Peak Gold: Fact or Fiction?
April 14, 2010
Supply concerns regarding gold are only now being realized by the market.
As I have written in the past, these concerns may ultimately over-ride currency related trade!
See this article on peak gold by the Globe and Mail.
Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (”MRCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.
The New Sector: Gold
March 17, 2010
I have had some problem with people saying that I am a hypocrite! They say that I am negative gold, and can’t see clearly that gold is the “only way to go”. Not true I say, “I like gold just as much as the next guy, AS LONG AS IT IS MAKING ME MONEY”
Those that have taken the time to read some of my previous articles will be very aware that my opinion of gold has been consistently bullish on a longer term basis. The ultimate arbiter of price being supply vs. demand, gold continues to have excellent fundamentals from this standpoint. Gold’s problem has been that more often than not gold is simply a proxy for the currency trade. My argument has been for some time that the short term movement is currency related while the macro or longer term pricing is predicated on good old fashioned supply/demand. Based on this and the uncertainty in the currency markets I believe that we are ready for a new leg up in the price of gold over the next number of months.
Fundamentally the price of gold is great. If you are a producer the current price not only makes you profitable it opens up a number of areas that weren’t profitable before. So what is wrong with the stocks of the producing companies? They certainly don’t seem to be reflecting the advantages that the current conditions offer. The problem seems to be that the market doesn’t want to give the” Blue Sky Premium” that should be there. If you are Apple you can trade at levels that predict great future earnings or Caterpillar that can predict huge upside based on improvement of exports. But if you are a gold stock right now you get kind of laughed at if you say your outlook is for higher prices and hence improved earnings. I can parse this, and give a whole bunch of reasons, but I don’t care to right now (see next section). All I think I know is that it has given us an opportunity to be back in the stocks in this sector. I feel it is just now getting ready to make its next leg up. I have produced charts that represent the big three in North American gold stocks over the last year, Barrick, Newmont and Goldcorp. They are all off their highs and all trading, I feel, at a discount to where they should be in light of even current gold prices.
All of these stocks are trading at levels comparable to where they were when gold was at U.S. $1000. or less. This gives me the impression that collectively they (the stocks) have predicted too much of a sell-off in the current environment. If you look at the currencies they all retraced roughly 10% against the U.S. (Euro 146+ back to less than 134 recently) and the price of gold certainly has not retraced to $1000 as of yet. I don’t believe it will. Therefore the market has predicted too much of a retracement for these stocks.
So here are the reasons that we (me) in the commodities world would look at for why gold now has a new positive outlook:
1. Currencies. The first thing to consider here is what our currency relationship will do. The Euro is currently a basket case and not the basket of currencies it was designed to be. This means that we will once again be looking for an alternate to the U.S. dollar when we are uncertain. Up to this point that alternative has been the bond market or the Euro. To a lesser degree the Aussie or Canadian dollar. If you were like the Chinese and bought zillions of dollars worth of bonds you have just scored a very nice 10% return on your low yielding bond purchases. This allows you to now re-deploy funds to other areas. If you are the Europeans the same has occurred against your own currency, except to re-deploy, you might have to guy Greek bonds that you would rather not do. If you are American or the rest of the world your bets are also limited. This means that your safer haven once again becomes at least partly gold. If you are buying Aussie or Canadian it also means that you are making a bet on gold indirectly. One way or the other an alternate to owning more Euro (or pound for that matter) based anything, has a much more appealing feel. This accounts for why gold has stayed above $1100 U.S. announce while the dollar index has rallied smartly.
As you can see from this chart the Dollar index has risen smartly and seems to be kind of rolling over from its highs. If it turns out it is not rolling over it certainly seems to be making a range for itself.
This is telling me that since there are still lots of issues with the U.S. economy, the U.S. dollar, has only still a limited amount that it can appreciate against the Euro, or for that matter gold. As we know, since gold is quoted in U.S. dollars, that means that the physical price will actually find a more positive level relative the dollar. This means a higher quoted price for gold as the U.S./EUR relationship appears to be similar but is now being reflected in the gold price as this new relationship takes hold. The problem then becomes where can you go if you don’t have the luxury of trading dollars for Euros or dollars for Yen or dollars for Swiss Francs for that matter, or even just parking Yuan in bonds, while you get your return out of the currency conversion? Well if you are Chinese that would mean gold or copper or oil or sugar or ……… what ever you can use in your factories. Hence the recent step-up in Chinese commodity investments again. If you are any one else, for example the Saudi’s with all of their petrol dollars, you will buy more gold and not as many bonds, to help spread your risk.
Check out this chart. Kinda looks like times are changing.
What this shows me is that there is a hesitation to own both of these more so the Euro because of the Greek issues.
2. Time of year. We are leaving now what is regarded as the slowest time of the year for gold sales. It is before the wedding season in Asia and after the gift giving seasons everywhere else (Christmas. Valentines Day et al) this means that the re-stocking by the jewelry trade is still coming. Consumption is therefore on the rise. This hasn’t made the impact it used to in some peoples eyes but is still very supportive to prices at different times. I suggest this year that for reasons mentioned above our friends in Asia might spend a little extra this year on gold instead of bonds for the kids. You still don’t want all your money in Rupees. The Indian sub-continent is still very strong and has an historic passion for gold ownership. This may accelerate this year due to the uncertainty in Europe.
3. The majors are still trying to increase their reserves. Anyone this year that can put ounces on the bottom line will be trying to do this. Kinross buying Underworld is a good example. This is a deposit in an area that by all public disclosure carries a great deal of risk and would be regarded as small by the standards of the mining industry. So unless Kinross thinks they know something we don’t (very possible) they have set some form of precedent for small acquisitions. This would suggest that reserves now trump perceived size. If the major gold companies are apparently scrambling to acquire more reserves, that can only be positive for the price. It also says that if the guys that make the stuff are finding supplies tight, who am I to argue. Remember these guys were all in the business, and survived, with gold under three hundred dollars an ounce. It is like asking a farmer why he is planting more corn when his bins are full. “Soon my son(he says) by fall the bins will be empty and if I don’t plant now, I can’t re-fill them for next winter.”
With the yearly decline in overall gold production it appears the senior producers are a little afraid of next winter.
4. With all of this, the simple question to ask your self is:
Would you be short gold or gold stocks in this environment?
Answer: No.
My time in the markets has always told me that if it doesn’t go down, at some point it will go higher. The reverse is also of course true. At some point everything either bottoms or it tops, I think we are at a near term bottom on gold. I could not think of a better market to be writing or owning or even selling options in. This market is right now ideally suited for options versatility. If you already hold some of these equities you should be writing calls. If you don’t, you should be buying the stocks and writing the calls. You could also be applying bull call spreads to limit your risk ,or just simply buying calls to capitalize on the perceived upside.
Yours ‘till next time;
Ritch Wigham
Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.
Junior Mining Firms left out of sector rebound
March 10, 2010
With my new found bullishness for gold going forward, The premise behind this article should allow for the acquisition of comparatively “cheap” junior miners with good advanced projects!! I have a couple in mind!
Ritch Wigham
Mackie Research Capital
PH.(604)-662-1853
T.F. 866-662-1853
Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (“RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.