Medusa Share Discussion Threads

[tightfist] 14/3/2016 09:51

Hi Justin,

A really good read, lots of context for what we now see being played out. Just wish it had been written a few months ago - maybe it was and I was looking in the wrong direction.....

The obvious resulting question is regarding the investment stability of the Phillipines. It's not specifically called-out by Foster but I just wonder if I am becoming a bit over-confident.

Cheers, tightfist

[justinjjbuk] 13/3/2016 13:21

Really interesting article on the renaissance of the Australian gold miners:



Gives some background over how the larger cap names (NST, EVN and OSG) got their timing so right.

Justin

[justinjjbuk] 12/3/2016 12:18

Chip

You are right to emphasise China. I am expecting at some stage to see speculative investment demand in China coming back into gold in size.

I think for this to happen three things must align: a weakening stock market, weakening real estate market and increasing fear of aggressive FX controls on the transfer of capital overseas by the Chinese government.

We've got two of these, stock market and exchange controls, but not the third: real estate.

In the major cities, real estate is still hot, hot, hot. This is the latest statistical release from the Chinese National Bureau of Statistics:



If you look at Table III, which covers what they call "Second-Hand Residential Buildings" and pick out the major cities, the market is still steaming.

Beijing up 23.7% y/y and Shanghai up 14.4%. And across the border from Hong Kong, Shenzhen is up a stunning 49.7%.

The last time I saw this craziness was when I lived in Tokyo in the last 1980s. And I also happened to continue to live in Tokyo through to the early 1990s when it all came crashing down.

There is a certain perverse logic to the madness of Chinese investors at the minute. Why bother with gold when you can flip condos in Shenzhen and get instant double-digit returns? But we all know how this will end, and I hope that gold is where people will take refuge during the ensuing carnage.

Justin

[chipperfrd] 11/3/2016 12:13

Just to make it even more convoluted, the Yuan/Yen pair have been impacted by recent Chinese currency flows - which impact the Yen - which impact the Yen/US$ carry trade - which is closely correlated to movements on the S&P and Gold!!

[atlantic57] 11/3/2016 11:56

Thanks Justin no wonder i am struggling to read the T leaves!!

[justinjjbuk] 11/3/2016 10:47

atlantic

Other things being equal, the carry trade will see investors funding in the low interest, weakening currency and investing in the higher interest, strengthening currency.

The yen to dollar trade is the classic example. After the BOJ announced its latest round of monetary easing (including negative interest rates) we appear to have got an unwind of the carry trade there: investors closing out their short yen, long dollar positions. The result was the yen spiked higher.

The European markets seem to be all over the place at the minute. Post Draghi's announcement, the euro first weakened dramatically, then within 30 minutes it strengthened dramatically (suggesting that hedge funds were closing out positions). This morning euro is weakening again and European equities are flying again.

BOJ move in January was shocking in the sense of the market's reaction. Basically, the market said that the emperor (or rather BOJ governor Kuroda) had no clothes and that monetary policy had reached the end of the line. So you had stocks selling off and yen strengthening in the face of further monetary easing: this is not supposed to happen.

Yesterday, I thought we were getting a repeat performance in Europe. But this morning, the market appears to be giving Draghi the benefit of the doubt. Too early to tell how this will play out.

For gold, I think the negative interest rate story will provide a floor. But the loss of ECB credibility was what would have pushed gold through $1,300. And it is too early to tell if the markets really think the ECB has got to the end of the road in terms of the effectiveness of monetary policy or not.

And while the market works all this out, gold is going to be volatile.

Justin

[atlantic57] 11/3/2016 09:35

Justin or anyone else.
Are you saying the carry trade is in essence buying the euro yesterday knowing that it will weaken against
Say the US dollar and investing in dollar investments which will then appreciate against the euro.

Or have I missed something !

[chipperfrd] 11/3/2016 09:22

Thanks for the link Niels.

[nielsc] 11/3/2016 08:43

Chipperfrd,

Yes liked Mr TF's take on the pricing of paper derivatives.

Did you catch the latest with ABX. Looks like they are busy.



Cheers,
Niels

[justinjjbuk] 10/3/2016 22:00

ASX Rebalance



Not quite what I was expecting. MML removed from both the ASX 300 and the All Ordinaries (together with another gold name KCN).

Going the other way, Santa Barbara (SBM) back in the ASX 200.

Rebalance takes place on the 18th. For the ASX 300 and All Ordinaries not sure how much institutional money is indexed to these indices. Guess we will see tonight.

Justin

[justinjjbuk] 10/3/2016 21:20

speedsgh

I had another look at the ASX 200 constituent link you posted. What struck me is how few pure gold names are left. In the ASX 200, the Grim Reaper scythed through almost all of the gold miner names during the four-year gold bear market. There are only 4 pure gold names left: Newcrest (NCM), Evolution (EVN), Northern Star (NST) and Regus (RRL).

