Sunday, November 15, 2009

A Lazy Way To Post On Sunday: What Now For Gold?

I wanted to post this excerpt from Friday's Midas report from for those who do not subscribe.  My advice is that anyone who wants to be involved in the precious metals market as an active investor and/or trader is handicapping themselves if they do not read Midas every night.  He even lets you try a 2-week trial without putting up a credit card.   Stay tuned because I am going to post commentary on why GDXJ (The Van Eck junior mining stock ETF) is an extremely flawed proxy for investing in junior mining stocks.  In fact, it is misleading.  In the meantime, enjoy this commentary from Midas - any bold is my emphasis:

Where to from here?

The first thing to be stressed is that the physical market is in a profoundly different posture than in Q1 2009. Then regular buyers like Turkey, Vietnam and even India were exporting. Now to varying degrees they are buyers. Kilo bar in Istanbul closed at $1.48 premium to spot on Friday despite gold’s rise; India’s return to the bid because of the rupee move noted here on Friday may have been decisive in the NY session’s Bear rout, and of course Vietnam premiums as last reported over $30 are crying out for gold supplies.

[In what is probably a surprising fact to most, Vietnam is one of the world's biggest "consumers" of gold]

(Some have questioned the interest here in Vietnam. The reality is that the country is probably the world’s most avid user of gold for domestic transactions, no doubt in part because of the dismal events of the late 20th Century. When the economy was liberalized some years ago, consumption began rising rapidly, exceeding 90 tonnes in 2006. Virtually all has to be imported.)

(According to the Mineweb article mentioned here on Friday, Vietnam imported 43 tonnes of gold in this first 4 months of 2008. China only imported 112 tonnes that year. (China, of course, has huge domestic gold production. In terms of impacting the world gold trade, Vietnam is in the same league as China.)

It is true that the US bar and coin demand is not as wild as it (contrastingly) was earlier this year, but US demand never entirely faded. And a survey of dealers today suggests they have raised their premiums quite a lot in the past 48 hours. [I can confirm this fact as a recent buyer of bullion]
We are now in a period of extreme seasonal strength. The Aden Sisters have just published a valuable bar chart which records average annualized change in the $US gold price on a monthly basis 2001-2008. It shows that the November through February phase has been reliably enormously strong.

Average change
November 30%+
December Almost 30%
January c.35%+ -fact the highest of the year
February c. 18%

There is an obvious reason for this: these are the months of India’s peak consumption.

(See P7.)

On this basis, the possibility of a serious pull back seems small.The Privateer has another way of looking at the issue:

a lot of people are starting to muse about the current bull market leg getting a bit long in the tooth. In fact, if we compare the current rally with the one which took place after $US Gold's first correction which started in May 2006, we will find that the opposite is the case…the more recent correction was longer lasting and deeper than its predecessor. So far, Gold has only broken out of that correction for six weeks. After Gold broke out of the first correction in Mid September 2007, it roared higher for the next six MONTHS.

The bottom line here is that, despite all the media monkeys and mediocre gold market analysts out there looking for a top/correction in gold because of all the attention gold is getting in the investment/financial reporting community, the typical signals of an impending correction/pullback just are not present.  What should be most troubling for those looking to cover shorts or add on a pullback is the fact that, as documented by the usual firms out of London who comment on the gold market, this latest move higher in price HAS NOT been accompanied by flood of scrap gold hitting the market.   This is indicative of the "tightness" being seen/experienced by many in the physical market and the fact that several Central Banks are now known to be large buyers. 

Where gold goes from here over the next couple weeks, especially as we enter into the Comex December options expiration and contract "roll" period, is anyone's guess.  But the odds are very high that between now and April, gold will be significantly higher in price.  I suggested last month that it wouldn't be prudent to wait until after Halloween if you were looking to buy more gold/silver.  That call looks to be pretty good.  I will offer the suggestion now that $1125 gold will look very cheap by the time most of the country is moving their clocks forward by an hour this spring.


  1. Dave John Williams from shadowstats was interviewed over at financialsense news hour with Jim Puplave... The interview was quiet an eye opener.

  2. Thanks for the heads up anliu. Listening to it now. I have the utmost respect for Williams' work. Too bad it he doesn't get broad media exposure.

  3. hey gyc. i think Denver would have won if Orton didn't get injured. Simms couldn't move the offense at all. He looked terrible.

    Pats puttin' the big hurt on the Colts.

  4. Silver up and over 17.75, could get interesting today for the Silva Dragon. Hope it skies for you dude.

  5. Hey MM. I don't have any expectations for SDRG until they release more meaningful news either about drilling results at Dadi or impending production news in Mexico.

  6. Another day of extend and pretend, farsical markets. Silver up and over 17.75 should be interesting. Looking for an ST Top in Base and precious metals over the next few days to a week.

    Could be plumb ass wrong, but not touching anything until its corrected heavily. Going ot take a poke at DZZ and SRS perhaps as early as tomorrow or late this afternoon.

    Upside exchaustion alerts issued in metals last week and bulls running 92%+ for second consecutive week on poor internals for the broads spells trouble to me.

    Understand the discussions to the contrary, but am not taking the bait here, believe there's a better buying opportunity ahead. Good luck to longs hope you all make a mint~!