by Neil Charnock, GoldOz | September 30, 2008
That is not a miss-quote it is the price of gold in Aussie dollars as I turn on my computer this morning. The worst of our fears have emerged for the financial system and it is too late for blame and I see no point in that anyway. It is not a constructive state of mind and more than ever people need to be constructive in this climate.
I managed to rescue my own father from the crisis only very recently – he refused to listen to me in years past but he did ask me to talk to his “Financial Advisor” to see if Charlie thought my thesis about gold and silver had merit. That was about 4 – 5 years ago. I will put Charlie’s reply politely – “time is money and you are wasting mine so go away and stop bothering me”.
I do not hold the whole profession responsible but it is interesting - I have come up with a correct term for the Profession of "Financial Advisor" and it is not really Charlie's fault in a sense. It is a factor of his education and the role of the profession is to place people’s assets in mainstream structured financial vehicles.
Anyway my more correct term for that profession is: "Super Annuation & Tax Educated Capital Collection & Fee Based Cash Dispersal Agents". I will put my analysis on this politely – they have no actual analysis to fall back on beyond their own meager understanding of the true nature of economic cycles and money. Instead they rely on general knowledge of investment vehicles and as I said; Super & Tax law. In good times this worked however that party was long over before that profession had any clue.
Sadly I had to say to my father that I had watched his losses grow to a point where he would be ready to listen to me at long last and he did. Charlie watched my father withdraw what is left of his capital in horror stating that it was crystal ball stuff and that he recommended my father not to take this course of action.
Was it really crystal ball analysis? I don’t think so and had told my father (structural engineer) that if he saw a bridge being constructed that was vastly under engineered – sub standard construction – then he would “predict” disaster at some point.
Why do I point this rather personal situation out here? Because I bet most of the readers of this article have tried to tell friends, family and associates about the impending crisis to no avail. Why do we bother? Because we care that people are going to suffer more than they are aware – they assigned their own financial well being to others and it was like assigning the job of Sheppard to a pack of wolves. We instinctively want a pleasant society to live in and the building blocks of the society are the people so we try to assist those around us.
Like my father perhaps it is not too late – you can now try to talk to people again and they may have suffered enough pain to listen at long last. Once they have had their “financial reality” shattered they will be off balance and upset which is a great shame however at least they may now listen.
Gold Equities Comment
OK now to basic summary – the action on the gold stocks Down Under is in a base formation in my humble opinion. Large and emerging producers jumped back from recent lows and even the better juniors showed signs of life. My index charts at GoldOz show reversal patterns and several gold stocks have pronounced buy signals now.
I saw these stocks bottoming through September to November and have stated so for the past few months. I have not changed my mind at this stage however I do watch with caution as we all must – after all we do not decide what the market will do we must follow what it does. But one must hold a view and work to a plan with a clear exit strategy in case we are wrong.
I have been watching the depth and buying / selling action of gold stocks on these big down days. The action is heavily influenced by the big funds and their program based selling as they get their lead from the offshore markets – namely the USA. A big slap down just as their computer tells them first thing in the morning and then I watch the quality sectors get swamped at lower levels like sea gulls fighting over potato chips at the beach.
The bids are withdrawn before the open and down it all goes on the bell and for a short time afterwards. Then once base panic driven selling is reached the scraps at these lower levels are up for grabs and the squabble begins – quietly of course after the initial grab. Then as the bargain hunters wait in the depth I watch the bid slowly regain higher levels. There is some strength under many of these gold stocks and plenty under my preferred UCG play.
The complete disconnect between equities and gold stocks have not happened as yet even though I do see the correlation beginning to weaken. Many Australian gold producers are and have been receiving AUD$1000 per ounce for many months and are doing well despite cost pressures.
The diversified stocks are being hit as speculators appear to be driving copper, nickel, zinc and lead to false lows. If these prices were to continue their production would grind to a halt. Many projects are being shelved due to liquidity constraints already and the lower margin mines would soon close. I have seen reports of cuts to production already and this will increase sharply without higher metal commodity prices.
Gold production is falling and existing supply, which has far more influence on price, is likely to dry up considerably as investors and Central Banks hold on tight. Germany has announced that it will not sell.
Soon the hedge funds and big investors will be looking for opportunity to make money and make back losses and I believe it will be gold and gold stocks plus emerging energy technologies, energy, food and fertilizers. Inflation is coming your way and things will be volatile as the derivatives are gradually unwound. These derivatives positions are so large that wild swings will occur providing savvy investors with the chance to have some fun.
Last comment today is that the old saying about when the US sneezes the rest of the world catches cold appears to be changing. The USA was hammered last night and yet falls are comparatively moderate here today. You might say the US has caught the flu (or is that pneumonia) and we all caught cold. The cold is serious however we are not as sick and the poor old USA. The USA is proud and resourceful and we all wish you well for a speedy recovery… we live in hope.
We may live in hope but we should invest in reality and to this end I have negotiated a way to provide specific stock recommendations shortly – with independent guidance on price levels. Protect yourself today and get some education on finance and buy some precious metals – this is not over yet and the fun for gold investors is all ahead of us still.
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