I thought perhaps one of the names that I own, Resolute (RSG), would have a look in at any rebalance, but actually there are numerous names ahead in the queue. In particular: Oceana Gold (OGC), Santa Barbara (SBM), Saracen (SAR) and Metals X (MLX).

Then we have a bunch more names before we get to Medusa.

I guess this just means we have to be patient.

Justin

[justinjjbuk] 10/3/2016 20:28

atlantic

Yes, as Warren Buffett would admit: Mr Market is fickle. Guess that is what makes investing so interesting. I also underestimated the ability of the monetary authorities to dictate their agenda to the markets. Seems, however, that times are a changing.

The old investment adage is "Don't fight the Fed". After the market's reaction to the BOJ and ECB moves, it seems that investors are gradually calling the bluff of the central banks. This is a very dangerous game of course. The central banks may be wounded but it doesn't mean they are dead.

So lots of market volatility to come, and probably lots of gold volatility to come as well.

Justin

[atlantic57] 10/3/2016 20:17

Justin
I think we are definitely living through a repeat of the 1930's
However in that era politicians did not have to worry about keeping the electorate happy.
So things took their natural course!

In my own assessment of what would happen after the 2008 which I perceived at the time to be a mirror
Image of the 1929 I got things right and basked in self glory.
However since gold peaked I have been 100% wrong in reading the tea leaves .

I would expect gold to go on a bull run ,European equities and the euro to sink.
However today's events have again underlined how complex markets are.

Good luck

[justinjjbuk] 10/3/2016 19:44

atlantic

Euro weakness then strength is a repeat of what happened in Japan. BOJ announced negative rates, yen weakened for a day, and then massively strengthened. Seemed a very strange reaction at first (yen rewarded for policy failure).

I think this is a carry trade reversal. Hedge funds funding themselves in what they perceive as the weak currency and investing in the strong currency. Similarly, institutions positioned to invest in risky assets after QE announcements.

The QE riskless trade reverses, so suddenly institutions go risk off and close out their carry trade positions. Everything is interconnected.

Interesting times! If we are getting to the "end of days" for monetary policy, the next few years will be like living through the 1930s.

Justin

[atlantic57] 10/3/2016 19:08

That is a good summary Justin .
Perhaps equities will now crack because the markets feel as you say that central bankers have run
Out of ammo.

Maybe gold will now go on a sustained uptrend.
I was surprised by the strength of the euro against the dollar in these circumstances.

[justinjjbuk] 10/3/2016 18:49

atlantic

This is a repeat of the BOJ shock announcement of negative interest rates. I posted at the time that negative rates are a wonderfully positive secular support for the gold price and now all the news wires and Op Eds are peddling the same story.

So the ECB cut the deposit rate to -0.4% and the refinancing rate to zero. All this reduces the opportunity cost of holding gold.

But, more importantly, I think the sharp turnaround in European markets was because Draghi gave very mixed signals about where monetary policy can go from here. As with the BOJ announcement, the markets basically said "Is that it?". First in Japan and now in Europe, the markets have questioned for the first time the ability of central banks to underpin growth. The markets are saying: "Have you run out of ammunition?"

Up until the end of 2015, markets felt that buying equities and real estate when a central bank had your back through implementing ever more aggressive QE was a slam dunk investment-choice (so why hold gold in such a situation? Gold was for losers!).

Now the market is no longer viewing QE action as a chance to get a free investment lunch in risky assets. I can't begin to emphasise how important this development is for global markets in all assets (and the change has only happened over the last few months). And this is super bullish for gold.

Interesting to see whether gold can now break out again to $1,280 and push on to $1,300.

Justin

[atlantic57] 10/3/2016 15:48

Gold has responded very well to the Ecb announcements.

[chipperfrd] 10/3/2016 12:23

Over 251 weeks the gold price has moved in a range of c. US$850/oz.

Commercial Net Positions on the COMEX have moved between Week-on Week changes of +160 tonnes to -241 tonnes. Yet the average over the entire period is just 0.3 tonnes!

Likewise, Open Interest has swung continuously between +222 tonnes and -101 tonnes on a week-by-week basis. Yet the 251 week average change is just 1 tonne!

Truly remarkable and testament to computer control of contract issuance and settlement. You have to hand it to these guys.
Chip

[chipperfrd] 10/3/2016 11:20

Whilst on the above subject, it is at least worth contrasting with a stock exchange. People can go long or short shares in accordance with their opinion on future price, but at least the number of issued shares is a known fact. So if the volume of buyers exceeds the volume of sellers it is to be expected that the share price will rise because ultimate supply of shares is finite.

But this is not the case with the futures market - and especially with all the precious metals traded on the futures market.

As is obvious from the positions reports, as buying pressure increases the actual volume of SUPPLY invariably increases (as shown by Open Interest) and sometimes these increases are extremely high. Given that there is no finite limit to the supply of contracts then it can also be seen that heavy buying interest can, and usually is, heavily damped and eventually overwhelmed. Then it's just a case of 'rinse and repeat'.

