Gold bulls surrender Labor Day opportunity
By: Tim Wood
Posted: 08/31/2001 03:00:00 PM | © Miningweb 1997-2001
PRINCETON, NJ -- It is wonderful to see the passion and intellect applied to gold by its bugs, but it is not matched by action. The bulls talk a great game, but the bears play a better one.
It is a basic principle of life that if you don't stay positive and take the initiative, other people will define the world for you. So it is that gold bulls are the welfare dependents of our time. They don't like where they are, but they do nothing to change to situation; waiting instead for someone else to do the job.
There's nothing more incongruous in the gold market. The gold bulls, and here the conspiracists are foremost, have a vastly detailed grasp of the bullion market. From a knowledge point of view, the bulls are on an equal footing with the bears. But the bears claw them each and every time. Why?
It cannot just be blamed on the power of the bears, even if you believe that the Fed and Treasury stand ready to mobilize every ounce in the world. If bulls defer to that argument, then they do not have the conviction of their beliefs. They simply confirm how weak their position is.
Here's a scenario. Monday is the semi-official conclusion of Summer in the Northern Hemisphere. For the last two weeks more and more people have been shipping out of the trading pits and off to the beaches. So you have glassy markets where the big guns are thinking sun and sand, not metal and quotes. Friday is a half-day on the desks as everyone looks forward to a long and leisurely weekend.
The lethargy comes on top of a jittery few months in the gold market with two good rallies and lots of news to unnerve everyone, not the least of which is the continued pressure from James Turk and Reg Howe. The dollar has fallen off a little cliff and the global economy is looking decidedly ratty with the Fed's seventh rate cut smacking of desperation.
In other words, we have a market more sweetly primed for gold bulls than it has been in years. Today (Friday) was the day to take the bears on. Nothing happened; the bulls just wallowed in the shallows of a moderately stronger dollar. If the bulls had committed to battle and bid for 62 tonnes the market would have experienced a fine panic. If a 10,000-ounce forward sale can kick the price downstairs to the tune of $5 per ounce, what would physical delivery demand 200 times greater than that do (2 million ounces or 62 tonnes)?
I can already hear the phones ringing off the hook in the Hamptons as the shorts' stops get burned out at each level – on Labor Day weekend. That's ledge leaping stuff.
The recipe to break the gold carry trade has been laid out explicitly by Mr Gold, Jim Sinclair. Gata has written its formula, fund managers and bullion dealers acknowledge how thin the market is and so susceptible to a confident player. The battle plan signed and sealed, but where is gold's Patton?
Are we to believe the gold bulls cannot assemble a war chest to fund the purchase of 2 million ounces? $550 million is surely easy to mobilize if you accept the argument that it will be repaid in seconds as the carry trade implodes.
At just $300 an ounce, the buyers would be good to the tune of nearly $52 million – great for applying a double-nelson margin squeeze. At $350 an ounce, which should be imminently achievable in this scenario, there's better than a 20 per cent return. If it goes to $600 as many of the diehards insist, then the bulls walk away with 119 per cent more than they put up, never mind the satisfaction of breaking the big derivatives and hedge players.
So where are the bulls now that it's too late and Fall is just about here? Waiting for JP Morgan and Goldman Sachs to define their world for them evidently.
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