Friday, December 4, 2009

The Plummet Continues

As I write this post, spot gold's resumed its plummet to reach US$1168.00. The support at $1200 just wasn't there. Nor, come to think of it, was the resistance at $1200 when gold was on the rise.

It could be that the $1200 number was merely a "watcher's number," and was not taken seriously by the participants themselves.

At any rate, the carnage continues. We may hear the gold bulls hope for the Chinese central bank, and/or others, to step in and buy.

To add insult to injury, the jobs-report-fueled market rally has almost evaporated.

Update: The decline continues. As of 2:45 PM ET, after a slight recovery srarting just before noon ET, gold's fallen further to $1158.20. The Dow's down 0.05%; the S&P 500's up 0.16%; and, the NASDAQ's up 0.43% The jobs-report rally stayed almost-evaporated.

How ironic - the gold/stocks correlation went kablooey when stocks were up, but has held now that stocks have fallen back. The only consolation (other than hope from China) is that gold was quite overbought until today.

Another Surprise In Another Salvation Army Kettle

Yes, another gold coin has been dropped in a Salvation Army donation kettle. An anonymous, generous Grand Island, Nebraska donor put in a one-ounce, 1878 $20 gold coin: "The coin was dropped into a red kettle... at Grand Island's north Wal-Mart, where Al Anderson of Grand Island was ringing a bell."

The rest of the story is here.

Gold Should Hit $3000 In Two Years: David Tice

The Daily Doom has a brief report on an argument made on CNBC by a strategist, David Tice, on why gold should go to US$3000/oz in two years. He's assuming that developing countries will up their gold reserves five percentage points above the current 2.2%. Developed countries have about 38% of their reserves in gold.

His argument may not provide much comfort now, given what the jobs report has done for the U.S. dollar and to gold.

Unusual divergence, given recent correlations

As I write this post, the U.S. stock market has shot up: the Dow's up 1.38%; the S&P 500's gained 1.57% and the NASDAQ's leapt up 1.75%. This jump-up comes thanks to the recent job report, which showed a drop in the unemployment rate to 10.0%. The market was expecting it to stay at 10.2%. More encouraging was the job-loss figure for November: instead of an expected 130,000 loss, the U.S. economy lost only 11,000. [Details here. The Business Insider has a more detailed breakdown of the report here.]

For macro traders, this is incredible news: no wonder the three major averages leapt up. On the other hand, gold's still languishing below $1200. As of the time of this post, spot gold's at $1189.40. The near-term positive correlation between gold and stocks is nowhere to be seen now.

This could be explained by traders forgetting about gold for the nonce and piling into stocks. The decline in gold below $1200 times up with the release of the jobs report, which suggests hot money dumping gold and moving into stocks. However, this negative correlation does hint that the Fed may act to jack up rates earlier than many gold bulls think. A rate rise would impact the carry trade as well, which would spike the greenaback up and produce a plummet in bullion's price.

Lengthy And Thoughtful Gold Bull Article At Seeking Alpha

It's by "Washington," and it uses Goldman Sachs' recent up-targeting as a springboard: "Goldman: Gold to Rise Above $1,400 an Ounce by 2011" Despite the title, almost all of it is a detailed elaboration of eight reasons why gold should go up:
gold is a reasonable investment based on: 1) the dollar; 2) central banks; 3) declining production; 4) inflation; 5) deflation; 6) global short-term interest rates; 7) uncertainty and distrust in government; and 8) flight to safety.
Of special interest is the detailed discussion of a production decline in the face of the current bull market, and an examination of how well gold does in deflation. Regarding the latter, the author concludes that gold thrives in deflation if monetary expansion accompanies it.

Gold Drops Below $1200

In the last hour, spot gold dropped to about US$1185/oz; it sliced through the $1200 level like the proverbial knife through butter. As I wite this post, the drop's been partially reversed: bullion's recovered to $1194.00.

It reamins to be seen whether or not new buying will push the metal to the $1200 level....

