So Much For John Burbank Turning Bearish On Gold

Tyler Durden's picture

One of the key catalysts that precipitated the perfect storm in precious metals selling last week was the WSJ article that John Burbank, among others, had sold off some or all of his holdings. Today, in a Bloomberg TV interview, Burbank refutes all the skeptics who think the top of gold is here, and makes it clear that while his offloading of the precious metal was merely a temporary trade to lock in profits, the long term fundamentals for gold are as strong as they have every been. So here it is: "The biggest reason to stay in gold is because central banks around the
world can see the writing on the wall long term
, which is that the
dollar will be devalued one way or another and that Congress has no
appetite for hard decisions which would be deflationary in nature, and
therefore, make the dollar higher than gold and not as much of a
necessary holding. You also have the Chinese consumer, who has become a
very large buyer, matching almost the Indian consumer and I think quite
clearly, will exceed the Indian consumer. I think ultimately, physical
gold is the story. It is a scarcity story
. The more the U.S. dithers and
the more the Fed is willing to print money, as opposed to dealing with
inflation properly, the more this trend will happen
. That is the biggest
reason to stay in gold right now. Otherwise, most of the beneficiaries
of quantitative easing will be backing off as most investors get back to
neutral."... "I think that long-term it is clear sovereign yields will be weak and commodities will be strong. It just a question of when we get there and when we price that in." As for risk assets heading toward June 30: "I think risk assets sell off.  I think they sell off now into it and we bottom again in commodities this summer." And there you have it, straight from the horse's mouth, instead of from some FRBNY pre-cleared journalist.

Burbank on if he's exiting the gold market or just trimming holdings:

"We have hedged ourselves across all commodities, we're invested in many different commodity equities, including energy, base materials, gold, and agriculture. We feel the repositioning of investors, looking at the end of QE2, is responsible for risk coming off. Gold is one of those things that investors bought to not be devalued against the dollar. The dollar is getting stronger against the euro. We think this is a temporary correction. Gold also typically bottoms seasonally in August. I can't imagine it not being strong until then."

On if this is a temporary pause:

"Unfortunately, we are having to watch the Fed and the governments around the world, whether it is China, the U.S., or Europe and then follow. It is like we're watching the last table at the world series of poker. All of these huge players with these huge amounts of chips, and we have to play how we perceive them to be playing. I think the Fed will end QE2, then it's going to see what happens. I think risk assets sell off.  I think they sell off now into it and we bottom again in commodities this summer. I think the better bet is to be cautious and just have some perspective about where things traded when QE2 started. Gold was $1350. Oil was $85. Silver was $25. I am not predicting it will go back to these levels, but the better bet, unless there is some other kind of liquidity coming from governments, is that they trend back those levels."

On if credit will freeze up again at the end of QE2:

"No, I do not think so. Markets and credits that have been provided to markets have done well. The oddity of all this is, likely, sovereign U.S. yields will tighten. The U.S. 10-year was trading around 2.61% at the beginning of November. There is a long way to go down actually to get back there. I think that long term is different than the short term. Short-term risk aversion will lead more money into the dollar probably than into sovereign bonds. But long term is a different story."
 
On pulling back on some of his other commodity bets:

"Hedge funds need to make money on a near-term basis, just like a mutual funds need to try keep up with their benchmarks. The Fed, by doing what it did with quantitative easing, forced a repositioning almost unwillingly by many investors to make inflationary bets, as well as to avoid being devalued as the dollar fell and fell and fell. So now you have a reversion to that trade and then things settle out. Then we will see what is strong, what is weak. I think that long-term it is clear sovereign yields will be weak and commodities will be strong. It just a question of when we get there and when we price that in."

On central banks becoming more of a player in the central market and how that changes the trade:

"The biggest reason to stay in gold is because central banks around the world can see the writing on the wall long term, which is that the dollar will be devalued one way or another and that Congress has no appetite for hard decisions which would be deflationary in nature, and therefore, make the dollar higher than gold and not as much of a necessary holding. You also have the Chinese consumer, who has become a very large buyer, matching almost the Indian consumer and I think quite clearly, will exceed the Indian consumer. I think ultimately, physical gold is the story. It is a scarcity story. The more the U.S. dithers and the more the Fed is willing to print money, as opposed to dealing with inflation properly, the more this trend will happen. That is the biggest reason to stay in gold right now. Otherwise, most of the beneficiaries of quantitative easing will be backing off as most investors get back to neutral."

