Bill, sorry if this was already posted. Nick Goodwin of South Africa talks about the gold short position and mentions you as "this gentleman from America":
moneyweb.co.za
AH: Now for that promised interview with our gold guru, Nick Goodwin, who is also head of research at Fedsure Asset Management. So I
guess the first question – a more general one Nick – we had a stunning week for the Johannesburg Stock Exchange to start off with. Up 7%,
but commodity shares have run like crazy. Do you think that it's sustainable?
NICK GOODWIN: Yes, absolutely. This is typical of the style of commodity stocks. I think a lot of people don't understand this. They tend to
think that you 're investing in it like an industrial share, which sort of edges up all the time, but commodities don't do that. They basically go
nowhere for months, and then suddenly, in two weeks, they take off. But the thing about them is that, when they're cheap, you've got to get
in, and you've got to wait for it to happen. There's no use buying Anglos now, they've had an enormous run. You should have had them in the
R200 area, you see, and now when they're running like this, you actually have to start thinking about selling them. I think, also, a lot of
institutions make the fault where they wait for something to go and then they want to get in, and then perhaps they ride it another 30%, but
don't sell there. And then when it comes down, they sell it, and if they look at their returns, the returns are flat, or negative, and they keep on
blaming gold, or commodities for being such a lousy investment. Your trading strategy has to be totally different on these stocks, on what
they are – for instance with IT stocks or a general industrial share.
AH: Today was a big day for gold shares. Nearly 8% improvement. Just to hark back to what you said in a moment. When we were together
a month ago, you said it is cold-sweat time, that it's a good time to buy. Since then the gold index has come back quite a lot, but today we're
almost back to where we were a month ago with that 8% jump.
NICK GOODWIN: I think the last time we saw the gold shares move without the gold price moving was in 1973, in January, when shares
started moving ahead of the gold price and the index went up 20 or 30% before gold moved. I don't know whether this is a precursor to the
gold price moving, because the gold price is very low, and something interesting about the gold price is that there are very big short positions
in gold and the price doesn't just go down.
AH: Explain that.
NICK GOODWIN: Speculators have been borrowing gold from banks and they get enticed by brokers to do that because the brokers go to
the banks and organise the gold with them, and then go to the speculators, and entice them to short the gold. If you just look at the Swiss
Bank itself, it announced the other day that it's lending position, which is the first time I've seen a figure like that, is about 180 tons. Now this
is one bank. We have 40 banks in the lending market, and basically they lend this gold to speculators who sell it in the physical market. It
gets converted into jewellery, the jewellery market is extremely strong at this point in time because the price is so low, and then when they
have to cover that short, they have to give the gold back to the bank, they go and borrow it from another bank, and give it back to them. But if
some exogenous factor happens – I've mentioned this before – and sparks off the gold price, the price will go bananas, because where are
they going to get this gold from? It's all been converted. So, basically, we could be in for a major run in gold, but we need something to spark
about. I think the gold price is being controlled or managed somehow by the Fed, or somebody, because as soon as it sticks its head out,
somebody is there to knock it on the head again.
AH: Isn't that a bit conspiratory?
NICK GOODWIN: It sounds like it to me, ja. In fact, there is a gentleman in the States who has actually got a court case against the Fed on
this, but of course, it's a difficult thing to prove.
AH: What about the referendum in Switzerland that's coming up soon, whether or not the Swiss can sell their gold?
NICK GOODWIN: That's actually this weekend. Now the Swiss are considered to be very conservative, and there are two views on this.
Maybe the younger Swiss don't see the need for gold, but the older Swiss – which I think probably would be more interested in voting than
the younger ones – are still very conservative because the Swiss Franc is the only currency that is very heavily backed by gold and it's been
a very good performer historically. So if that goes against gold, then I think that will put pressure on the gold price, but if it goes … .That
could be the spark to push the price up.
AH: Does that improvement in gold shares today not suggest that a few people are taking a big position, that it's going to be a positive
referendum for gold.
NICK GOODWIN: That may be.
AH: Nick, looking at the portfolio that we've stuck now with since November?
NICK GOODWIN: I did some calcs today. The portfolio has gone up 5,3% since November. The index is about the same. Of course, we've
got a new index now. Then the index was 1010, the old index, which was equivalent to 3180, and today the index is 3320, so it's up
marginally, but the portfolio itself is up 5,3%.
AH: Do we stick with it?
NICK GOODWIN: Yes, still, absolutely.
AH: Buy more perhaps?
NICK GOODWIN: Well, with shares at these prices, you can see how Anglos went. When these shares go, there's just nothing to touch
them. It's a typical tortoise-and-hare story, where the mining shares are sleeping, the tortoise moves ahead, which is the Industrial board as I
see it. When they [golds] wake up, they just take off, so you basically have to get into these shares when they're quiet, when you can buy
them. Because if you're chasing them, you're not going to get, first of all, the volumes that you want, and you're going to pay up substantially,
and then you won't want to sell because you've only just bought.
AH: So at this point in time the strategy would be, buy in weakness, as you have been doing for the last couple of months?
NICK GOODWIN: Yes, I still think that in old index levels, below 1 000 was good buying area. Well, it's just slightly above that now. So I'd
say that below 3 300, you can buy. Once the index starts moving above that, then you've actually missed the boat.
AH: Nick Goodwin, our gold guru, as always, updating us on what to do with those gold shares. We had a great run last year. I think we're
going to have a great run this year – if Nick's got anything to do with it, anyway.
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