Eric Coffin

Gold Is Not in a Bull Market

I don't generally make comments, but someone pointed this out to me and I thought I would add a little perspective. Jon is a friend of mine. While I don't always agree with Jon, people let this stuff get way too personal, including Jon himself at times. Kitco is not a "bullion bank" - it's a bullion dealer and, as such, the money they would make on a trade does not change appreciably whether gold is $500 or $1500 an ounce. They are however concerned that the market does not get crazy and leave them with a bunch of upset gold buyers who bought the top. They will get that anyway of course (markets are like that) but at least if Jon and Kitco are "playing defense" they can't have any fingers pointed at them. They are interested in people buying in an orderly market and keeping it rather than flipping it three days later. In building a long term business in other words, which they have done a great job at so far.

I sympathize with Jon's point of view, even if I don't agree with it. The US dollar is in a classic "end of empire" trading pattern. Yes, a lot of the trade is anti Dollar, but the swings in the past year across all markets were so violent that its disingenuous to take a nine month slice of history and call it the whole story. Go back and take a look a pound or euro gold charts through 2008 - I know plenty of people in Euroland that were happy they owned gold when the markets were falling apart. If you look at charts from the start of the gold bull market it has gone up significantly in virtually every major currency. I won't go into the details as we have written about it long since but these currency moves also had a major negative impact of costs for the mining sector. Jon's quote about gold production increasing recently is right - but only part of the story. He didn't point out that this is the first increase in almost a decade and gold production world wide is lower now than it was 10 years ago. Increasing production of gold or any other metal rapidly is all but impossible and even doing it at a rate that would match recent demand increases is a hell of a lot harder than people with no mining industry experience think it is.

Jon's right about the spec positions but its too early to tell if this will turn out to be more of a semantic argument than anything else. Just because its a "fund" buying doesn't mean it will get flipped in a week. People are concerned about the Dollar getting permanently debased and its a good trade as long as those concerns last. Those "spec" positions could stay put for a long time and the commercial shorts could keep getting stopped out. That's what happened the last time gold had a $300 move and, if anything, the case for an upside move is stronger now, not weaker.

All that said, good interview Jon.