Gold may be linked with recovery, but...

...once the recovery ensues, the case for gold (and the gold-mining industry) becomes less compelling. So reasons Pierre Lapointe, assistant chief economist with the National Bank. He's got gold stocks pegged as another kind of cyclical; these do well in recovery but not so well afterwards. He prefers tech, energy and consumer discretionaries for 2010.

Regarding gold itself:
"We have doubts about the viability of the recent bullion rally," he wrote. "Since we think U.S. employment could start growing again soon and rates could start rising sooner than the market expects, we believe the U.S. dollar could gain support at the expense of bullion."

Such is life when gold is mainstreamed. Instead of being the great alternative investment, it becomes one of many mainstream investments - and is treated as such.

Quick profile of a country with a pronouced "reserve gap"

The name may surprise some, but the country is Canada. The Government of Canada decided that paper reserves were the way to go starting in 1980; its last holdings of bullion were sold in 2002. From 652 tons in 1980, all that's left in the GoC's possession is 100,000 1-oz coins.
[The Ministry of] Finance insists it has no regrets about emptying its gold vaults. Its priority is to have international reserves that it can easily sell in an emergency, made up of assets whose value remains relatively steady. The government does try to earn a decent return of its reserve holdings, but that goal is secondary.
At least, the sales started at the beginning of the 20-year gold bear market; otherwise, me and my fellow Canadians might have to endure some Gordon-Brown-related jokes. Still, it is odd that a country with so many gold mines would have a government that eschews gold in its reserves.

It Doesn't Always Go Up...

Yesterday's spill in gold, although mostly erased in the afternoon, continued last night; spot gold bottomed at just above US$1200/oz just before 8 PM ET. As I write this, spot gold's at $1202.50. Marketwatch credits with the sensible observation that profit-taking was responsible. Gold's been up the previous three days, and was due for a pullback.

A Reuters poll, though, indicates that the profit-taking may go further. As reported by the Globe and Mail: "In a survey conducted between Monday and Wednesday this week, 18 of 34 analysts, traders and funds said they expected prices to fall below the psychological marker [of $1200]." The same report notes that gold's been up by an incredible 60% in the last twelve months.

As it turned out, $1200 didn't mean much when the price rose through that level. On the other hand, the number itself is still widely known. A "support level" is a price at which a lot of new demand is called forth, often sufficient to keep the price from falling much below that level. Last night's action indicated that $1200 is a support level for gold, but such a level is no insurance against a further fall. The next few days will tell.

(This thumbnail description of support levels owes a lot to the writings of the late Harry Browne, as did my earlier one on resistance levels.)

Thursday, December 3, 2009

List of unusual uses for gold has a list from Forbes with nine unexpected uses for gold. The items range from pharmaceutical delivery agents to sun blockers.

Goldman Sachs Raises Gold Target Price To $1350

The company expects gold to reach US$1350/oz within the next twelve months, and for the yellow metal to average $1,265 over 2010. The reason given is Fed policy, which Goldman expects to keep rates at near zero until 2011.

More Details On John Paulson's Gold Bet

Couresty of Tech Ticker, which uses it as a springboard into how he thinks. The post also mentions that Paulson's buying bank stocks now.

Cautionary Note In Seeking Alpha Article

This note comes from a gold bull, who's long gold. Daryl Montgomery's point is a contrarian-related one, centering on Barrick's recent closing of its gold hedges:

The end of an event that has been propelling a market should be paid attention to by investors. It can mark a temporary pause in an uptrend. Gold is already overbought on the daily and weekly charts, so it is vulnerable to some selling. The momentum, however, is extremely powerful and the current overbought state can last for a while longer before selling comes in. The selling will only be temporary, however. The peak of this rally is still at least a few months off.
Long-term bull, short-term skittish. Not that abnormal in a rising market.

Another SA article has a tongue-in-cheek evaluation of the claim that central banks are manipulating the gold price downwards. [Found here.] It's entitled, "The Gang that Couldn't Shoot Straight: Central Bankers and Gold."

