Hi Gary. Some reference to PEI at the Kaplan site today. In case you missed it................
Updated @ 5:35 p.m. EST, Thursday, December 4, 1997.
COMMENTS OF THE DAY: Commodities, including precious metals, ended moderately lower on Wednesday, with gold plunging to its lowest spot price since the cyclical bottom of February 1985. Gold fell six dollars, silver dropped 1.8 cents, platinum was down $4.70, and palladium was lower by $1.45. The yield on the thirty-year U.S. Treasury (the "long bond") touched 5.989% on Thursday morning, its lowest reading since January 19, 1996, before ending the day with a moderately higher yield. This marks a bearish key reversal, which in the past has sometimes coincided with a bottom in gold as a small percentage of the money that exits the huge bond market finds its way into precious metals.
According to Market Vane, Inc., as of Wednesday, only 19% of investors were bullish on gold, one of the lowest readings ever recorded for any kind of investment at any time. This exactly marks its 19% reading from February 1985, the last major bottom for gold.
As the price of gold has been declining, there has been an exponential surge in the amount of money borrowed in gold instead of in U.S. dollars. The interest rate for a typical two- or three-year gold loan is only about two percent, and as long as gold is dropping the repayment can actually cost less than the value of the money initially borrowed. When the borrowing takes place, the borrowed gold is immediately sold, with the borrower promising to make monthly payments in gold bullion. This increase in borrowing gold has coincided with central banks (the primary lenders) very sharply increasing their lending of gold, partly as a result of increased political pressure to "do something with that stuff in the vaults" at a time when its market value is declining. The total amount of gold that has been dumped on the market from such gold loans, combined with the huge amount that has been borrowed by short-selling speculators, represents several years of mined supply. Moreover, most of the gold to be mined in the next several years, already curtailed by the great difficulties in obtaining financing due to the low price (it takes three to five years for a mine to go from initial exploration to full-scale development), has itself been sold (through forward and futures contracts) as gold mining executives face increasing shareholder pressure to hedge future production. As with the central banks, this pressure has increased as the gold price has decreased. Therefore, thousands of tons--the exact quantity is difficult to determine--will have to be rebought by gold borrowers and gold short sellers during a period of three to five years in which there will be almost no mined gold available for purchase.
Martin Armstrong, chariman of Princeton Economics International, stated on Thursday that gold will find support at $270 to $275 per ounce. Mr. Armstrong, who has no fear of bold predictions (he also stated that there will be 240-278 yen to the dollar by the year 2003), said "the big spikes in gold always come when the currencies [in the third world] are undermined. The further the falls, the more the trend perpetuates itself but the stronger the rally would be after that." Mr. Armstrong stated that as a result of the inevitable trend reversal, gold would retouch its all-time [January 21, 1980] high of $875 an ounce before the year 2003.
Gavyn Davies, chief international economist of Goldman Sachs International, stated that the impact of the Asian economic crisis on the world economy is likely to be greater than current estimates allowed. According to Davies, there will be a deterioration in the U.S. net trade position as Asian economies with devalued currencies boost their current account balances. "It would be my main worry about 1998 that these trade imbalances were going to cause trouble and unhinge the dollar," he said. [It is interesting that so few analysts have considered the impact that weaker third-world currencies will have on the U.S. trade deficit and the future of the dollar as a result.]
On the New York Stock Exchange there were 237 new highs and 49 new lows, with 1553 stocks advancing and 1330 stocks declining. The index put-call ratio was a neutral 1.26, while the equity put-call ratio was a very slightly pessimistic 0.41.
Thursday's COMEX gold estimated volume was a moderate 42,000 lots. Total COMEX gold open interest on Wednesday rose 3,632 to 198,172 contracts, demonstrating commercial accumulation coupled with new speculator short selling. COMEX gold warehouse stocks dropped 1,516 ounces to 727,608 ounces, while COMEX silver warehouse stocks fell by 2,193,522 ounces to 125,633,853 ounces. The Johannesburg gold index closed Thursday morning at 690.8, down 10.9, and is at its lowest level since 1985, with the U.S. dollar quoted at 4.8635 rand. |
