The Invisible Ace In the Gold Camp
Courtesy of the Unknowing Central Bankers
Sol Palha
It's 2 am and I suddenly shoot out of bed as if struck by a bolt of lightening like one of those cartoon characters. I run to my computer and type in the following statement " The central Bankers are on the Verge of actually driving Gold prices to insane levels" and put some foot notes and went back to sleep.
Well I get up the next day and lo and be hold I see an article on Reuters that only further adds fuel to my theory.
The central bankers who are pumping so much money like some insane beasts are in effect destroying the dollar now at velocity that is close to reaching a terminal level. This in turn is pushing up the currencies of resource-based nations to extreme levels, one such country is South Africa. Why do I specifically mention this country? South Africa has the largest Gold, Platinum, diamond and various other commodities reserves in the world. The Rand has appreciated at extreme pace to become what I have called the best performing currency in the word. From taking 14 Rands to buy 1 dollar it now takes less than 7 Rands to do the same and this has taken place in approx 1 year.
This has had the net effect of actually pushing the cost of South African mining companies through the roof. Their costs are in rands, but they have to sell the product in depreciating dollars so they keep making less and less and they reaching a critical point, If the Rand should appreciate more say past the 6.50 point, then many companies are going to be forced to start shutting down.
"There is a sense that it's okay now but if the rand goes below 6.50 (to the dollar) it will cause a lot of damage to gold and platinum firms in the longer term, who will start to look at closing shop," one trader said, adding that weaker international markets were putting added pressure on the overall mark.
The rand was at 6.5950/dlr after earlier reaching fresh highs, touching a 43-month peak and coming within spitting distance of the key level of 6.50 against the dollar. A strong rand bruises exporters as they must translate their earnings into the local currency when they report their profits.
Various resource firms have come out with trading statements warning that they expect lower earnings due to a firm rand. So far this year the currency has appreciated by more than 30 percent.
Full article below
www.reuters.com/newsArticle.jhtml?type=topNews&storyID=3852060
What will happen if the mines in the Largest Gold producing nation start to shut down, already constrained supplies of Gold will be stretched to starvation levels and when demand exceeds supply by an insane level only one thing happens, Gold will take of in an every major currency in the world. Right now it just does not pay to watch Gold in terms of the Dollar, those that insist on simply looking at Gold in terms of the US dollar are doing themselves and their clients a serious disfavor. South Africa is the World number 1 Gold producing nation Period, therefore use the Top Gold producers currency to look at what is really happening in the Gold markets. The dollar is dead long term it might have a few short term rallies but long term its just looking for a nice burying Ground.
If you insist on not using the Rand then use the next less useless currency, which is the Euro, however I would recommend using top currencies like the NZ or OZ dollars my personal favorite is the Rand.
Look at the chart below gold has actually lost value in terms of the rand, but you will notice it is slowly making higher lows. I suspect we will have one minor mini correction and Gold will then enter the next phase where it starts to rally in every major currency.
Conclusion
If the mines start to close down then supplies will be severely constrained, and it takes about 1-2 years to bring mines back online after they have been shut down. If nothing is done to bolster the Dollar soon, then the Rand will carry on appreciating, mines will be shut down and Gold will go to the moon a lot sooner than even the Gold bugs think and the Feds will understand the true meaning of the phrase "roasting in Hell".
Use any pull back in bullion prices to buy more Gold and Silver Bullion.
If you look at gold bullion in Feb 2003 it was selling for approx 3300 rand, today its selling for approx 2600, 700 Rands cheaper. The exchange rate is approx 6.36 Rands for 1 Us dollar, that means Gold is currently selling for 110 US dollars less than it was selling in Feb 2003, that translates into a price of approx 510 US dollars per ounce of Gold. South Africans who have invested in gold bullion have been basically raped to death and handed their heads on a platter so far.
We constantly monitor the Gold situation in various currencies, you can do this on your own by going to www.stockcharts.com or subscribing to our free newsletter. We will be expanding on this topic on our next Contrarian Round table series, where up to 9 other commentators will be posting their comments on the Current Gold situation. It should be ready around the 3rd week of December.
John Tyler's Comments www.infognome.com
Well, I always learn something when I read Sol's articles. One of the things I learnt here was that Sol actually sleeps!
I would like to add a practical word to the mum & dads widows & orphans who may be reading. It's to make some suggestions on how to apply some of this to help protect your assets.
Cash in the bank will have its value eaten away. The gold sharks will start circulating to sell overvalued investments. There will be numerous IPOs promising the next mother load. They prey on the unsuspecting in times of speculative frenzy.
- Shares- buy the majors on pullbacks. My favorites have been Newmont and Anglogold, but there are many more out there.
- Gold funds.There are several that have upside gearing such as Rydex's RYPMX and Profund's PMPIX
- Bullion Coins. I am not in favor of modern issues. Go for bullion coins that are as old as possible. but that sell for bullion prices. These will develop a collector's premium in the later stages of a bull market. Australian Sovereigns have lower mintages than UK ones, so go for the gold coins down under.
Happy & profitable investing,
And remember that "Fortune Favors the Informed"
John Tyler AKA The Infognome
Sol Palha
TACTICAL INVESTOR
www.tacticalinvestor.com
December 2, 2003
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