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The Fat Lady is Not Singing for Gold
In view of gold’s gut churning $50 plunge yesterday, you might be forgiven for thinking that the bull market in the barbaric relic has had it. The guy who has the biggest bet in the market thinks otherwise.
That would be Peter Munk, founder and CEO of Barrick Gold (ABX). His company produced 8 million ounces of the yellow metal last year, has the world’s largest reserves, and mined 6 billion ounces of copper as a sideline.
In September, Munk set the cat among the pigeons when his company announced that it would take off its gold hedges at a cost of $5 billion. The move provided the launching pad for a 25% spike up in gold to a new all time high.
Munk’s confident explanation was that the long term future of for gold is so secure that the hedges were no longer needed to smooth out his company’s earnings. No other asset class was up every year for the past decade. Investors are so scared from the events of the financial crisis, with banks dropping like flies and fund managers blowing up right and left, that it will influence their investment decisions for decades.
That means building a core holding of gold to protect against the next crisis, whether it ever comes or not. Munk recommended against short term trading the shares of gold miners, but to keep a permanent asset allocation to the sector. Uncertainty is rising, is now a permanent feature of the investment landscape, and a short term rally in the stock market isn’t going to change that. The rise of middle class gold buyers in emerging markets is also something that isn’t going away in our lifetime. “They make cheap suits in China, but not cheap gold,” he said.
There also is the additional problem in that the world is running out of gold, just as demand is surging. If you’ve hear of peak oil, peak gold will be much worse. All of the “easy” gold has already been mined. What is left is much more difficult to get at, such as in West Africa, or 15,000 feet up in the Andes. Labor, fuel, and equipment costs are rising. Existing mines are getting deeper and more flood pron. The financial crisis and the price drop to $850 in 2008 caused several new development projects to get postponed. Oh yes, did I mention there is an emerging market central bank bidding was for the stuff?
Munk’s comments reconfirm my own view that we may see some sideways action in precious metals for six months before the next blast up to a new high, getting us closer to my own target of $2,300. Just allow the hot, leveraged money to get stopped out before entertaining a nibble on the long side.
As they love to say on the floor of the New York Mercantile Exchange where gold futures are traded, this is the commodity that takes the escalator on the upside and the elevator on the downside. Buy when there’s blood on the street, preferably not your own. Better take another look at longer dated gold futures, American eagle coins, 100 ounce bullion bars, the ETF’s (GOLD) and (GLD), and ABX shares themselves.
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily. You can also download past interviews with industry heavyweights on Hedge Fund Radio.
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Lead t r u m p s p. metals
Better gitcha some gold
Quick as ya can
'Cause they're just about done
Playin' "Kick The Can"
Time's runnin' short
This dollar's goin' down
Git out the casino
If ya don't wanna drown
In worthless paper
And leveraged debt
And all the promises yet
To be unmet
There ain't much time
So git a move on
Like the rich folks're doin'
'Fore it's all gone
Let the bankers wallow
In their paper pit
'N let 'em know
We won't fergit
How they played us for fools
And stripped us bare
Taxed our labors
'N gave us a scare
But now we seen the truth
We seen how it works
We seen the fraud
'N we seen the perks
It was a rigged shell-game
Right from the git
And their promise ain't worth
A bucket o' spit
So gitcha some gold
Fer startin' over again
We got some buildin' to do
It's just a matter of when
Better gitcha some gold
Quick as ya can
'Cause they're just about done
Playin' "Kick The Can"
Time's runnin' short
This dollar's goin' down
Git out the casino
If ya don't wanna drown
In worthless paper
And leveraged debt
And all the promises yet
To be unmet
There ain't much time
So git a move on
Like the rich folks're doin'
'Fore it's all gone
Let the bankers wallow
In their paper pit
'N let 'em know
We won't fergit
How they played us for fools
And stripped us bare
Taxed our labors
'N gave us a scare
But now we seen the truth
We seen how it works
We seen the fraud
'N we seen the perks
It was a rigged shell-game
Right from the git
And their promises ain't worth
A bucket o' spit
So gitcha some gold
Fer startin' over again
We got some buildin' to do
It's just a matter of when
Gold commercials all over the TV...sell while you still can!
Yeah, but for every one of us "desperate sellers," there must be a REALLY desperate buyer somewhere...and more of them, lately...
If they are willing to pay spot or even above spot for gold AND pay thousands and thousands per week or day depending on how big of an operation they got going at that particular market you know they are paying premium. Gold is being bought day in day out for 1300 to 1350.
