"However, I'm not as optimistic on this as the rest of the bullish equation, for the simple reason that the industry is financially weak"
I agree, however, after the initial rise in the pog, the price is going to have to be supported. Otherwise, demand will dry up and the price will retreat as it did in the 4th quarter.
One other point, some of the producers have engaged in leasing gold and then selling it into the market, profiting on the differential between the lease rates and the return on the bonds that they procured with the proceeds of the sale. Much of this activity took place last year with bond yields at their lowest levels in 30 years. Many of those trades are underwater with the recent rise in bond yields. If this in fact the case, producers engaging in leasing/forward sales may be unable to close out their positions.
If you are correct, that the producers will be unable to support the price, we are probably looking at another failed rally. Demand will dry up as the price of gold rises. Dump 100 tonnes of cb gold into the market at the point of low demand, kaplunk goes the price. I continue to believe another external factor will be the catalyst for +350 gold. Turmoil in the bond market could be it. I am waiting for the trade numbers this month, at some point 30 billion dollar monthly gaps are going to matter.
Ken |
