Tuesday, November 3, 2009

Kitco Metals PR Head Is Bearish on Gold While Switzerland Is Running Out of Vault Space

Courtesy of a post by Mish today, I became aware of a Seeking Alpha interview with the head of PR for Kitco Metals, Inc., John Nadler. The intro to the interview says:

But don't be fooled, says Jon Nadler, metals market analyst and PR head for Kitco Metals, Inc. The precious metals expert says the current bull market in gold is all an illusion—one that the fundamentals can't support for long.

Mr. Nadler goes on to list 4 unpersuasive reasons why the conditions for a gold bull market are not present.

Meanwhile, Mish presents a persuasive chart that shows gold rising against multiple currencies on a multi-year time frame, with support trend lines intact.

Meanwhile, in real time, I have just clicked on Kitco's Gold Index web page. This shows that the price for an ounce of gold is down $2.20 (0.2%), but a strengthening dollar accounts for a drop of $7.20, while intrinsic buying is raising the price by $5.00. In other words, global demand has pushed the price up by 1/2%, which is offset by the strengthening dollar.

I believe that the gold bull market in essence if not to the day began September 11, 2001. Since then, gold has about quadrupled in dollar price. The Euro has less than doubled, as has the yen. Thus gold has outperformed fiat currencies in general this decade and is NOT solely a weak dollar story.

Early in the decade, gold was reverting to the mean. It is now in a bull market of undetermined duration. Gold is not cheap in relation to the average wage. It has a more or less average value relative to oil and stocks. The credit-driven Fake Recovery from the 2001 recession appear to be repeating itself, though various economic dynamics and cycles mean that the sector leaders and other factors will be different.

If you look at the charts on this page, which are from Kitco's website, you will see that gold is in a strong bull market. On a 2-year basis, the new high we saw recently is but a blip.

To put it all in context, gold briefly hit $700+ per ounce in Jan. 1980. (A couple of trades occurred around $850, but let's call $700 the real high.) Gold averaged $615 per ounce in 1980.

Gold is up 40% in nominal price from an amazingly high average price in 1980. However, oil has about doubled from its $36/barrel price set in 1980. Trend followers, and who knows how much fundamentally-based money, is buying the dips in gold. In 2-4 weeks, we will be lapping gold's lowest price of the global financial crisis. This will put a kind of gravitational pull downward on it, as will the amount that it is above its 200 day moving average.

But, given that the global economy has not been allowed to rest and recover organically, but instead massive government spending has goosed China, the U. S. and the U. K., there is every reason to expect that with regard to the anti-credit money asset-- gold-- will do this economic cycle what it did the last one. As I see it, no corporate insiders to any degree are buying U. S. stocks, but it is not dumb money that goes to the trouble and expense of storing record amounts of gold not under the mattress or in a safe deposit box but in Swiss vaults that are reportedly so full up that more vault space is being created. That smells like a true bull market to me.
Copyright (C) Long Lake 2009

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