Hello Roebear,
Got the word from an impeccable source on Thursday that Buffet was buying silver on last wed and thurs and sent out a bulletin to my Cafe memmers.
Since you have an interest in the gold and silver market, I thought you might like to read this analysis pertaining to the Fed, the hedge funds, derivatives and gold ( as well as silver }
Regards,
Bill Murphy
September 25, 1998 - Spot Gold $293.60 down 20 cents - Spot Silver $5.16 up 1.5 cents
Technicals -
The yellow brick wall. Bears salivated as spot gold lurched towards $300 today. 19 year old bear markets do not die easily and today was another example of that. $300 is a natural resistance point and the bears have made a great deal of money over the past couple of years selling into public exuberance, like we had this morning. A close above $305 basis Dec. will complete a massive head and shoulders bottom. That base will provide a strong foundation to build a skyscraper in the future gold price.
We have set our first target as $315, followed by a burst to $335. Within the next 3 years it is our opinion that we will very likely see $600 gold.
The bear silver matador is now completely flat on his back. The Warren Buffet bull express took out the last of his fight at the $5 area. It is very likely that this move will accelerate from here. With silver stocks disappearing ( now down to 72,252,682 oz. and a whopping 1,800,000 oz. today ) the point of no return is approaching for the bears ( and that includes the whining Mr. Martin Armstrong ) Quietly, the silver stocks are going, going and, like we said in the last Midas, color them gone.
Doc, thanks for this one. I wonder how many people have taken the serious time to figure out how little money it would take to buy up all the Comex silver stocks? Not much in today's big money world. Warren Buffet alone ( with all that free cash he has ) could do what the Hunts did, except he could pay cash for the silver ( the Hunts bombed out because the were leveraged ). What would the shorts do then? The price of silver is going uptown. My guess is somewhere around $12 to $14 per oz.
Fundamentals -
Just about the time gold was shooting starring it to the upside today of about $3 to $5 in London, the lease rates went berserk. The one month rate shot up from about 92 basis points to about 2.25 basis points and gyrated around there violently. Subsequently, gold sold off. What was going on?
One never knows for sure. In the past this has signaled spec borrowing to sell gold, producer borrowing to hedge forward ( usually noticed in the 6 month lease rate ) or the culmination of a central bank sale in which they are delivering their bank gold and withdrawing from their borrowed gold positions ( done to disguise what they were doing and for non disclosure purposes ), thus temporarily tightening the market ( this happened after the Belgium sale ).
It could be any of those reasons, or in today's very new world, it could be a result of the credit contractions that are going on everywhere. We, and many others, have been reporting about this contraction process as a result of the feedback we receive from some pretty big players. We know the banks are taking a second look at their lending to the hedge funds and other financial institutions. What the gunslingers could do two months ago, ain't so easy to do anymore. There was also talk today of a mega big short defending his position by selling more gold. If it was a spec, he found out today it was going to cost him more to do it.
And that brings me to the most intriguing possibility of all. If the Fed, and banks not even involved in the Long Term Capital fiasco, had to do the unprecedented by stepping up to the plate to try and arrange a solution for the huge derivative problem that Long Term faced, what else could the Fed be up to? For a very long time now we have been harping about the incredibly large short gold positions by the hedge funds and what that liability could mean exposure wise. We made special note of this in the last Midas. Well, if we are correct and the hedge funds are short all this gold ( true or not, it was last year that we heard Meriwether was short 350 to 375 tonnes ) the LAST thing the Fed can allow in the very short term, is for the price of gold to take off too quickly. The gold loans are cheap. Since the price of gold has not done much compared to the movement of other derivative positions, it would make sense the gold short would be one of the trades Long Term Capital ( and other troubled hedge funds ) still has on. That trade has not collapsed on them yet, so they have not been blown out like they have elsewhere. One thing the orchestrators ( Fed and other banking institutions ) of the bailout might do is borrow some gold from bullion banks and stop an out of control gold rally. An exploding gold market would undo their fixit plans for Long Term. They need to buy time and figure a way out of this entire derivative problem. Besides, this potential problem ( the gold borrowings ) could be worse than the others. Where are all the hedge funds, that are short gold, going to find such massive quantities in a very short period of time. That was the point of the Goldilocks and the Three Bears story.
