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Sunday, 21 April 2013

The pot of Gold at the end of the rainbow...my perspective.

Simply put, the Gold sell off recently in the markets was pure Panic. Fear has clearly taken the driver’s seat, pushing greed completely aside for some of the nonsensical reasons given by most analysts. I see bear markets as buyers’ markets. I’ve long said that the best time to buy is when there’s blood in the streets, and that’s what its shaping up to be.

The dramatic plunge in gold prices over the last few days does not mean the bull market is over, but this may be a long-awaited mid-cycle correction. In my view, the fundamentals are still very positive for gold .

There’s still a very strong physical demand. Physical demand for gold will start to pick up after the recent price decline…it’s inevitable…trust me.

It’s possible we have already seen the low.  It’s hard to see how gold sentiment can deteriorate any further. Should gold fall further, I see some support at $1,225-$1,250 and very strong support just above $1,000. 
If we do go that low, I don’t see how it can be for long. Here’s why.
The average all-in cost to produce gold – ie the cost per ounce of finding, developing and building a mine as well as actual production – is widely believed to be somewhere in the $1,200-$1,400 range. On this basis, some 15% of gold producers would now be underwater on an all-in cost basis. With all the mining strikes after the past couple months hindering gold mining production has haltered supply. With less supply and rising direct costs to produce Gold, you can be guaranteed that Gold prices WILL rise in the future.

In 2012, the average price for the sale of mined gold was $1,650. With Gold trading below $1400 per ounce,  companies would, at $1,650 per ounce, have their gold now sell below $1,400 at major losses!
Companies can’t afford price Gold to fall below productions costs. There is only so long it can trade at a price below its annual cost of production.

Fear has clearly taken the driver’s seat, pushing greed completely aside... at least for now. Why? The reasons given by most analysts are nonsensical:
  • Gold is selling off because those ever-so-ethical and smart guys at Goldman Sachs say it’s heading lower. That this is patently silly hasn’t stopped it from becoming a self-fulfilling prophecy, for a time.
  • Gold is selling off because some technical analysts says that’s what should happen when certain support levels are breached. To the degree people believed this, regarding $1550, 0r $1450.

  • Gold is selling off with broader markets because surprisingly weak retail sales and consumer confidence numbers from the US, as well as weaker-than-expected numbers from China, have whacked stocks and commodities alike – but that should have been bullish for the safe-haven metal. That some economic data coming in weaker than expected is given as a reason for gold to drop just shows how few people understand gold at all.
  • Gold is selling off because of the now-denied news about Cyprus selling gold holdings to help bail itself out. Even if this were true, it would have no bearing on the fundamentals of the gold market.
  • Gold is selling off because of manipulation. If that were so, it would not change the underlying realities and would eventually have to be unwound.
  • Gold is selling because more and more people fear the peak was $1,900 in 2011, and it’s all downhill from here. That – again – is momentum.
        What this is all saying is that gold is selling off for the wrong reasons, mostly amounting to speculative momentum-chasing. Simply put: this is panic.
I’ve yet to see any convincing argument as to why gold had to drop or should go lower. I’ve yet to be convinced that the governments of the world have cured what ails the global economy with their virtual printing presses, and the next boom is a done deal.

The current drop may not be the bottom yet, but a very significant near term gain for those that see it as a buyers market. I see bear markets as buyers markets. Expect Kruger Rand demand to increase dramatically and an increase in prices to follow.

I plan to bid under market over the course of this week and get the best prices possible. Then I’ll wait and see what comes next. I encourage all contrarians with courage to join me in taking advantage of this opportunity.

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