Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Not only did gold hit a staggering $1,444 but the dollar fell to $1.40 against the euro. As forecast by us, the dollar saw some management and stands at $1.3886 today. Gold too has slipped in the dollar to Fix in London this morning at $1,435.00. Today, the power of the Fixing over the gold market was highlighted when it Fixed at more than four dollars above the price that was trading ahead of the Fix. This was two dollars lower than yesterday afternoon’s Fix. In the euro, because of the gyrations of the dollar, the picture was reversed. Yesterday afternoon’s Fix was at €1,026.27 and this morning higher at €1,030.37 four euros higher. So again, this was about the dollar not about gold.
Of greater force was the downgrading of Greece to a level saying Greek debt was “Highly Speculative”. In our language that means Junk Bonds. Indeed, the Eurozone debt crisis is moving back to center stage as the market is discounting a lowering of the interest rate as well as the term of these bonds. This appears inevitable now, for both countries can’t repay the debt on the present terms. If there is no change in the rate then both nations will default. We expect this issue to be handled gently and reasonably so that the terms are changed without words like re-scheduling because that would hurt the name of all involved, but is this what will happen?
Gold – Very Short-term
Gold hit $1,444 yesterday, primarily on a weaker dollar, but on good demand from ‘shorts’ covering their positions. The gold price today is as much about the dollar’s moves as much as it is about gold. We expect a day of consolidation in New York today.
Silver – Very Short-term
After Fixing at $36.37 today silver is now trading at $36.05. Today we expect to see consolidation in New York today.
Gold Price Drivers
We do not accept that the growing civil war in Libya is driving the gold price. The fear of oil supplies dropping was a driver, but with Saudi Arabia and other oil producers making up for lost Libyan production we expect the oil price to fall.
Of greater concern to the markets are the ‘faulty’ currencies, the euro and the U.S. dollar. Both are falling but sometimes the dollar falls faster than the euro, which is reflected in exchange rates. However, we expect it will be the euro’s turn to fall faster next as the Sovereign debt crisis bursts open again.
As we mentioned above, the markets have discounted a re-scheduling of Greek and Irish debt into their prices after Moody’s downgraded Greek debt to ‘highly speculative’ yesterday. While these crises are not new, the markets are worried at the system’s inability to tackle the problems effectively. The fact that the crisis has persisted for so long tells us that we are skating on thin ice in terms of confidence in currencies. As it is fewer and fewer people are using currency values as an accurate measure of value. They are rapidly becoming simply a ‘means of exchange’. Value is being seen more and more as resting with precious metals.
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