tougher than in most other jurisdictions as we require an Australian Financial Services License to operate the management company. And so we move forward, again. Time consuming (as readers should have noted via the lack of contact from down under), but definitely worth the time, cost and agita. How many funds' management companies have SEC approval and License?

An email from a Minyan looking for some reading material – "I wonder if you have a book or two to recommend about the history of money and gold with a particular focus on the state of current affairs and possible implications?" I replied – "In my opinion, the most important read for anyone who wants to know about gold, money and its history is "The Power of Gold" by Peter Bernstein. Also very good reading regarding "today" are the recent books scribed by Bill Bonner and Addison Wiggins – "Financial Reckoning Day," "Empire of Debt" and "Demise of the Dollar." Clear, precise, witty and easily understandable for people at both ends of the financial literacy curve. There are plenty of others but those few should cover nearly all bases.

Speaking of good reads, when you think you've had a tough day at the office, spare a thought for these blokes. My father gave me a copy on the weekend. I read it in less time than the battle itself. Hmmm.

Local News

I finally got off my lazy arse the other day and went out and contributed to the economy in a small way (nothing in comparison to Media Trollop Macke's extensive retail foray on the East Coast), buying a tidy little Denon Audio system for the apartment. Jane's Addiction and Powderfinger on the Sony (SNE) "Boom-box" just didn't cut it. The final straw was when a mate who is an "audio-phile" was over for some beers a few weeks ago and I recall he said something about the sound being quite offensive. Some very cool locally made Krix speakers certainly punch out the tunes. The Sennheiser headphones the bloke chucked in for free are like nothing else. (For those at MIM3, yes, a few of those 14c ECU Silver shares purchased in 2002 paid for them). The audio system purchase went against everything I believe in but hey, it was worth it. I still contend we will see inflation of what we need (natural resources) and deflation of what we want (stereo systems!!). Oh well, The Lisa is happy (for this week anyway).

I went to the 50 year Anniversary of the formation of the St. Patrick's Sutherland Sports Club last weekend. It was held at the Shark's Leagues Club down in "the Shire" where I grew up, a place where I cut my teeth on live bands and 80 cent pints back in the early 80's.

I ran into a bunch of old school mates, some who I hadn't seen in nearly 20 years. The Lisa learned a lot about those youthful, exuberant years, not all of it good. What a great night we had reliving old sporting glories. The old saying, "the older we get the better we were" was never more appropriate. It was amazing how everyone was just the same. As kids we were as "thick as thieves" and as adults on the night, we were no better. Anyways, the cricket "team of the half century" was selected by a panel of "legends" and 5 players were from the A grade team I played in for 6 years. Both our opening batsmen, our wicketkeeper and both our opening bowlers. We were pretty much unbeatable in those days. I did manage to crack a mention in the "official" records because of a "freak" year where I knocked together a batting average of 171.00 for the season. It's kind of embarrassing actually, as I wasn't close to the best bat on the team, just lucky I guess. Of 6,196 guys (yeah, they had the exact number) who have played for the club over those 50 years, it is still the highest ever recorded. It was a long time ago. The Lisa was impressed, that's all that mattered. Autographs are available on request at a fee.

At Minyans in the Mountains 4 can I use a cricket bat at the softball game??

Have a great day and I hope to be in NYC for the December Minyanfest if y'all don't mind a dumb Aussie fronting up?

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Position in gold, silver, GG, GSS, krix, sharkies

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