Gold's big three speak out. Excellent format to frame the gold discussion. And a nickel's worth
of my commentary.
messages.yahoo.com
Question 1. I think they have overstated hedging's current impact in
terms of "accelerated supply factor" (sales in excess of normal
delivery schedules). The evidence (see Murenbeeld and others) is that
the hedge book is flat or may be trending down. In the very short run
(the last month) we may have seen fresh new net hedging come out of
Aust. when their currency swooned 10%. Most observers agree, as do I,
that CB sales are about 500 tons. I really wonder about scrap being
500 tons at 260 POG? I just don't think the Asians are scraping gold
(or silver) to that degree. Therefore the remaining imbalance IMO is
well in excess of 500 tons, closer to 750. If demand is really
cooling off in a depressionary climate than somewhat less than 750.
That gap is being met by speculative and hedge funds short selling to
create carry trades (primarily yen and UST interest rate structured).
2. I agree with CT, BS. Mining production should conservatively fall
5% (125 tons) between 2000-2002. I also have a popcorn theory whereby
there could be sudden shutdowns or supply interruptions of larger
operations for a multitude of reasons: energy costs, political, and
maintenance neglect issues being primary. After 2003 (perhaps sooner) production will
be in freefall.
3 and repeated in 9. "Conspiracy" implies illegal collusion, and I
don't think that quite fits the definition. The real issue is
overspeculation (really a speculative attack) against gold (and favoring the
US dollar against currencies, especially the Yen, Aussie $, and Rand, and I might add Canadian $)
on the short side. There are a couple economic theories that apply.
One is "far-from equilibrium", simplified as "too many pigs at the
trough", see this post for the academic version.
groups.yahoo.com
The other is "moral hazard" and has been created because of the CB's
role as sellers. Shorts are convinced that some Magnificent Oz will bail
them out of their trading mistakes. Longs are afraid of going into
the water because they are convinced Oz will throw douse the
rallies. There has been evidence of that very thing happening, but
other than run away situations such as the short squeeze after the
WAG I doubt it's prevalence and see it as more "mind games", perhaps
orchestrated. CB's who sell gold for US dollars below the true and full cost of
production are not conspirators, they're just "group think" lemmings.
4. Gold volatility seems very closely related to the US Dollar, which
has been relatively strong and subdued. Calm before the storm.
5. Brownfields acquisitions seems to be their preferred choice over
greenfields. This will benefit juniors with low cost deposits (few
and far between), hence my obsession with owning that sector. They
talk a mean story, but where are the deals? If they wait for higher
prices they will pay accordingly, and the lag to replace the coming
production decline will be stretched.
6 and 7. Wits Basin (third of world's reserves) is in decline. CT's
comments about no new shafts is telling. Not economical.
8. They state an obvious fact. There are SOME open pit deposits that
will bring on new supply at 300-350. They will nor be able to bring on enough fast enough to impact the target I give in question 10. That suggests that if gold stays
below 300-325, most mining companies will fail to replace reserves as
their exploration pipelines are dry. I've been looking far and wide
for a study or projection of what true reserves would be if marked to
250, instead of 300-325. I think it will be a shocker, and probably
explains why stocks like ABX and PDG are collapsing. It is
interesting that SA producers "prefer" long life underground
operations. I reply, "dream on".
10. Significantly higher POG will be driven by the collapse of the
speculation against it. Since supply and demand are already in severe
disequilibrium and will get worse as mining production falls, the
speculators can only keep a lid on the kettle by more and more
aggressive shorting. Markets are thinner and thinner (witness reduced
inventory levels at half of pre-WAG period at TOCOM, London, and
Comex), so speculators can actually manipulate prices short term. If
the fever breaks I look for at least 400-500 POG (due to the immense structural short already in place) in a hurry. The US dollar is an important part of the equation because of it's role in the carry
trades and hedging of certain producers (Aussies).
11. If CB's really wanted to assist developing countries develop
their resource industries they would cool off sales and leasing to
allow a more economical balanced price structure (325-350) that
favored production, not just liquidation.
12. agree with BG.
15. In ten years we will be in a different cycle, probably the tail
end of a bullish one. I won't especially care at that point. |