Minyanville's Gold Bull

That bull is Przemyslaw Radomski, who wrote an article giving five reasons why gold should go up. As if the case for new gold bugs, inflation isn't one of them. Four deal with demand and potential demand: the smart money's piling into gold; central banks are buying; an insurance company is buying bullion, which may be precedent-setting for other insurance companies; China's central may buy lots more gold to end a "reserve gap." The fifth reason deals with supply. "Gold is scarce", and is getting scarcer due to overall production declines.

Unlike other bulls, Mr. Radomski is more focused on gold stocks. The second page of his article goes into a potential breakout of the Gold Bugs Index [the HUI]; it cautions that this breakout may not occur, suggesting a near-term correction may be coming in both gold stocks and gold itself.

Although devoted to gold, the article still has a tie to the overall stock market. Radomski isn't a professional goldbug.

Noted Goldbug Interviewed By; Predicts $8000 Gold

That goldbug is James Turk, and his argument doesn't directly hinge upon the standard inflationary-collapse scenario. He notes that, in the 1930s and 1970s, gold peaked at a price per ounce equal to the point value of the Dow. If it's assumed that the Dow's currently in a holding pattern like that of 1966-82, then US$8000 gold is possible because the "cross" would occur at about that level. It did so at 800ish in early 1980. He gets $8000 by multiplying 800 by 10; he estimates that the 8000 level will be reached by about 2015.

It's a nice scenario, but techncial scenarios of this sort can be played in more than one way. Gold bottomed at about $100 in August 1976 [h/t] after rocketing up to about $200 in 1974. The low for gold this cycle, coming during the financial crisis in 2008, was slightly more than $700. There's a difference right there. In the 1973-4 stock-market debacle, gold shot up. In the 2007-09 one, gold didn't.

Putting that difference aside, and assuming that gold's present run will track 1976-1980, we get an indicated price of almost $6000 for gold - 8.5*$700 - and the peak should come in 2012. After which, gold will plummet down to about a third of peak value; it did so during the Volcker disinflation. A two-thirds drop from that hypothetical level gives $2000 as the bottom.

Both of these scenarios are highly bullish, but note how they clash with each other.

There's also another trouble factor with any such comparison: today is quite different from yesteryear. Back in '73, the U.S. had outright double-digit inflation. In 2008, there was anything but. Even Shadowstats' alternate measurement of inflation collapsed this past year [from double-digit levels, I should add.] From this angle, any bull market in gold at all is surprising.

On the other hand, the U.S. Federal Reserve has expanded the monetary base in an unprecedented way, and the U.S. Treasury is groaning under an unprecedented peacetime budget deficit. Despite all the talk of deflationary collapse of the money multipliers, the M1 money supply is still growing at a fast clip (even if M2 isn't.) Also, last year's credit crisis was far more severe than any downturn-associated crisis in 1973-4 - as has been the monetary and fiscal response to it.

The difference between now and then make any comparison problematic. That said, I might as well throw out a third one: it comes from Ronald Rosen, the same source I used for gold's 1970s bottom above. He compares 2008 gold to 1978 gold, which would imply a huge bull run ending in collapse as of late 2010 or early 2011.

St. Louis Fed President Says Commodity Spurt-Up Not Inflationary

From Marketwatch:
WASHINGTON (MarketWatch) -- The recent run-up in gold and oil prices is not inflationary, said James Bullard, the president of St. Louis Federal Reserve Bank of St. Louis, in a CNBC television interview Wednesday. Bullard said the Fed generally would not like to start tightening monetary policy until the unemployment rate starts down....
To the extent to which Bullard's opinion reflects the Fed Board of Governors', the low-rate party ain't over yet. Interestingly, Bullard hints that there's a commodity bubble; ironically, it means that the Fed may be inclined to keep fueling the run-up - and will do so as long that the BoG is convinced that the run-up is irrational.

