Wednesday, October 30, 2013

Important Heads Up on China Gold Prices

I'm lifting this straight from Kitco ...
Gold on Shanghai Gold Exchange Wednesday traded below the international price in London for the fourth time within the last seven days, says Commerzbank. The discount reportedly amounted to $2 per ounce at times, the bank says. “By contrast, April and May were still seeing premiums of up to $30 being paid,” Commerzbank continues.
The bank says the discount lately is likely due to fears that lending regulations in China could be tightened, which is already being reflected in rising interest rates.
“The seven-day lending rate climbed significantly again today to 5.55% and has thus achieved its highest level in nearly four months,” Commerzbank says. “Interest rates are still a long way off their July high, however. Nonetheless, gold holdings were presumably sold as a result in order to generate liquidity. If this trend were to continue for any length of time, this could also lead to weaker Chinese gold imports.”

XX Sean's note -- this bears watching.

Another important point -- you have to understand that I am buying gold miners right now because of what I perceive as extraordinary value. And evidently I'm not alone, considering what the GDX has done since it bottomed on October 15-16 ...

(Updated chart)

So gold miners have done well. I'm buying them for value. But there are many investors buying them for performance.

Why is that important?  Because the S&P 500 looked like it had run into overhead resistance, so many performance chasers rotated out of the S&P 500 and into what was working (gold miners). But this has to be taken in the context of the fact that the S&P 500 has been on an incredible bull run. And now there are some very smart people saying that bull run could continue, with the S&P 500 going up perhaps another 5% into the end of the year.

If that happens, where will the performance chaser go? Back into the S&P 500, that's where.  And money would likely rotate out of miners.

That's just something to keep in mind.

That said, there's nothing wrong with buying the S&P 500 if you think it's going to go up. Heck, since the S&P 500 broke out to the upside on October 17, I've been waiting for a decent pullback to buy it, but we haven't gotten one ... yet.

These are all things to keep in mind as we watch gold and miners this week.


  1. A Technical Analyst and a Fundamental Analyst are chatting about the markets in the kitchen.

    Accidentally one of them knocks a kitchen knife off the table landing right in the fundamental analyst’s foot!

    The fundamental analyst yells at the technician, asking him why he didn’t catch the knife?

    “You know Technicians don’t catch falling knives!” , the technician responded.

    He in turn asks the fundamental analyst why he didn’t move his foot out of the way?

    The Fundamental analyst responds, “ I didn’t think it could go that low”.

  2. Vic, I'm stealing that joke. Thanks!