I don't have any problem with the concept of futures, but I do object to the resulting 'paper price discovery' then applying to the physical market, instead of the other way round.
Chip

[chipperfrd] 10/3/2016 10:16

It remains to be seen whether the new alternatives to COMEX and the LBMA will change the long-standing status quo. We have the SGE price fix starting on the 19th April and (allegedly) a new price setting in Hong Kong is on the cards.

There is also the ABX which now provides an alternative for the producers to market their gold instead of being herded into the LBMA, although I assume it will take quite a while for volume to pick up through that channel.

The complete failure of the LBMA Silver Fix on 28th January will, I assume, have had some impact on the credibility of that organisation and I understand that there is currently a move afoot for the LBMA to either move under the umbrella of the Chinese owned LME or for it to fall under the CME (aka the COMEX). The direction taken looks like it could have very major long-term implications for London as the premier world gold/silver hub.
Chip

[rogash] 10/3/2016 09:51

CHIPPERFRD, THANKS FOR YOUR RESPONSE.

[chipperfrd] 10/3/2016 09:40

rogash

It has been the way it is for 40 years so everyone is conditioned to the paper market setting price discovery.

It is very clear when one views a very large number of weekly net positions on the COMEX that you see the clear cyclical nature of the rising amount of paper supply into price rises and the rapid decreases as the price consequently falls.

I have only been doing the numbers for 5 years. The most extreme 1 week example during that time was the change from 19th May 2015 to 26th May 2015. (Remember, one only gets a snapshot of the positions existing on the previous Tuesday. What happens in between is anybody's guess!).

19/5/15 Commercials Net Short 170.5 tonnes
26/5/15 Commercials Net Long 70.3 tonnes

Hence, 240.9 tonnes of paper positions changed in the space of just one week! Which is around 10% of annual global production. Yet there was no delivery or change in actual physical holdings in the COMEX vaults.

Prior to this period the gold price had been rising but in the period between 5th May and 19th May an additional 272.2 tonnes of paper supply had been 'written' into the market with the inevitable result that the rise failed and went into reverse. No actual change in physical vaulted stock of course!

Just one example but it is as regular as a heartbeat throughout the year.
Chip

[rogash] 10/3/2016 07:48

chipperfd post 36044. why aren't the gold miners up in arms? why did nobody complain when the gold price was going up from 250 to 1900? I am into gold miners but cannot understand this.

[deka1] 10/3/2016 06:26

Hard Assets take on the next move in POG.

Gold has been on a tear since the start of this year. It is the best performing asset with a 16 percent rise in 2 months, however, if you are planning to enter gold at these current levels, you are likely in for a big surprise. Gold is overbought and technical analysis is pointing to a drop in gold price to the $1150/oz. level, a good 10 percent lower from the current levels.

The equity markets are in a bounce/rally mode and likely to remain buoyant till end of March. Oil prices, which were causing a scare worldwide are also on the mend, the bottom is likely in place at $26/barrel.

The Nonfarm Payroll data, released on March, 4th 2016, has given a green signal to the FED to move ahead with the next proposed rate hike. Whether they go ahead with the hike or postpone it till the next meeting is difficult to assess, but the U.S. Dollar will likely trade with a bullish bias as long as the chances of a rate hike remains on the table.

A strong dollar dims the sheen on the yellow metal, if the dollar continues to remain strong, gold will likely come off towards our target low area of $1150.

Technically, gold has risen from its lows without any retracement, as shown in the chart below. Though gold has broken out of its long-term downtrend, the market participants should remain cautious on it. Many bulls will want to pocket their profits as gold is nearing a resistance area. The bears will enter shorts closer to resistance. With both of these events coinciding together, gold will retrace back to its breakout level.

The bulls will buy closer to $1190/oz., which was the earlier resistance, they will attempt to defend the level and support the market. The market can either take support at $1190/oz. or drop down towards $1150/oz. area to shake out many long positions before rising again.

hxxp://930e888ea91284a71b0e-62c980cafddf9881bf167fdfb702406c.r96.cf1.rackcdn.com/data/tvc_f3f93cebf3a69dd5c1badb50a2ef230b.png

Take a look at my gold cycle analysis. The pink line is a blend of multiple cycles and follows the actual price very closely and allows me to predict into the future if the bias will be downward or rising.gld

Both Societe Generale and Goldman Sachs are negative on gold with targets of $1150/oz. and $1000/oz. I totally disagree with them on their longer bearish views, I want to make it clear that I am not bearish on gold from a longer term perspective. Gold price will make new highs in the coming months, however, the next 10 percent move for gold is down rather than up.

I want my readers to enter long positions close to the bottom, in order to maximize their gains. So wait, for the right time to enter again closer to $1150-$1190/oz. levels. It will be the last opportunity to buy gold before it embarks on a new long-term bull trend.