Gold Stocks Outpace Gold Last Month

Someone who believes that gold stocks outperform gold in bull markets hasn't had an easy five years, but did have an encouraging month. According to the Globe and Mail, the S&P TSX [Canadian] Gold Index was up 21% in November. Gold itself was up 15%.

Also mentioned in the report was: a) the broadening of gold's appeal into the mainstream; and, b) fears of a gold bubble. Like it or not, gold's an alternative investment; a lot of goldbug enthusiasm is compensatory.

The latter half contains a balance of opinion. A vice-president at Leede Financial Markets Inc. in Calgary, Sheryl Purdy, says that the mainstreamization serves as a clear sell signal; she's the "prudent bear" of the pair. Sprott Asset Management's Charles Oliver reiterated his call for $2000 gold, although he acknowledged the possibility of corrections along the way. (He also didn't give a timeframe for his target price.)

Gold Hits Another Record Last Night

Spot gold managed to get above US$1225 last night, in part because of expectations that central banks will be buying. This Globe and Mail report notes that the China-gold-reserve debate continues, with another official weighing in: "Zhang Bingnan, a senior official of the China Gold Association, said there was more scope for China to step up gold purchases, but only over the long term, and not in the open market, adding that he was voicing a strictly personal view."

At least seemingly, an earlier cautionary statement by central bank vice-governor Hu Xiaolian is being interpreted as also meaning "please don't step on our turf."

Wednesday, December 2, 2009

So Much For Strong Resistance At $1200

In an earlier post, I gave a thumbnail motivational description behind the technical analysts' term "resistance." As it turns out, there was little at US$1200: after spending a fair part of yesterday just below it, gold went though it last night with little trouble. As I write this post, spot gold's at $1209.80.

This Globe and Mail report by Jan Harvey points out that gold has also set price records in euros and British pounds. One interesting fact embedded therein: "In the physical market, the flow of scrap gold re-entering the Indian market – which usually increases when prices rise – tailed off as sellers sought higher prices, dealers said."

In other words, Indian sellers aren't coming out of the woods anymore: they're staying with what they got. When potential suppliers hold off supplying because they themselves think the price is going up, a jump in demand can give a real kick to the price.

I haven't read any report of seller reluctance in North America. Those cash-for-gold ads are still running; from what I've read, people in this continent are still sending in their gold. Once sign of a real bubble in progress would be a scale-back in those ads, as people hold on to what they've got, combined with a proliferation of ads from gold sellers.

Reuters has provided a timeline of gold prices here, which covers the entire bull run up to now.

Update: Adam Brochert, a gold bull, has assembed charts of gold in several currencies. They show break-outs in almost all major currencies. His article's over at the Market Oracle.

As I write this update, spot gold's at $1213.50

Update 2: Gold bull Jim Rogers has an answer for why gold's rallying in all major world currencies: deficits.

Heard of "Peak Oil"? Now, there's "Peak Gold"

Joe Wiesenthal of the Business Insider has a post outlining a retired oil-and-gas geologist's take on world gold production. That geologist, Lous de Souza, aims to be the Matt Simmons of "peak gold."

The post is here.

In a similar vein: another post, with a video of Richared Bernstein explaining why he thinks gold prices are "silly."

Barrick Has Closed All Its Gold Hedges

Barrick Gold (formerly American Barrick) is the biggest gold producing company, one that managed to survive the gold decline all the way through the 1990s. Unfortunately for them, one of the techniques they used got them into a spot as the gold price has advanced.

That technique is forward selling of (some of) their production, or hedging. Barrick got into the habit of forward-selling some of their production back in the old bear-market days, and the habit stuck even when bear turned into bull. As a result, the company saw itself selling some of its gold at well below market prices.

According to this Globe and Mail report, Barrick has now eliminated its hedges. It can now benefit fully from any gold-price advance.

Cost? US$3.9 billion in newly-issued equity, diluting existing shareholders by about 10%, and US$1.25 billion in new debt securities. Helluva price for feeding a habit.

