This Article is a follow through to the Contrarian Round Table and The Sneak Fed Attack On The Metals Market. The most interesting part of this Gold Bull market is there is more bull being sold than Gold. We have to many promoters jumping up and down claiming that Gold shares should be bought at any level and that there is nothing to fear. I have and will always take the position that buying Gold and Silver bullion on any decent pull back, is a very wise investment. Buying Gold shares or any other shares is just another form of speculation you can get your head handed to you on a platter or make a fortune. When you start buying Gold shares you need to pay particular attention to Technical Analysis as these shares can take of much faster than Gold bullion and correct much harder to. I have 13 charts of Gold priced in 13 different currencies. As you can see Gold has been correcting in all the currencies, except in terms of the US dollar. In some currencies the correction is more severe than in others, this simply means that for the time being the market has deemed these currencies to be the strongest ones out there.
When looking at the strongest of them the South African rand, the Namibian dollar and the Lesotho loti, we see that gold has lost up to 125 dollars in value when these currencies are converted to dollars. So if we add this figure to the price of gold in February, Gold would have to be at around 455 dollars just to break even. But Gold is not there, which means that the central bankers are still retaining the edge.
At this point one of two things has to happen, either Gold has to rally in all currencies particularly the Rand or the dollar starts to rally, while the rand and other stronger currencies start to pull back. This will have the effect of increasing the earnings of South African gold mining companies, which will have a positive effect on their share prices. The question is which one of these two scenarios will unfold.
I think that it is far more likely that the US dollar will start to put in some sort of short term bottom in the near future as a continual plunge will start to make the Asians very jittery and if they started to lighten up on their Dollar reserves then all hell would break lose and the Feds know this, so expect some sort of Dirty scheme to unfold soon.
Whatever method they chose to employ the break down of Gold below 400 could push many to sell and lock in their gains. This sell off will produce another mouth watering chance to load up on Gold and Silver bullion and for those that want to speculate, you will be able to load up on Gold shares at very pleasing prices. However 1-2 years from now I see Gold at much higher levels but in the interim some sort of pull back would be healthy.
Yes this is a very rosy picture indeed, everything looks just sweet and dandy and it looks like the average Gold bug is taking the candy away from the Feds.
We are very close to a point where the Feds will probably resort to some underhanded tactics. If these tactics should work and produce a significant pull back I would look at it as a Golden mouth watering opportunity to load up on Gold and Silver bullion. What the Feds could actually do is start to let the Rand depreciate and start propping up the dollar. This way Gold could start to correct in US dollars while gaining strength in Rands. The speculators could use this opportunity to buy Gold and Silver shares at prices that could be significantly lower then current prices. Short term there is most likely some risk with jumping and buying Gold shares indiscriminately, long term 1-2 years Gold bullion will be significantly higher then where it stands right now.
I am going to post one of the many hundred emails I have received from people who have read my previous posts as I think they it is very pertinent to the current issue.
Hi Sol
I am a South African and have been reading your articles working with the Rand and gold with interest. The rise in paper currencies and the resurgence of gold as a safe haven currency is supposed to be fantastic for us. I am a believer in the secular bear market theory and supports the long term bull market call on gold. Your articles on the Rand are written from an international perspective and I thought to share some views with you from a SA perspective. First off I have never ever thought that anybody would ever measure the DOW by Rand standards. It was most refreshing and thought provoking.Next step was to compare a lot of 3rd world currencies on the same premise. You have confirmed my suspicion that we share a common major problem. It is further exacerbated by the fact that the Rand appreciation already discounts a significantly higher price in all precious metals and mining products produced by SA. So much so that the Rand appreciation is forcing major downscaling in capital investment in mining in SA when the international demand seems to be growing! It is also not pleasant to be a SA investor in our top Gold and Platinum mining shares. They all have to put out profit warnings as a result of the strong Rand. Spare a thought for the rest of our economy. We have been investing in export driven industries for the past 20 years.
For a brief spell the rand depreciated to R13 odd to $1. Our fledgling export industries started coming alive. Mining capex was on the increase and we were hoping to start making a dent in our some 35% unemployment rate. Politicians were apologetic about the weakness of the rand but it was appropriate for our economy. Now things have changed. Politicians are strutting around claiming international applause for their fantastic economic policies and the strong Rand is proof thereof. Our Central Bank is not equipped to deal with the currency swings of this magnitude.
The official response is to cut interest rates. Picture this; Strong Rand, 35% unemployment, all export driven investment over the past 20 years (100 years will also work) becomes malinvestment, export industries become unprofitable, even tourism has crashed, encourage imports and current account deficits, lower interest rates encourage consumer spending on big ticket imported luxuries, cheap $ borrowing by government to spend on consumption, discontinue almost all new investment in mining & export driven industries, Central Bank starts buying a few US$s for reserves simply because it now can and so the vicious circle continues in an economy that simply should not and could not be a major importing country. Unemployment would probably increase substantially (as if 35% is not high enough) and debt would quickly cause major long term structural time bombs. We will in all probability become one of the first countries to dip into deflation. Never in my wildest dreams did I think such a thing could become a probability! We need the strong rand as much as a hole in the head.
It seems that the strategies employed by the FED is at the root of our Rand problem. Larger economies are actively protecting their currencies against the fall in the US$, thus weak currencies with no institutions to combat the falling $ effect converts into strong currencies against all the major currencies of the world. Are we now expected to reverse the US$ deficit, or while we're at it all the trade imbalances in the world? Fact is populism will rule and I suspect that most of our citizens, corporates and government will give it a good go and screw us for a long time hence.
As for the US$, we will not make any impression on the US trade deficit even if we gamely splatter our collective selves on the windscreen of the falling dollar. What comes next after we and all the other weaker economies of the world has sacrificed our economies to the drive for a weaker $? The BIG BAD BEAR? Or does it come before? Do we actually matter? What matters is that the excess $s in the world will have to be destroyed and we will probably be the first defenseless victims. I have no doubt that the weak rand will return in good time when the folly of low interest rates and a strong Rand has enslaved us to government and international debt. Our fledgling export industries would probably not survive the time that it would take to swing back, nor the probable structural lack of international demand. In this view I will likely be a lonely voice from outer space, so spare a thought for us as we happily approach the windscreen of the falling dollar. And once we have gone splash, think who will be next.
Warm regards,
Sarel Oberholster
© 2003 Sol Palha
TACTICAL INVESTOR
www.tacticalinvestor.com
info@tacticalinvestor.com
27 December 2003