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Politics : Welcome to Slider's Dugout -- Ignore unavailable to you. Want to Upgrade?

To: SliderOnTheBlack who wrote (92)	6/27/2005 1:18:58 PM
From: Crimson Ghost	Respond to of 50403

John Dizard: gold breaks out but the best is to come Published: June 26 2005 18:19 \| Last updated: June 26 2005 18:19 I have been rather annoyed by the recent rise in the gold price. I have started writing a book on gold and wanted its price in the big currencies to go nowhere, that is to say, a little up, a little down, for the remainder of the year. Then, starting at the beginning of 2006, I wanted it to begin a gradual rise, with that increase becoming dramatic in the autumn of that year to coincide with the book’s publication. That was the plan. Instead, gold has begun what the technicians call a “break-out” against the euro, the dollar and now the yen. I take some comfort in the belief that this is the beginning of a multi-year bull market in the metal, which probably means a bear market in almost everything else. The trigger event in the recent break-out was the defeat of the European constitution in the French referendum. Technicians and traders who had been plotting every little squiggle of the dollar price of gold suddenly noticed that the euro, which had traded in tandem with gold since its inception, had become decoupled from the metal. It was only last week, however, that the dollar price of gold briefly broke above the key level of $443. Martin Pring, a cautious technical analyst, says: “That move above $443 breaks an important uptrend line for gold. But it is not just the dollar price; gold in global terms is doing well.” Gold traders tend to be technicians, rather than fundamentalists. The huge above-ground supply of gold means that attempts to judge the metal’s prospects by looking at mine production against identifiable demand for fabrication will not work very well. It is investor sentiment that is important. Kevin Grady, who manages trading for Refco on the floor of the Comex in New York, confirms: “It was the break-out of gold in euros – that is what everyone is looking at.” For years gold trading had been a game of mine owners hedging their production by selling gold short in the dealer market and on the exchanges. Their relentless shorting of their own product crushed the last generation of goldbugs. Mr Grady says: “The mines are now out of the picture. Investors are feeling comfortable trading gold because the mines won’t sell against you.” Most of the mine short sales were effected through the over the counter dealer market. As one such dealer in London says: “At its peak, mine hedging [short sale positions] was about 120m ounces. Now I think it is lower than 50.” The traders say every sell-off in gold is taken as an opportunity by the miners to buy gold to cover their short positions. Why were the miners selling gold short in the first place? It was a cheap way to borrow money to cover their capital expenditures. Mines could borrow gold at low interest rates through central banks, intermediated by bullion dealers. They could pay it back from mine production in future years. during the gold bear market of the 1980s and 1990s, short selling production made it possible for mines to lock in good margins. This hedging kept the gold dealers in business for 20 years of thin investor demand. Now the investors are back. According to Mr Grady: “Retail used to be one contract, two contracts, or five contracts. Now retail is 50, 100, or 200 lot blocks.” A single gold futures contract on the Comex requires original margin of $1,300. There are apparently a lot of individuals who can throw $130,000 at a gold position on the exchange. This has been made easier by the introduction of electronic order handling. Customers can enter orders, get them filled on the floor, and have that reported to them in 10 to 16 seconds. That is faster than flipping houses in Florida. There has also been more activity on desks of the over the counter dealers. As their customers among the mining companies gradually de-hedge and reduce their positions, they are replaced by sellers of commodities indices. The sellers of the indices, which now have capitalisations of $50bn-$60bn, need to hedge their sales to customers with purchases of the components, which include gold. European institutions have been significantly increasing their participation in the indices. The gold mining stocks have not been attracting the new interest that the metal itself has. Shares peaked in November and then took a dive. They have recovered since but not yet to the highs of autumn. “The shares have been moving about three times the rate of the gold price,” says Cesar Bryan, the manager of the Gabelli gold fund. “Since the recent gold bottom in May, the metal is up about 5.5 per cent and equities are up 16 per cent.” That makes sense. With hedges taken off, companies’ earnings are leveraged to the metal price. I still think a big rise in the gold price is at least a year away. Central banks need to give up on raising or even holding rates and then try to reliquify their way out of asset deflation. That’s when the real fun will begin. johndizard@hotmail.com

To: SliderOnTheBlack who wrote (92)	6/27/2005 9:20:30 PM
From: Wade	Read Replies (1) \| Respond to of 50403

OT. Hi $, Very very true. Thanks. I was very interested in playing baseball when I was in high school 30+ years ago. However, it stopped as soon as I started learning pitching fast balls. I hurt myself badly. It took me two months to lift my right arm again and about 8 years to fully recover. What a lesson. <GG> Wade