Of course, I was a little unfair in the previous sentence. Said habit enabled them to ride out the 1990s decline. More worrisome for the future, are similar habits built up in the gold bull market. If a group of experts at the world's largest gold producer can be fixated for years because the earlier fixation paid off, and was celebrated as shrewd management, then it's quite possible for a gold bull to be fixated after years of buying gold mechanically and being thought of as an "investment genius" for doing so.

Moral? In investments, never put anything to bed! 'Tis better to be a dullard than a "slaughtar'd," unless you enjoy the ride more than realizing profits.

Update: The lodestone removed, Barrick shot up 7.6% yesterday. The dilution seems to have been worth it.

Gold Makes The CBC...Gold Skeptic

CBC commentator Don Pittis examines the question of whether or not gold is a "real" investment, and concludes that it isn't. His article contains the talking points oft used by gold skeptics: gold pays no interest, and costs a little money to store; gold goes down as well as up; and, the venerable "you can't eat gold."

Chinese Central Bank Purchases May Not Be A Done Deal

This Reuters report quotes a vice-governor of the PRC central bank as saying, "'We must keep in mind the long-term effects when considering what to use as our reserves.'" It was in response to another official, not with the central back, who publicly recommended that the central bank increase its gold reserves. That recommendation came right after the Dubai crisis.

To my eyes, a systematic PRC purchase program doesn't look like a done deal. Some gold bulls seem to assume that it is.

And The Leverage Is...Where?

One of the talking points regarding gold-mining shares is that they tend to go up faster and stronger than gold itself, becasue of a leverage factor. Since miners have costs, they only net a fraction of the total gold price when they sell what they've produced. However, assuming their costs remain the same, they net a full dollar of every dollar increase in the gold price. If those costs don't rise along with the bullion price, then they would disproportionately benefit from a gold bull market.

Example: a gold miner whose costs are $500/oz grosses $300/oz when gold's at $800. If gold goes up to $1100, then the mining company's gross doubles to $600. Gold itself has risen only 37.5%, but that miner's gross profit margin has risen 100%. That's the effect of capturing a full dollar on every dollar rise.

Given this schematic, we would think that the NYSE Arca Gold Bugs gold mine stock index (the HUI) would be outpacing the SPDR GoldShares trust (GLD). Unfortunately, that hasn't been the case for the last five years:

GLD, which tracks the price of bullion, is the black line. The HUI is the gold line. As should be clear from the chart, the above leverage either isn't there or isn't reflected in gold-mining share prices.

Of course, the stock-market collapse had a lot to do with it - but even before, the HUI basically tracked the bullion price. (If you're interested, the flaw in the above schematic is the assumption that costs willl remain fixed.)

Chart courtesy of

Tuesday, December 1, 2009

David Rosenberg Calls For Possible US$2600 Gold...

...and the call made it on Yahoo! Tech Ticker. Mr. Rosenberg has pinned his hopes on China. His model tells him that $2600 gold would be reached if the Chinese central bank increases gold reserves from its current 1054 tons to 10,000 tons. His forecast uses a already-issued recommendation from Ji Xiaonan, the Chief of the state-owned Assets Supervision and Administration Commission, for the central bank to do so over the next eight to ten years.

Interestingly, the Tech Ticker post goes into bold for some bullish items in the post. Looks like that Yahoo! blog can be counted in the gold-bull camp.

Milestone Reached

Shortly before noon ET, spot gold made it to US$1200/oz. As I write this post, the spot price is $1198.40.

The next few days should be interesting. $1200 is a significant number because more than a few professional goldbugs have made it a very public target price. Consequently, there's a lot of significance attached to gold at $1200. Some may well decide to sell and take a profit now that the target's been reached. The emotional significance of the number, as a milestone, makes it a strong "resistance level" in techical-analysis jargon. In non-jargon, it's a price at which many participants are tempted to sell.

