EDITOR: | April 28th, 2015 | 1 Comment

Gold – The metal that raises passions like no other (and may soon be harder to find)

| April 28, 2015 | 1 Comment
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Gold is behaving quite strangely at present: it is showing remarkable stability, seemingly able to rebound to around the $1,200/oz mark even if the speculators try (yet again!) to knock it off its perch. But gold companies will no doubt be feeling this is a good thing: for one thing, it demonstrates that gold is able to stand its ground which, in turn, means they can proceed with their plans with some confidence.

Investor Intel has, as sponsors, Carlisle Goldfields (TSX:CGJ | OTCQX: CGJCF) which is part a joint venture with plans to spend another C$13 million on further work at its multi-million ounce resource, Chesapeake Gold Corp (TSXV:CKG | OTCQX: CHPGF) which estimates it has 18.5 million ounces of gold and 526 million ounces of silver at its Mexico project, Anaconda Mining (TSX:ANX) and Homestake Resources Corp (TSX.V:HSR) – the last mentioned no doubt aspiring to follow in the footsteps of the famed Homestake Mining.

There are those who argue that 2015 will be the year of “peak gold” in terms of production. We have already seen peak gold in terms of discoveries. Goldman Sachs warned recently that it believes the world has only 20 years of gold production left in terms of already identified resources. In 1995 discoveries reached their zenith; that year, 140 million ounces of mineable gold were found. In 2013, the discoveries totalled fewer than 10 million ounces. We will, of course, keep finding gold which will stretch that 20 year horizon,  but if Asian consumption keeps at its present pace then there will be greater competition to get one’s hands on the yellow one.

You see, it is possible to look at gold fundamentals quite calmly. But here’s the strange thing about gold: it raises passions like no other metal.

No one gets petulant about iron ore, nickel or even molybdenum. But, boy, does gold bring the fighters out of their corners. The gold enthusiasts wring their hands in despair at the blindness of others not being able to see the world is on the brink of disaster and not squirrelling away gold bars and coins (and laying in a year’s supply of tinned food into the bargain).

The sceptics, for their part, don’t actually say they believe the gold bugs are a bunch of nutters, but you know that is what they are thinking. 
At a guess, between 80% and 90% of commentary on the gold question is from one of two mutually exclusive positions.

One of those is to shrug the shoulders and dismiss gold. You know the argument: holding gold offers no return, the gold bugs have been predicting financial Armageddon since goodness knows when but we’re still standing and still operating with paper money, and even the gold stocks performances have not been all that flash. Many of these companies have gone under even while being producers – and even those that are still with us can’t seem to pay regular dividends. 
All true.
 Then there are those who think the sky is about to fall and gold will be the only thing to save them.

The next question: why do we pay so much attention to analysts when it comes to gold?

I did not kept count, but all the way through the 2001 to 2011 gold bull market you could always find some market watchers predicting imminent doom for the yellow metal. Much of the commentary in the mainstream media when it comes to gold is vapid, ill-informed and, well, dopey. But then who can expect much from the media when the screen jockeys don’t seem to have anything but knee-jerk reactions?

Don’t agree? Then read these items from just one week back in July 2011:

  • Tuesday’s news: ‘Money managers have slashed their net long, or bullish, positioning in US gold futures and options to the lowest level in more than four months and in silver to the lowest level in more than a year, according to the most recent data from the Commodity Futures Trading Commission.’
  • Wednesday’s news: ‘Gold rallied strongly on debt concerns, says HSBC. The bank cites a Standard & Poor’s announcement that it may lower its rating on Greece to selective default if a plan by banks to roll over Greek debt holdings is implemented. Also, gold benefited from a Moody’s warning that China may have understated local government debt, as well as the U.S. deficit-ceiling impasse.’
  • Thursday’s news: ‘Gold futures closed at their highest level in two weeks Wednesday, with global debt troubles helping it tally a two-session win of nearly $47 an ounce’.

So, what will it be tomorrow? Gold might lose a buck or two today, so expect to read something along the lines of ‘investors sold gold as fears of European default eased’.
Investors, financial commentators, analysts — very few of them show any depth of understanding when it comes to gold. 

Don’t you yearn to read a news report that says gold has risen/fallen by whatever amount, but that ‘this has to be seen against the emergence of net central bank buying’, or something like that?

 But no, you get the flea-running-over-water level of depth.

This is a very complex story, not that you would guess it from the bulk of commentary.

 So here is my plea: before anyone opens their mouth to make a ‘sell’ order or hits the computer keys to opine on the subject of gold — pause, and then think. 
Think about that ten-year winning streak between 2001 and 2011 and the fact that, while gold has taken its hits since the great bull run finished, at $1,200oz the metal is not exactly sleeping rough.

Gold is not the be-all and end-all. But neither is it a barbarous relic. It would be worth $3,000 an ounce if the gold bugs were right, $55/oz if the gold mockers were on the money.

Finally, if gold was on the downward path why would we, in very recent times, have seen the launch of the international board of the Shanghai Gold Exchange, the introduction of the Kilobar Gold Contract on the Singapore Gold Exchange, the announcement of a new kilobar contract in Hong Kong and the intention by the Stock Exchange of Thailand to launch a physical gold exchange?


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Comments

  • merlion

    P for Passion. P for Peak. I’ll see your P’s and raise you two P’s.
    P for Paper and P for Politics.

    When I played Rock-Paper-Scissors maybe 60 years ago, Paper covered Rock. Seems like it still does. But the next round of the game gave you Scissors cuts Paper. And another: Rock smashes Scissors.

    I wonder if the Chinese play this game. Beware: We might get their version. Bullion bashes Bucks. They’ve been buying 100 tonnes/month lately.

    Paper (Comex & Co) is beating Rock right now. The Dollar Index topped at 100 on 13 April and 3 weeks later it’s 94. Gold, long mooted the Anti-Dollar, also slipped from 1200 to 1190.

    Louise Yamada gave us this observation today: “May 6 (King World News) – Gold Spot price (GOLDS-1,178.59) carries an enigma in behavior over the past six months in that with the dollar rally, Gold went nowhere; with the stock market rally, Gold went nowhere. Both of these relationships are generally inverse in nature.”

    Martin Armstrong from Princeton Economics International wrote this about 5 years ago: “Gold rises when people lose confidence in government. It has nothing to do with inflation. So, when you start to worry about government is not going to survive or who’s going to win, that’s when gold rises. Short term, we still have the risk of it going under $1,000 per ounce. It’s going to flip when everything is right. It will probably max out at $5,000 per ounce. . . . You are really talking about a major reset coming. 300 years ago, that was the revolutions against monarchy. Today, it’s going to be revolution against . . . pretend democracy. We do not have a democracy.”

    Politics again.

    Robin, as you say above: ”Think about that ten-year winning streak between 2001 and 2011 and the fact that, while gold has taken its hits since the great bull run finished, at $1,200oz the metal is not exactly sleeping rough.”

    Apple holders sleep well. Today, Apple Inc. has a market cap of USD725B. Barrick Gold, the biggest producer, sits on 15B. Barrick Gold paper is a ‘roughie’.

    May 6, 2015 - 10:47 PM

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