Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : MIRANDOR-MIQ ON MONTREAL -- Ignore unavailable to you. Want to Upgrade?

To: Sawdusty who wrote (1902)	5/14/1998 5:20:00 PM
From: jocko	Read Replies (1) \| Respond to of 2635

Hi Dan and all .....What could I say that has not been said rather eloquently ????? So I will just paste someone else's opinion :-)]] Gold Watch Veneroso Associates May 14,1998 Issue 05.03 Gold's Six Month Base May Be Near Completion If the EMU related selling (e.g. Belgium) and Asian liquidation (e.g. Korea) is over (as we believe), the gold market is poised to begin a major rally. Our short run position on the gold market has been: 1) Sustained EMU related selling has continued to cap the market. We hold to this position despite growing comments to the contrary. As long as this persists gold will trade in a $290-$315 range. 2) Even though the funds have ample room to add to their shorts, we doubt they will do so sufficiently to take the market to its prior lows. Speculator and producer sentiment has improved and France, Germany and Italy may be placing pressure on any selling European central banks to not "trash" the gold price. Therefore, the impetus needed to take the market to its prior lows should not materialize. 3) Comex open interest patterns suggest a large buyer has entered the market below $300. We concluded from the above that the gold market may well bottom in the high $290's and rally back to $315. Since then we have had the following inputs: 1) Funds have continued to sell, presumably adding to their shorts. 2) Good support persists in the high $290's , probably from producer buybacks 3) The Australian producers may have hedged 100 tonnes on a net basis in Q198. That is more than we expected, and suggests producer hedging has been greater than we thought. 4) At a J. Aron conference in New York, Mr. Terry Smeeton has said: "ECB approval is going to be needed to allow individual European central banks to sell any more of their gold from January 1, 1999, but even before then I think it is improbable that we will see any more European Central Bank sales this year, because of the risks to EMU this would entail." This comment suggests that, if there has been undisclosed EMU related official selling, it has ended around May 1 or will end imminently. Smeeton's comments suggest a possible end at hand to the price resistance in the gold market. Several formerly bearish dealers have turned positive; this suggests the same. This would explain producer buybacks below $300, since the largest producers would be informed of an end to official supplies by their bullion bankers. The odds are increasing that the market will find support at current levels, will rally, and may take out resistance on the next rally and go to new highs. What if there have been no undisclosed EMU related official sales? Surprisingly, this points to a conclusion similar to the one expressed above. We can explain the bear market of 1997 without such EMU related selling, though it is a bit of a stretch. We estimate the deficit in the gold market last year was 1600 tonnes. We can construct the following supplies that led to that deficit: 1. Half the 299 tonne Belgian sale occurred late last year. Of this 150 tonnes, one hundred tonnes went into the market. This plus all recorded official purchases and sales to date put net official sales at roughly 300 tonnes in 1997. 2. Net producer hedging was 600 tonnes. This is slightly above what we can total up from the various broker surveys of producer hedging. Most of these surveys of producer hedging miss a few producers who may hedge. 3. Net speculator short sales were 500 tonnes. (Peter Munk has argued that such sales were a major contributor to the 1997 bear market). 4. End use physical demand rose by more than 10% last year. Total inventories of fabricators, wholesalers and retailers were two times sales or 8000 tonnes at year end 1997. One quarter of this was financed by gold loans. Inventories grew 10% with sales. This implies 200 tonnes of borrowed gold by commercials. (These inventory dynamics are explained in detail in The Gold Book Annual.) Total Official Supplies Net Official Sales 300 Producer hedging 600 Net Spec Shorts 500 Commercial Borrowings 200 Total 1600 Overall, this proposed composition to 1997's official flows is a bit of a stretch; the last three items all look a bit high. The data would make more sense if there was an additional 200-400 tonnes of official sales last year. Perhaps GFMS is right that the deficit in the gold market was 1000 tonnes or so, not 1600 tonnes, but, as we explain at length in The Gold Book Annual, we doubt this. It is possible that there were other undisclosed official sales in 1997; for example we have heard that distressed Asian central banks sold undisclosed accumulated gold positions in the second half of last year. We understand that GFMS still believes that there were several hundred tonnes of official sales in 1997 that have not yet been disclosed, but that the major EU countries were not involved. Let's assume that the above composition of supplies crushed the gold price in 1997. What has happened in 1998? First, perhaps 100 tonnes of the Belgian sale went into the market in early 1998. Second, there was 250 tonnes of Korean dishoarding in the first quarter. Lastly, reports from Australia now suggest there may have been 100 tonnes of hedging by Australia's producers. If so, it is possible that hedges and buybacks by producers in the rest of the world may have been offsetting, resulting in net producer hedging globally of 100 tonnes. That comes to 450 tonnes of such supplies in the first quarter, which would explain a still deeply depressed gold price, even with some net fund buying. April and May are more difficult to explain. It is possible that it takes a month or two for the sustained physical supplies of 1997 and early 1998 to be absorbed. If this is so, the gold market met resistance in April on scale up producer selling and a short run abatement in physical demand. It has recently fallen on spec liquidation and renewed shorting. If the EMU related selling (e.g. Belgium) and Asian liquidation (e.g. Korea) is over (as we believe), the gold market is poised to begin a major rally.