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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: long-gone who wrote (42203)	10/5/1999 4:34:00 PM
From: lorne	Respond to of 116837

Fools, Day Traders & Premature Bulls Rush In.... Professor von Braun The Rocket School of Economics October 1st, 1999 The rapid move in the gold price is exactly that, a rapid move, which in itself, given the antics of the players in this market over the last several years, is hardly surprising. The question still remains as to what took gold to the July 1999 levels and could it happen again ? On the surface it seems that the remaining gold bulls are being rewarded for their persistence and much is being made of both the rise in the price of gold and the corresponding rise in gold stocks over the last several days. It is our view that with oscillating stockmarkets around the world the rise in gold stocks is no different from somebody's favorite internet stock going “ballistic”. A shift in sector perhaps, but justified from a fundamental point of view ? Before one gets too excited, one needs to remember that this is a very messy (some say manipulated) market in the sense that the amount of gold traded worldwide on a daily basis (1800 tonnes+), as opposed to new gold mined (mine supply is estimated at 2000 tonne per annum) suggests a serious imbalance in fundamentals if one is relying on supply and demand as an indicator in determining price movement. While it is known that the bulk of these reported, (and in the case of the OTC markets estimated), trades are paper contracts, it is unlikely that the writers of these paper trades will allow this rally to continue. Collectively they are too large and have been in business too long to get caught in a squeeze of their own making. New players that have entered this market are a different story. Who cares if a few hedge funds get squeezed ? The writers of paper contracts get paid either way, down, up and down again. Is there a shortage of physical metal ? Evidence suggests there may be. But the current price activity may reflect the fact that there is a surplus of paper contracts written with the downside in mind and that a clean out is going on here which, once completed, may well result in more downside to come. The writers of these paper contracts, collectively are a force to be reckoned with, as evidenced by gold's demise to the $250 level, a demise that has not very much to do with the reported fundamentals that suggest a physical shortfall of 1600 tonnes (or more) per annum. This shortfall DID not stop the decline to the $250 level, and even though we now see a rapid increase in price, it still smells more of a paper squeeze than a physical metal squeeze. Not too many mining companies are profitable at $300 gold, (let alone $255) although those that have gotten good at playing the paper gold game are still smiling - for the time being. It is difficult to predict when actual physical demand will dictate price, since it has not been a good indicator of recent times. Until there is clear evidence of a demise in the volume of paper contracts being written, a demise to a level that better reflects the physical market and perhaps burns some of the writers of these contracts. Regardless of the past weeks action, it is conceivable that this game will not change in the short term. This will depend on the extent of the fallout from a $70 rise. Given the small effect that newly mined physical metal has on the overall daily trading figures and given the fact that very few mining companies are profitable at present, (especially when real numbers are used and actual total costs are considered), many gold stocks are still in a situation that would suggest that fundamentally they are overvalued. The potential effects of ill placed hedging programs is also still an unknown. In some ways mining companies have become the meat in the sandwich and along with the bread are at the mercy of who is eating the sandwich. The eater is, of course, the writer of the paper contracts that resulted in gold at $250 and we have yet to see any serious signs of indigestion on their part. However some early signs are beginning to appear with reports of mining companies unwinding hedge positions. Are they taking profits or are they at the mercy of their bullion bankers ? Until a clear picture re potential casualties in the mining company department begins to emerge, to err on the side of caution may be the more prudent move. fiendbear.com