If gold goes through $1200 and stays there, and does so without a long slog at the near-$1200 level or an outright spill, then that potential supply overhang will prove to be not much of one. Technical analysts interpret this action as good news, as it's a sign that net demand is still strong.

[H/T: the late Harry Browne. I got the interpretive framework for resistance levels from his books.]

Gold Makes The Telegraph

From the keyboard of James Quinn, US Business Editor for the Telegraph, comes this article: "Gold acquires new investment aura." Mr Quinn elaborates upon two reasons why gold's spreading: the first one ties into why I see an incipient bubble in the metal. Gold wasn't slaughtered in 2008, and is up smartly in 2009. The second reason can be summed up in a brief sentence: gold isn't stocks.

As of now, mainstream reports on gold have concentrated on the metal itself. I've seen no real mainstream mention of gold shares.

Gold - Specifically, John Paulson's Holdings - Make The Huffington Post

HuffPo isn't part of the financial media, and it isn't exactly a safe haven for goldbug boosterism. Nevertheless, it is a venue for guys like John Paulson. Posted there is a chart of Mr. Paulson's holdings, which currently exceed that of several central banks.

Now, if George Soros was (publicly) plunging into the metal, I daresay it would rate a full article...

First Crock Of Gold In A Salvation Army Kettle

Every holiday season, there are some gold-holders who deposit some gold into a Salvation Army kettle during the Christmas drive. The first recorded gold coin in a kettle this season took place in York, Pennsylvania. "The South African gold krugerrand is valued at nearly $1,200. It was wrapped in a $1 bill."

Interestingly, no gold coins were donated in that city last year - only some gold jewelry. As of this time last year, gold had dropped to about $750/oz and (of course) the financial crisis was in full swing. Unlike the general averages, gold stocks bottomed in November 2008.

It just goes to show you: prosperity enjoyed tends to be prosperity spread.

$1500 The New $1200? Not For Some

In Canada, the Bank of Nova Scotia is the big bank that specialized in selling precious metals: it might as well be the semi-official gold seller. As you might expect, Scotiabank is bullish on gold.

However, the economics department isn't that bullish. According to this report, Scotiabank economist Patricia Mohr expects gold to hit US$1300/oz "during a time she referred to as a new gold rush." The timeframe isn't specified, so it might be sometime next year.

Web Video Explaining How To Invest In Gold

If you need it, it's here, courtesy of the Globe and Mail.

What Crisis?

The Dubai World fear is dissolving like a sand castle on the seashore. After staying almost flat yesterday, gold futures made a new record high this morning: US$1199 and change for December delivery. Spot gold didn't quite make it that high, but it was close too. As I write this post, spot gold's at $1192.30.

This recovery can only fuel the optimism of gold bulls. Remember how scared people were? Remember the stories claiming that the much-waited-upon major correction was finally upon us? Remember the panic drop?

As it turns out, the panic was quickly reversed, and gold went into a holding pattern. One of the earmarks of an incipient bubble is prudent bears being made to look like fools. In a minor way, as Dubai World turned out to be a tempest in a teapot, we saw this pattern over the last several days. Gold's still oversold (as far as I know) but it snaps back as if it weren't.

Of course, pre-open stock futures are well up today too. And, the dollar is down. Gold keeps benefiting from being part of a "recovery trio," and will do so as long as it's widely believed that a strong U.S. dollar is an obstacle to U.S. recovery.

Monday, November 30, 2009

Fascinating report from a Zimbabwe visitor

Amongst goldbugs, Zimbabwe has become notorious because it's recently suffered an all-out hyperinflation. It's become a goldbug meme to equate Zimbabwe with the United States.

This travelogue by Alf Field, linked to at, presents a fascinating picture of a country that's recovering from the hyperinflation tornado. A large part of the piece brings the reader up to speed on the Mugabe government, and explains why the hyperinflation got rolling.

As it turns out, one of the triggers was massive money-printing to buy up foreign exchange to repay IMF loans. This fiddle produces an out-of-control spiral, because the money creation devalues the home currency. As the home currency goes down in terms of the foreign exchange needed, more needs to be printed to buy the same volume of foreign currency. The result is a Red Queen's Race.

