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Alex Canahuate  

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  • Recent Chinese And Japanese Economic Data And The Implications For Precious Metals [View article]
    Thanks for your comment. I couldn't agree more. Investor indecision is going to be the enemy of most asset classes.

    Gold's recent correlation with risk assets is a transient dynamic in my opinion. Many investors tried to jump on the gravy train in 2011 when gold rallied from the $1500s to over $1900. However, when the inevitable correction came, many people who purchased gold for the wrong reasons became distrustful of the "safe haven" qualities provided by gold. But the fact remains that assets immune from the counter-party risk that characterizes most conventional investments will be increasingly attractive going forward.

    Who can say when investors will be re-enamored of gold and the broader metals complex, but in my opinion it is just a matter of time. Especially with the Fed and other central banks promising record low interest rates for the foreseeable future, the opportunity cost of holding non-interest bearing assets like gold will remain depressed. This reality, combined with the uncertainty and political/economic tension cited by filipo above will ultimately form the core argument advocating at least a portion of everyone's portfolio be invested in precious metals.
    Nov 16, 2012. 03:02 PM | 1 Like Like |Link to Comment
  • Recent Chinese And Japanese Economic Data And The Implications For Precious Metals [View article]
    You do raise an interesting point. I agree that should we see a steady but measured decline in certain risk assets (which is entirely possible), then its perfectly reasonable to expect the hard assets to display a certain degree of resilience.

    An unrelated yet equally interesting consideration is how dependent are current stock valuations on stimulus and expectations of further stimulus? For example, the Friday before the elections the BLS reported better-than-expected jobs growth of 171,000 - yet the Dow closed down over 100 points. Could this paradox - good economic data resulting in poor stock performance - represent an increasing dependence of upward momentum for stocks on the expectations of continued stimulus? Time will tell...but such a dynamic, should it exist, is unhealthy to say the least...we'll have to see how the U.S. indices perform as more economic data is released going forward.
    Nov 16, 2012. 02:44 PM | Likes Like |Link to Comment
  • Recent Chinese And Japanese Economic Data And The Implications For Precious Metals [View article]
    Thanks very much for your comments and kind words. While I am inclined to agree with your sentiments regarding silver and oil, I think both could come under substantial selling pressure should we experience an across-the-board equity sell off. Silver is especially susceptible to this type of downward bias during widespread equity divestment as a result of institutional positions in silver-backed ETPs like SLV. While the institutional presence in these paper silver products is not as substantive as in the gold market, the relatively smaller silver market makes it particularly vulnerable to the ebb and flow of institutional cash.

    In an environment of spiraling equity losses, many of the leveraged investors will liquidate metals positions (to include silver) to raise the capital to satisfy the inevitable margin calls that result from hemorrhaging stock/risk asset values. It's better to book a gain, or modest loss on the paper silver positions rather than realize a more substantial loss as a result of positions being closed on account of insufficient collateral.

    Regardless of the catalyst, if you anticipate an upcoming correction in global stocks, I would position myself with the assumption that silver will test its lower support levels amidst the ubiquitous selling that occurs. The $26.50 level has held firmly on more than a few occasions, but ultimately silver's ability to stay north of this level depends entirely on where the price is when, or if, such a equity sell off should occur.

    Currently, silver is trading around $32.50, meaning a move to the $26.50 level represents an 18% drop. While this may seem like a sufficient buffer, in an environment characterized by mindless liquidations and paralyzed buyers, the silver price could certainly breach this downside support point and revisit the high teens. Precipitous falls in the silver price, in excess of 20-25%, would not be an anomaly - 2011 had at least two drops of this magnitude.

    So while I agree completely with your thesis regarding the price consolidation and tight trading range for oil and more specifically silver, I would just point out the risks associated with a broad-based shift in sentiment towards a more pronounced risk aversion that will be characterized by cash (i.e. USD) hoarding and slumping commodity/risk asset prices. Given the current state of affairs in the macro environment (i.e. European debt concerns, U.S. fiscal cliff, stalling BRIC growth, etc), the sentiment skew - in my opinion - is towards risk off mode, which could pressure both oil and silver lower in the short-to-medium term.
    Nov 16, 2012. 09:02 AM | 3 Likes Like |Link to Comment
  • 2012 Election: President Obama And Precious Metals [View article]
    Whether its the Fed, or some other cabal of major financial institutions, a repression of metals prices is a transient concern. Without the implementation of legislation restricting gold ownership or the adoption of other such draconian measures, an artificial depression of prices will ultimately fall victim to the market's natural progression.

    Inflation, sovereign solvency concerns, outright distrust of "paper" assets, negative real interest rates...take your pick. Any one of these considerations, or combination of them, could push metals to a point of critical mass that no amount of institutional chicanery can reverse. Unless of course the world's industrialized economies can get their fiscal houses in order before the aforementioned considerations are more widely accepted as real problems by the general public - which is highly unlikely.

    In my opinion, the most significant short-term impediment to higher precious metal prices is their own success. Besides the oft-mentioned "you missed the boat" mentality that is keeping those less familiar with the fundamentals out of the market, 2011's meteoric rise in prices and subsequent correction shook many investors' faith in the "safe haven" status of this asset class. If you superimpose the gold price over the performance of any of the major U.S. stock indices, gold's 2012 correlation with risk assets is plain to see.

    For so long as gold prices follow the directional cues of the broader risk asset complex, the metal's performance as a safe haven asset (which will ultimately drive prices higher per the arguments made above) will remain sidelined. No one can say for sure what the catalyst for a decoupling will be, but I am confident it will take place in due time.

    Until then, whether it's people's hesitance to accept the fundamentals of precious metals or outright manipulation, any artificial or unwarranted price repression provides those who do understand the metals space an opportunity to take positions at attractive and probably fleeting prices.
    Nov 14, 2012. 09:58 AM | 3 Likes Like |Link to Comment
  • 2012 Election: President Obama And Precious Metals [View article]
    Thanks for the comment and stats. I am inclined to agree with you in terms of the typical longevity of commodity bull markets. That said, we are in the proverbial uncharted waters in terms of monetary policy.

    If we rule out sovereign solvency concerns - which are disconcertingly real - I would maintain that this precious metals bull market will last for as long as interest rates in the industrialized world are at rock bottom levels. After all, the bull market in precious metals during the late 70s peaked in 1980 when then-Fed chairman Paul Volcker hiked interest rates above 20%.

    So long as the opportunity cost of holdings precious metals is depressed by low-rate policies, metals have room to run. That being said, interest rates could begin to rise outside the auspices of the Fed should bid action at Treasury auctions dry up due to slumping that environment, solvency concerns could drive interest rates and precious metal prices higher at the same time. Or, to keep a lid on interest rates, the Fed will monetize even more of the Treasury's debt issuance which will similarly benefit metals. Either way, time will tell...
    Nov 13, 2012. 01:56 PM | 2 Likes Like |Link to Comment