Loki that website shows the gold chart in a way that might make many want to sell or short from here. Looking at their long term chart for gold you would think it might drop back to near the 2000 lows. After all that’s how many bubbles finish- but that would assume that gold is in a bubble. I still argue that gold rising by a factor of three over a 30 year period is not a bubble! Rare earths moving from a basket price (supplied by Lynas) of $10 to $228 in two years (more than doubling in the last 6 months) or uranium from $12 to over $150 or oil with a similar move, these were more like bubbles. The prices moved many multiples higher than the average cost of production. Average all in sustaining cost of production for gold is only marginally below the current price. Personally I would give that more weight than a monthly chart. Daily charts for trading purposes I do watch closely. Daily and weekly moves are less influenced by the cost of production but that cost of production does give clues on where the monthly chart will likely find a floor and I can’t see much more downside on the monthly based on that regardless of how it is shown. What some might forget is that all in sustaining costs are not the whole cost of production. Many mines have less than a ten year life. You have to also look at the up front capex and discovery costs, on going brown fields and Greenfield exploration and corporate overheads and corporate taxes. When these are added the total average costs/oz would be much higher than the AISC now used. For enough new mines to be approved to replace depleting mines I think you would need a POG well in excess of $1500 to make it worth the risk of committing capital and to be able to secure the investor funds or debt from banks. You need a good rate of return to justify the investment.
I have included some charts below to show that selling here might not be such an obvious trade just because of a break of an exponential line. After all the price has already corrected heavily. The first chart shows an exponential move up to 2009 where the price corrected well below the exponential support line. This chart is taken from within the second chart (from the website that Loki provided the link for). The move corrected very heavily (around 30%) in 2009 but then went on to more than double into 2011. 1970-75 also had an exponential move which then corrected by nearly 50% over two years. Most commentators would have called that a popped bubble and some would have shown compelling charts of broken lines and downward trends telling everyone easy money would be made by shorting. After that 2 year heavy correction very similar to what we have just experienced, the POG gained 8 fold from $100 to $800. I’m not calling for a copy cat move or making any predictions here but by adjusting the periods (daily weekly or monthly) or the y axis on any chart you can easily make it look much more or much less bearish. Look at the last chart which puts the 2013 move in gold and the 1980 move into perspective. It’s easy to come up with charts to support both bearish and bullish views. The large rise in the gold price is no bubble. It is simply a reflection of the massive increase in the money supply. It is being left well behind and needs to double just to catch up. Charts can suddenly reverse from bearish to bullish. Expecting to make easy money shorting as the author describes in that webpage is just too cocky. It’s easy to get very cocky when you have had a very good run and many that have had good runs think they are now experts and their run will continue. When they suddenly loose their winning streak they are often forgotten.
GS this week upgraded NCM from sell to neutral because they believe there is limited further downside. I’m with them on that point.
SLR Price at posting:
42.0¢ Sentiment: LT Buy Disclosure: Not Held