GOLD IS MOVING THE MARKETS!!!!!!!!!!!!!
Along with Cisco....but STOCKS FOLLOW GOLD.
Gold snitches!!!!!!!!!!!!!!!!!!!
E mpty
T rading
F antasy
The gold is not there to back them, bitches!
ETF's are PHUCKKED--Wouldnt touch an ETF with a 20 foot pole.
Physical holdings only--Touch it, Feel it LOVVVE ITTTTT...
Trade the ETF, hold the physical.
Gold porn is not a valid substitute to the real thing?
WHEN to buy more physical gold?????
I am so tempted today!
Thoughts from the peanut gallery?
My thoughts? Forget the gold and buy canned ham bitches!
I'm not worried at all by the fall in price of gold. I will be back in the market to buy more soon as I have a little time and little more FRNs. I try to look at the price takedowns as a gift.
Physical gold: you have it
Miners: political and management risk (Barrick)
ETFs: Is it really there?
You make the call!
Yesterday the sheep fled the euro in panic because they finally saw the potential for debasement of the currency due to the massive printing that will be needed to shore up the PIGS. This is soon happen to the Pound and Yen. It will then happen to the US dollar.
Where will everyone flee when the last of the 'deficit block' currencies falls?
They will flee to gold. And it will be a tight fit .The capitalization of all the gold shares in existence is currently smaller than WalMart's.
Semper fi.
Your argument that gold is going higher because Peter Munk thinks it's going higher is pretty weak--judging from Munk's speculative losses in the metal.
"If you’ve hear of peak oil, peak gold will be much worse."
...
This is an awful sentence. "Peak gold" is not going to be "worse" than peak oil unless gold replaces oil as the power source behind most of the world's transportation. The world is not going to collapse because it's harder to find shiny yellow stuff in the ground. The shiny yellow stuff is just going to become more valuable.
That sentence makes about as much sense as a peanut-butter and chicken sandwich.
Barrick is a sad excuse for a mining company, this is the second time in 5 yrs they have "taken off hedges" at huge expnse to shareholders, they have long been rumored to be a driving force in the paper gold trade....while at the same time making fewer financial commitments to actually exploring and mining the yellow stuff...sell em buy Newmont
When the real flight to saftey begins,gold will link up with the USD and trade as a currency--
Watch for a divergence somewhere ahead--
Long AU since 01/
Fully hedged--short 1188--and long USD-74.6
Those who think deflation will kill gold--don't understand gold or deflation--
It started to bifurcate at the beginning of 2009. I wrote this little diity then:
Welcome to the Gold-Dollar Bifurcation
Joe Sixpack.me
Welcome to the Gold-Dollar Bifurcation.
Just in time for the Obama administration.
Competition for the dollar.
This ought to cause the Fed to holler!
Welcome to the Gold-Dollar Bifurcation.
A new trend is in formation.
Shiny beats empty, and the financial systems goin' down.
If you got gold or silver, you're goin to town!
Welcome to the Gold-Dollar Bifurcation.
Derivatives implosion lead to dollar's deprecation.
Markets down, and bonds collapse.
The world's current financial system will lapse and pass.
AMEN bro!! And wait till devalue the dollar 3 to 1, that'll triple the price of gold
Hey bro, the price of Gold will not triple, it's the monopoly money your holding that will be diluted by 66.666%.
Sure that'll happen if you wait 80 years.
With the dollar being necessary for foreign trade, do you think that large holders of USD will let the dollar slip that much? Maybe you do, because I don't!
I own Newmont, CEF, GTU, and others, wouldn't touch Barrick or GLD with other people's money, for similar reasons: whose side are they on?
Gold is not down, "paper gold" is down. Crimex and LBMA will go broke very very soon because physical delivery, already started in London with the inspectors (read Jim Willie's fantastic article) and when the default comes in, gold will trade well above 3-4k
I read Jim Willies article as well. There is no further evidence or reporting to support what he says ...... that I can find. Do you know of any?
That's why his team's analysis is so full of awesome! It's for the high-end tinfoil crowd. It makes a hell of a lot more sense than cable TV news.
He's the freaking Anti-Christ for all we know - and I can't get enough.
Agreed, I read him for pure entertainment value only,
and I am long physical. Sent my tinfoil hat to the recyclers years ago....