Does that sound far fetched?. What would you have told me just months ago if Midas said that the Fed would puts its face in the business of a hedge fund and stop further repercussions from its irresponsible investment activities? The effects of this intervention and the ramifications of this bail out will be felt for years to come. This is just one capitalist venture gone belly up. What about the others that are sure to follow?
It is one big time bomb!
The other big story is this about face by the Fed. The entire psychology about gold is changing fast because of what they have done. From Morgan Stanley," The Fed's about face on monetary policy over the past two months may well reflect a new philosophy that breaks sharply from the anti-inflation policy paradigm that has been in place over the past 19 years".
The conclusion of their piece: "All this underscores the possibility of a most intriguing endgame -- a major reflationary shift in monetary policy that could well mark the end of great secular disinflation that began in the early 1980's. For investors who are now hunkering down for the coming deflation, this could be one of the classic ironies in history".
Gold has been in a bear market for these 19 years. It is over. Gold is still very cheap. These sort of stories will proliferate in the months to come and so will the demand for gold. Buy, buy, buy!!!!
Potpourri and the Gold Shares -
We put out a bulletin Thursday morning about Warren Buffet buying silver. We do not put out bulletins such as that in a casual manner. Sometime soon we will tell you the story of how Mr. Buffet got wind of the future potential for a big move up in the price of silver.
The XAU is smoking. It has now gone from about 48 to 78 before falling to 74.11 today, down .58 on some profit taking. The big money is going into the big cap gold stocks, while many of the juniors are lagging terribly and many are not too far from their lows. It is very understandable that this would be occurring. More and more money managers are putting some money to work in the gold sector. And they are putting that money to work by buying the senior golds. As you know, we have been pounding the table to buy them for a month now and the results have been spectacular. We have also been pounding the table to buy the little guys too. Some have risen dramatically, but most have lagged. This divergence has caused us to focus ( as of today's close ) on picking up some more shares of the juniors and lightening up on the seniors.
Why have the little golds lagged so badly? I believe it is easy to explain what is happening. First, much of the public and many money managers are fearful that many of smaller gold companies will go bankrupt. And unless gold takes off, like we think it will, many will go bankrupt. But, it is the baby and the bathwater story here and that presents us with extraordinary investment opportunities. If you do your homework, or have confidence in others that have done the homework for you, the returns you can make are staggering. We will start to tell you what we have done, and are doing, next week.
The other reason many of the juniors cannot get out of bed is that portfolio mangers that have held them for eons are taking advantage of public buying and unloading them into the buying. Many of these managers have been unable to do any size and need gold bullion excitement to unload. In many cases it is distress selling. Not prudent selling! Many of the managers that owned these stocks were fired. The new guy on the block is cleaning house with his inherited mess ( as he sees it ) . The logic is: why keep someone else's bombed out stocks. A money manager wants to make a name for himself with his own picks. Only the strongest of the strong, or in laws of the principals of the firm, are still around to hold on to these buried junior gold stocks. This has, and is, creating some "once in a life time buys" for us.
***
An extraordinary analysis: Blake Joyner, who is well known in the precious metals industry ) has written one of the best commentaries on the gold market that I have ever read. You may read it at the Dos Passos Table at our Cafe, Le Metropole, lemetropolecafe.com.
Midas
Bill Murphy ( Midas )
After graduating from Cornell University, Bill was a starting wide receiver with the Patriots of the old American Football League and has been around the financial and commodities markets ever since. He owned a futures firm in N. Y. that specialized in precious metals and was a contributor to Veneroso Associates, a global strategic investment firm and producer of the 1998 Gold Book Annual.
|