Burbank on if he's looking to get back into physical gold:

"Our preference is in two areas. Physical gold and smaller cap common junior minors. We have two geologists based in Vancouver, and we think we have a good edge on which explorers are the right ones to own. We are buying, even now, and will continue to be to accumulate stakes there. Barrick and Newmont have come off at least 10% in the past couple of weeks. I think the gold stocks are discounting a further fall in gold and we don't know if it was going to happen. If there was another government intervention that provided a lot of liquidity in the world, then we would be quicker to come back in."

"After the earthquake, Japan put a lot of liquidity into the market, which held up risk assets longer than they would have. Europe dealing with its issues with Portugal, Greece, etc. We do not know how they may change their posture. Europe has the belief that there will be some change in stance by the central bank as well as potentially by the euro community. We don't know. Also, the end of QE2, is so heavily understood, that will happen, but not understood what will happen after that. It is possible the Fed has something up its sleeve. It knows risk assets will be selling off at the end of this. At least I hope it knows that."

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Turd Ferguson's picture

Interesting stuff but this guy is crazy if he thinks that QE is going to end.

I like this analysis more:

http://tfmetalsreport.blogspot.com/2011/05/1520-3950.html

Thorlyx's picture

QE to infinity, bitchez......

speconomist's picture

Are you really TF?

I've to admit that I've recently discovered your blog and really enjoy your analysis.

Banjo's picture

Turd Ferguson: I think QE might end as a sort of warning, let us print or watch the system start calling in loans.

Thats the beauty of our current predicament. Deflate or Inflate both are equally plausable due to how much debt we have on the books and depending on which trigger the bankers decide to pull. Of course they know in advance and position themselves to profit accordingly.

Get out of debt buy physical hard assets, land, gold, silver, food have some cash on hand too because in a deflaiton cash will be valuable. Anyhow interesting times.

When I say gold and silver above it's always physical. Would you accept an IOU for a house, land, car, groceries? I doubt it real asset, hard asset means get your hands on it.

 

SheepDog-One's picture

Buy and HOLD PM's, neither the FED nor Clowngress will not stop the QE printing Maniacal Monetizing fest until the whole thing falls apart in complete destruction, and the Golden Rule stands today is it has all thru history- 'He who has the gold makes the rules'.

Also dont forget good firearms in your metals shopping.

traderjoe's picture

The trouble with trading PM's and waiting for a better entry - all while he believes in their long-term proposition - is what if he can't get back in? That one day gold pops $100. When an EU country officially defaults or some false flag changes the world - ya think you'll be able to buy the open?

Trading physical PM's entirely misses the point. Trading paper, sure - play that game against the casino.

Rynak's picture

In the case of gold and stocks, i'm not that concerned about rapid moves in the short-term... the relation between both will become explosive in the future, but i think not yet.

What concerns me more, is the availability of physical itself. Who the heck knows how much is truely in the market left, worldwide? There may still be some reserves for a few months, or it may already be close to drying up.... and then we have all kinds of players buying physical like nuts.

So, to me the higher risk seems to be short-term physical scarcity, instead of short term paper volatility.

SheepDog-One's picture

'Liquidity' will be written about in the future as the biggest farce of all time. 

RobotTrader's picture

QQQ, IYR, XRT, et al all pinned at 2-year highs.

Wonder why the HUI is near annual lows?

tmosley's picture

Nobody gives a fuck about the HUI. We care about the real metal.

But that doesn't conform to your bias, so it will be ignored.

DaBernank's picture

And what about the physical silver I've bought at 18, 22, 28, 32? I'd put them up against the NASDAQ 1999 BS of QQQ.

Been playing waves in AGQ/ZSL since and made good profits, to fund monthly buying of physical gold. Happy as a (gilded) clam, thank you.

Cost averaging, bitchez.

SheepDog-One's picture

RobotTrader now apparently fighting to keep his 'most irrelevant and useless ZH poster of all time' status protected.

LooseLee's picture

The only plausible answer I can come up with is that the buyers of QQQ, IYR, XRT et. al ARE MORONS!

