24/03/2009 by Philinje.

Is gold heading to $850 or $1080 in the near term?

Tough call, but $1080 might be slightly more likely. The fundamentals are lined up, especially with the Fed’s announcement about monetizing US debt last Wednesday, and the technical inidcators lean toward continuation of the uptrend.

The US dollar has now broken down decisively from a double top, with the final coup de grace from the Fed announcement, and technically looks like it will head quickly to 82 and maybe even 77, possibly all the way to 70, the all-time low. Considering it is at just below 84 now and gold is hovering around $930, it is easy to imagine gold at $1080 even with a moderate further drop in the dollar.

The previous all-time high is in the neighborhood of $1020 - 1040, depending on whether you count the closing price or intraday high. That was a year ago. Some people saw the recent break above $1000 as a double top, and it’s true gold came down a bit and consolidated. It’s also true that options expiration is this Thursday, 3/26, and the Comex traders will do their usual pushing around.

The low just before the Fed announcement last Wed was $882, so that may be a good area to place a stop if you are short-term trading. But if you can wait a year to see a potential explosion in gold, buying anywhere under $1000 will seem like a good deal.

Silver is looking even stronger than gold at present, in part because it has more catching up to do. The GLD and SLV ETFs are convenient vehicles but don’t count on them long-term. Coins and bullion are much more a sure thing, and holding those outside of the US is another idea in the event the government gets funny about gold ownership.

The gold and silver mining stocks look very strong and that is a good indication of general strength in precious metals. Hecla (HL) and Silver Wheaton (SLW) are good candidates to pick up on any pull-backs. For gold I like Agnico Eagle (AEM) and Royal Gold (RGLD). But stocks are stocks and they could suffer in severe downturns of the general markets.

Speaking of which, the bad bank announcement yesterday produced an amazing one-day rally in equities, but it’s very questionable whether that will produce a sustainable rally. The Dow Transports broke down last Friday and in recent weeks the markets have not been able to break through initial resistance at about 7500 on the Down - I mean Dow. But now, maybe the Dow will get as high as 9000 before another wash-out produces the real low that has not happened yet.

Gold can be adversely affected by good news in equities but only to a degree. Over the past 7 years gold and equities went up together most of the time. And they went down together last October. But a year ago equities went down and gold went up. So gold can be a safe haven, or even a flight to quality vs. bonds, but it can also be a harbinger of inflation.

So the gold roadmap over the near term could see an immediate pullback, then a march higher into June, or a sharp move higher very soon into April, and then some pulling back over the summer. Either way, the time to get fully committed to gold is the fall, in preparation for some fireworks into next year. Buying on dips is a good idea, and the next few months might be the last chance to see prices below $1000.

Predictions of a high price in gold range from $2000 to $10,000. The timeframe could be one year from now or three years from now. One thing that is now a sure thing, due to the Fed annoucement, is the dollar will be de-valued, and the likely recipient on the up-side is gold.

Posted in Gold | Print | No Comments »

09/03/2009 by Philinje.

A call into BullionVault support put me on the phone with Paul Tustain, the founder. That was lucky, but then again he’s a founder with a hands-on approach.

I got to ask him everything I was still wondering about, most of which falls into the realm of the non-essential, since his writing and support material does an excellent job of explaining how thoroughly the business approach is thought through and constructed. Some of that is referenced in an earlier piece on this site, so please check it out if you have time.

Here are the main points we covered in the conversation: how Viamat is restricted in terms of moving the gold of clients, the gold-denominated insurance in place for him in particular as more than 50% owner of the business, and how BV differs from GoldIsMoney (a form of gold-backed e-money founded in London by James Turk).

The first point is covered in material on the web. Basically, withdrawals of gold have to be published by user ID on the front page or ViaMat won’t do it. In addition, while there is a limit of (I think) 5% of the total amount that can be moved at any one time, there is permission to move all of it between Viamat vaults, which covers the geopolitical emergency scenario.

Paul personally gave an irredeemable loan of 6 gold bars when he started the company, amounting to roughly $2 million. This amount is reserved for the board to handle administration of the company should there be a management problem. This simple construction ensures that Paul’s motivation is aligned with the company’s. Nice and direct.

By the way, BV has 5 million GBP in free cash and a burn rate of 800,000 GBP so they can survive for more than 5 years without any revenue. At present they have more than half a billion in deposits and 15 tons of gold, and are profitable, so there is very little operational risk in this company.

Regarding GoldIsMoney, Paul had some reasonable thoughts. The main point is that philosophically BV and GIM are very different. GIM aims to use gold as e-money, whereas BV aims to use gold as a store of value. Paul quoted Gresham’s Law, which states that bad money always pushes good money out of the system. His point is that while gold is an excellent store of value, historically it has not always functioned as money for the simple reason that there has been lots of bad money (can you say printing press?).

He also pointed out that with e-money the worst consequence of a break-in is someone can spend your money. With BV, the worst that can happen is someone can sell your gold and send you the money.

But he thought GIM is very well run and as an e-money system it would be his first choice.

So there you have it.

Posted in Gold | Print | No Comments »