I think he is right in his conclusion. As for arrests and asylem seeking etc . not sure about that. I am also long physical, hopefully for all the right reasons.
based upon reading your drivel and willie's
reports, i would say that he has forgotten more
than you know or ever knew....
for everyone else - willie's article this week
is outstanding in providing further corroboration
of a point i have made since last fall: gold is
in permanent and severe backwardation....the paper
markets may show otherwise but the physical
market is the true barometer....
buy gold early and often - especially when it
plunges....the plunge is a paper game....
I couldn't agree more. Drivel? Aww.
Also agree, at least about what The Jackass says, but kind of ironic to pat yourself on the back for the call. What did you say your name was?
And finally, yes, buy Au and canned ham.
" What is left is much more difficult to get at, such as in West Africa, or 15,000 feet up in the Andes. "
Seriously? I was always under the impression that gold was found in Russia, Australia and South Africa, not West Africa and the Andes. Where you getting your intelligence, boy?
its ~ stairs up and elevator down. but, again, who cares about accuracy.
Or whether or not Barrick has been solvent for the past decade. TBTF.
I think that gold is going to 6000, by next week!
Screw stocks, screw FX, screw commodities. The name of the game is canned ham and GOLD from Rosland Financial.
I think that gold is going to 6000, by next week!
Screw stocks, screw FX, screw commodities. The name of the game is canned ham and GOLD from Rosland Financial.
Canned ham, bitches!
LOL. That's going to be my new battlecry.
I owe you a great debt, 219011.
Soros is talking the other side of that trade. Head faker?
Woe is me, I could have saved a couple bucks if I had waited. I tried to tell my troubles to my safe, but it just sat there, holding. You know, that is one wise safe.
Oh Peter Munk...so he took the hedges off to "smooth out his company' earnings...". To pay for this brilliant management decision he wiped out all of the accumulated retained earnings of Barrick Gold.
Thanks, I rather own Goldcorp.
No opinion on Goldcorp vs. Barrick, but:
Barrick put the hedges ON to smooth out earnings, not taking them off. By selling forward, Barrick knew what approximate future revenues would be, and could match exploration and other expenses accordingly, thus smoothing earnings.
Further, I'm sure that Munk just woke up one night, and decided to put the hedges on, and then woke another day, and decided to take them off. There's just zero chance that he had some quants run a whole bunch of scenarios and see what happens, and then made the best decision on the basis of that data, in consultation with a lot of other people. Nope, it was all him.
Let's see now: back in 1999, Clinton had a virtually balanced budget, the Pax Americana reigned supreme, and tech was everyone's darling as the Naz raced to 5,000. I'm sorry I missed your prescient article in the WSJ predicting that in ten years, the US would have run a string of massive deficits, be fighting two foreign wars, the housing market would collapse, and Wall Street would have degenerated into a rigged casino. I'm sure Barrick would have appreciated your insights.
I started buying physical at $395. If I would have listened the first time and sold the first time someone told me the run is over, I would have sold at $405.
Gold is going much, much higher.
I'm looking to buy some physical with the recent move lower.
Only the newbies are leaving now. Watch the lemmings running for the safety of dollars and bonds...
I've never felt so fatalistic about it all. Our Great Leaders waffle this way and that, clueless, planless. The sheer ennui in the system dictates that nothing will ever really change, that only the spin will. That creeping socialism, rising impoverishment and lasting income divides will be with us forever, short of a revolution in the streets (unlikely) or growing governmental impotence, a la the Soviet Union...
How can all these government employees continue to get paid for doing nothing productive? How can more and more money slosh around a system in which just about everyone is engaged in either financial chicanery or selling things to one another? Who is producing? No one! - yet there is always more "money" available to someone, somewhere...why haven't we seen mass price inflation? Or is it on the way? [See: taxes, tuition fees...]
There's only one thing they can't provide more of without first doing the production. And you know what that is. Gold. I just keep accumulating, accumulating, accumulating: gold, silver, collectables...
We soon will have a very cheap entry point to buy yet more, courtesy of the idiot lemming overleveraged carry trader "investors"...
I hope Au goes to $50 so all those ignorant of 4,500 years of human history pile out so I can buy more, more, more! Only publicly-schooled droolers and day-trading tweakers think Au will someday be priced at 5,000 Federal Reserve Toilet Paper Units. By the time it starts shooting for the moon your average Joe will realize he was looking at the pretty girls instead of focusing on the chairs because the music always stops.
quote:
"There's only one thing they can't provide more of without first doing the production."
Can I add houses to that list of one ?
No. Not in the short term. Housing is in a glut.
Oh.
They can provide more houses without producing them.
I get it now.