QEsucks's picture

Turd, your thoughts on a pullback in gold this summer? How low? My DCA is 1050. Do you see a 2008 repeat rout? I generously bought silver@49 ensuring a top and drop for my colleagues ;>).DCA 28.10

suckerfishzilla's picture

Despite the resentment arrayed against the practices of the central banks there is no shortage of investors who are playing into the hands of the nextphase of their game which is a gold backed currency.  There are other metals that have performed better than gold.  How a person of reason would aid and abet the central banks in their next phase of tyranny is beyond me especially when Silver has kicked Gold's ass for over 10 years.  Go ahead and keep buying Gold.  In the end you will regret your decision to do so as Woodrow Wilson regretted in helping to establish the Federal Reserve. 

ThisIsBob's picture

Peak gold.  Like oil, all the easy gold has been found.

SWRichmond's picture

Nice to know I'm not the only one looking at juniors.  Wish I had a couple of staff geologists in Vancouver to figure out which explorers to buy....

Franken_Stein's picture

 

@3:08

Isn't risk aversion by going into the dollar an oxymoron ?

 

eurusdog's picture

His play though keeps him out throughout the summer though. He sees more downside in Gold before it takes on new highs.

Roger Knights's picture

Typo in the article; "topic" should be "top" in:

"Burbank refutes all the skeptics who think the topic of gold is here,..."

au_bayitch's picture

Also in the last sentence of first paragraph in the quoted section. It should read "I CAN imagine gold not being very strong until then."

Caviar Emptor's picture

Keep in mind that countries, states and now even universities envision an end game where only those with gold survive. 

 

Got gold?

MachoMan's picture

Survival isn't guaranteed, that's for sure...  but, at the very least, I think they contemplate it becoming the ringer of the currency special olympics race.

MsCreant's picture

Retracement even as I type! It's still on like Donkey Kong. Do not be distracted by the smoke and mirrors from the day traitors...

Buy and hold. Hell, my knuckles ain't even white during these drops any more. Used to be, but not now.

If I did not desperately need my cash (some of ya'll know I am homeless and fighting with my insurance company), I would be BUYING THE FUCKING DIP!!! There, spelled it out.

Jendrzejczyk's picture

If you need help rebuilding, just ask. Hope you're holding up alright. You sound as  FIESTY as ever

DoChenRollingBearing's picture

More evidence of the high quality of people here at ZH.

Bay of Pigs's picture

Yes, I remember getting laughed at on Mish's board in Oct 2008 for even suggesting the correction was over ($1000 to $690) in gold. Most said $400-500 was coming next and that the top was in. Boy, times have changed since then.

Best wishes to you MsCreant...

MsCreant's picture

;-) Thanks Bay. I remember all that too. It was the moment I had the courage to make my first physical gold buy (800). Never regretted it either. Nothing is getting better. As long as we all know that, the rest is squiggles on a short term chart.

MsCreant's picture

This is my third time trying to post to you, hope it is the charm!

I saw your generous offer when you made it and I am so glad to see you here to tell you so and to thank you for it. I thought to leave a message there, but I waited so long that I did not think you would look there.

I have been going back and forth on the rebuild vs. walk away and buy a new house. I am going to talk to a contractor who is into green design tomorrow morning and it may be the case I rebuild with him (doomstead?). Talking to him on the phone and hearing others praise him makes me feel more hopeful regarding my situation than I have been in a while (I know too much and don't hardly trust anyone. Buying a new house, how will you convince me to trust the titling process. But then again, I don't want Chinese drywall dammit). There is no doubt that I was under insured for this particular disaster and I will lose money. It cost $16,000 just to get the tree off my house, that comes off the top of my rebuild money, then they depreciate the value of the house due to age and I have to remember everything I ever did to improve the house to get the value up. It has been hard and it isn't over, but the outlook is getting better. Thanks again. Just the gesture is a real upper.

Jendrzejczyk's picture

So sorry I missed your other replies, posts fly by so quickly and get buried here.

That must have been one hell of a tree!

Fighting with the insurance company (or any large corporation for that matter) is a maddening and frustrating experience isn't it? Hold your ground and try to remain calm, but show them you will fight if pushed into a corner (as I know you will).

Glad to hear you are getting recommendations from friends to find your builder. That is the best way to find a good contractor.