People who believe that the U.S. is going to be another Zimbabwe should realize that the U.S. government has no need to buy any foreign exchange to pay off U.S. sovereign debt. It's true that Treasury indebtedness to foreign entities is worrisomely high, but it's all denominated in greenbacks.

Of course, there's the possibility of a future IMF loan to the U.S. government. (Wouldn't that be a come-down?)

Bloomberg commentator suggests U.S. Treasury sell gold reserve

That's the advice of David Pauly, in a column entitled "Gold Buyers Nip at Ultimate Emotional Experience." For those new to the game, it contains most of the standard talking points used by the gold-averse.

"Dubai downer" indeed

An article in Gold World News, "Dubai Downer To Stop Gold Charge," presents an interesting skittishness. It presents the gold bull market being stopped outright by the Dubai crisis, and supplies further items that suggest gold had risen too far too fast. The concluding paragraph says:
Clearly, this portends the end of the gold boom, with the economic depression set to cast its long shadow over the bouyant [sic] gold market. For many, it is a clear signal that the potential second down-leg in the world economy is here. Alive and kicking.
This kind of article would be pegged as "anti-gold" by gold enthusiasts. To find it in a Webzine called Gold World News suggests that bullishness is still not universal. We're seeing the usual journalists' ebb and flow, as driven by immediate-term ups and down, rather than a fixatious bullishness.

Brett Arends Compares Gold Bull To Stocks, And Finds Stocks Wanting

As I write this post, the most-read article in Marketwatch is an opinion piece by Brett Arends, "Gold run a reason to be wary of the stock market." He describes, fairly accurately, the state of the gold market when the bear ended in 2001 or so. In a word, it was comatose. He concludes that the long-term bear market in stocks isn't over, because we haven't seen the same level of apathy towards the stock market yet.

He's quite right about few people being around when gold finally bottomed, and he describes it well. My own believes gibe with his regarding the stock market, although I think "range-bound market" is a better descriptor. March 2009 may mark a multi-year low, but I believe there will be another near-generational buying opportunity in several years when valuations are a lot better.

Calm After The Plummet

Since trading began last night, gold has drifted slightly downwards. Given the Dubai panic, that may be good news all told.

Also, an official in China - Ji Xiaonan, who chairs an advisory body overseeing some large Chinese corporations - said that the recent panic may present a buying opportunity for the Chinese government. Given his position, this statement was basically an op-ed - but it may be echoed by Chinese central bank decision-makers.

Sunday, November 29, 2009

Take-Out From Financial Sense Newshour Podcast

The Financial Sense Newshour podcast is an old goldbug show. Over the years, it's expanded considerably beyond its original hour: this week's show took more than six.

If there's any theme that was present (one that tied into its San Francisco Gold show special), it's that gold is not in a bubble because many juniors aren't moving all that much; some are undervalued given their prospects.

It's a good point. At the climax of the gold bubble, juniors will be priced almost as if they were producers already. Juniors with good exploration results will explode upwards. Although good results do lead to jump-ups already, we're actually far from that stage.

We're also far from the point when gold-exploration stocks capture major mindspace in the investment community. There are no "instant millionaires" from gold-exploration stocks. Capital is still scarce except for so-called elephant deposits.

That bring up another point, although a technical one. Thanks to a tightening of regulations after the Bre-X scandal, there are well-spelled-out procedures used to estimate the size of a deposit. Elephant-style deposits are one million ounces or more. It's quite possible to make a viable mine from a six-figure ounce deposit, but there's next to no interest in that size. Had we been in full-fledged bubble territory, there would be.

There's also talk of takeover activity in the gold-juniors world, where an exploration company with a million- or multimillion-ounce deposit gets bought up by a big producer. M & A activity in this sector is analagous to hedge-fund interest in gold itself.

The ride's far from over.