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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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Sure, they just have to pull them back out of the shadow inventory on the TBTF balance sheets.
Tax, is that you? And Kreditanstalt as a handle? My you are getting pessimistic!
I would say that what you are missing is all the system gaming going on by wall street. I think these guys are simply cycling through various asset classes, driving one up a little, taking profits, moving to the next class, driving the previous class down, and cycling through all classes like treasuries, munis, commodities, PM's, various stock market segments, etc. etc.
Right now they are using the EU sovereign debt worries to drive down gold by selling it and buying treasuries until they decide that the time is ripe for gold or the Euro to go up again. Then they will sell Treasuries and buy gold or whatever the next scam is.
words of wisdom, CH. we are all being worked. Barrick evaporated two decades of profits. the shareholders are left holding the bag. their friends in the government cartels walk with the derivative payouts. it's a rigged game from the beginning. a bet on Au/Ag is that the powerz will crash and burn the shitstem when it suits them. the Rothschilds have pallets of bullion in their vaults. Au and Ag are the currency of the elites and always has been. gold flows into their vaults like the rivers into the sea. build a little dam. siphon off a tiny tributary before they ignite the conflagration.
So why didn't Peter cover his gold shorts at $255
and save his shareholders a $5 B dump?
Fast money, not without the occasional gem,
noted yesterday gold has been going down with
financial crises - not up. Big4 short gold.
Could it be deflation?
If so, the fat lady already crying...
http://www.jubileeprosperity.com/
Deflation in a world with mountains of debt is impossible.
The currencies are all under water, over valued, unfunded.
Something has to give.
The debt cannot be repaid which is why the monetary system is falling apart at the fringes. Greece, Spain and Portugal are just the first dominoes to fall.
Germany, France, the US have all massive public deficits that cannot be covered in this lifetime.
Interest rate hikes have a double negative effect.
a) Any economic growth that might have been wil evaporate.
b) Existing debt cannot be serviced at ultra low interest levels, it would completely collapse if governments had to pay additional for the monies they borrowed.
Gold is the only global currency and will hold VALUE.
End of story. You either get it or you don't.
"Deflation in a world with mountains of debt is impossible."
This is the only case where serious deflation IS possible.
Unless debt gets cancelled it will have to be repaid - somehow, somewhere
If debt gets cancelled the currency becomes worthless.
If debt gets repaid, the payments have to be funded.
Deflation is nowhere possible in any of these scenarios.
The US is flat ass broke my friend. The rest of the world tinkering on the brink.
You tell me that you accept the currency of a broke nation indefinitely?
Ludicrous.
Study Weimar, the treaty of Versailles and how the debt load around Germany's neck suffocated the nation.
The debt already here cannot be funded. Liabilities are increasing on a daily basis. The interest on past, current and future debt payments has no funding other than a downward spiral of money dilution.
This is not brain surgery. Like Peter Munk says. Hedges are not necessary when everyone knows where the price of gold is going.
If the big 4 are short gold, all the more reason to buy...
Ok, we all know that GLD is maybe ok for a day trade, yet no serious gold buyer bothers with them due to huge liability. Read GLD's 10-k filing at www.spdrgoldshares.com/media/GLD/file/10k_Sept08.pdf and pay special attention to pages 54 to 62.
Bottom line, if you want to invest in gold i would do as GLD's largest shareholder did months ago.... they sold their GLD holdings and purchased physical metal and took delivery. In this day and age counterparty risk is to be avoided imho.
Physical gold dealers were backed up with phone calls/orders from buyers of physical metal yesterday. At this price level it appears that many physical gold buyers have come into play. Same can be said with silver as buyers are taking physical delivery and holding.