"Green builder" raises a few $ sign warnings for me, just be sure the return on investment in the green stuff doesn't take too long. Forty years to get back your investment in a $2000 LED light fixture might be a mistake ;).

You picked that house/property for a reason in the first place. A decent contractor can fix it back better than ever if it makes economic sense for you to do it. Renovations are never fun while you are going through the process, but the end result usually makes all the pain worthwhile.

My offer stands, and I know you will make it through this.

Jendrzejczyk's picture

P.S.

I hope you kept that tree for firewood. Burning that fucker next winter would be some sweet revenge.

Hulk's picture

16k to get a frickin tree off your house? Shit MsCreant, had you supplied the chainsaws, beer, pressure bandages and tourniquets, the Colonel and I could have had that sucker off in a few days!

SWRichmond's picture

I'm sure your inclusion of "tourniquets" inspired the level of confidence you wanted...

:)

SWRichmond's picture

Hell, my knuckles ain't even white during these drops any more.

Likewise, I am at peace with my PM holdings.  Searching juniors right now; my idea here is that we've had a nice runup, so we have a chance to see who performs and who doesn't under conditions good for PMs.  The longer-term charts are very revealing.  Factor in a look at the corporate stock structure, executive compensation, resources, cash, who's already producing, who's sold product forward, who's organized and who's lying their asses off, and you have the structure for a screening process.

Trying to buy some right now and no one will effin' sell it to me.  Some kind of thinly-traded thing.  Dammit.  Who's providing liquidity in this market, anyway?

:)

MsCreant's picture

I feel overwhelmed by the idea of buying miners so I stick with the physical. I would need a lot of time to do it right (though I do think it is probably a good investment). I guess you don't worry about nationalization...

SWRichmond's picture

Nationalization is always a consideration. 

Edit: one of the companies I'm looking at is in California, for example.  Permits, EPA, state meddling...will they ever be allowed to produce anything?  De facto nationalization.

The rest of my plan is diabolically simple: wait for the correction, apply for and become a Bank Holding Company, borrow hundreds of $Billions from the Discount Window, and load the boat with juniors.

diabolically.simple

Al Gorerhythm's picture

It would enhance your returns if you naked short the companies that you have in mind first. Don't wait for the dip, create one with a short hedged position in physical. Start the waterfall and THEN buy the dip. You're just too honest.

Silver Bug's picture

The hate campaign that was commenced last week on Gold and Silver, is quickly being dismissed this week. It is not the first time, and surely won't be the last.

 

http://silverliberationarmy.blogspot.com/

Thunder Dome's picture

I'm still hating and I will be back when it's time for another culling of silver bugs.  As for now, the smokehouse is FULL.

Quinvarius's picture

Not to sound contrarian or cliche about what gold will do short term, but I know that when gold really starts moving, the big guys will all be out of their long trades.  I like hearing that they have found reasons to be short term bearish because they think they can trade gold for seasonal or other factors.  They can't trade it.  No one can.  Their machines and models flip it to the market at a discount until suddenly there isn't any left.  The ability of technicals to forecast prices in gold will diminish quickly in forward duration as a violent re-pricing approaches.  What happened to silver moving from 15 to 50 is coming to gold.  The hard part will be not selling it at the base of the move.

DoChenRollingBearing's picture

I do not know ANYONE who has sold their physical gold.  OK, I only know 3 people who own investment gold (other than myself).

I have read either very few (or NONE) here at ZH who have sold their physical gold.

Physical gold is being held by VERY STRONG HANDS.

Mine will be GIVEN away at the proper time.

trav7777's picture

nobody ever should sell gold.

it's a transgenerational wealth asset.

You trade gold, for something else.  Or else pledge it as collateral for something.  Or you hold it.

Trying to transfer it back and forth to and from paper is a fool's errand

Quinvarius's picture

I stand corrected.  The hard part will be not spending it too soon.

jimmerfredette's picture

I'd be interested in hearing specific metals predictions for the summer, I don't think it will be a typical "sell in may" year.  I'm inclined to think a slow rise till end of June, then down for most of July and August, then from Sept to the end of the year I see new highs. 

disagree?

 

 

Hephasteus's picture

I predict they will got ape shit crazy and only buy and holders will be spared.

Al Gorerhythm's picture

They will go up, then down, then up, etc.