A bit on gold, my blog on hold

My blog will essentially be on hold for a couple months. I have to apologize to my readers about the timing of this… I know I’ve been big on gold which had a major price drop a few weeks ago, and there’s been a lot to write about.

I am still accumulating gold streamers, particularly SAND, and silver streamer SLW. Gold miners have different risks than the streamers, they tend to diversify production among different metals, and typically hedge their exposure to the price swings of the underlying commodities.
Streamers purchase rights to buy amounts of gold or silver production at a set price from the miners, at low enough prices to generate a significant revenue stream (which can be below a miner’s production cost) Miners sell these rights as a way of providing cash for exploration or development, and use these as a way of generating debt in the form of their commodity rather than cash. This structure tends to lever the value of the underlying commodity with the streamers well, making these plays a good way to gain exposure to precious metals.

I definitely think something was up with the price drop in gold. Goldman Sachs gave its clients a recommendation to short gold about 2 days before. Then about 200 tons in gold futures were sold on the market, causing a huge drop in gold, which hit points for stop-loss orders and forged players who bet on the margin to either put money in their accounts immediately or be forced to sell. Ultimately, the price dropped from about $160 to a low of around $130/oz that day. A real sale of anywhere near that size would be done slowly over a period of at least a few months, so as to get maximum price for their gold… to me, this smells like market manipulation.

For the next few days, lines were circulating around nearly every gold dealer in Asia, as people were lining up to buy physical gold at a discount (at prices that were often a 10-20% premium to that of paper gold (meaning gold ETF’s or contracts). All the market news would seem to support gold as well, from potential financial contagion inn Europe to a huge QE program in Japan, causing a big drop in the Yen and forcing central banks in neighboring countries like South Korea (a direct competitor in many exports) to react. The fed has shown no signs of slowing down either. It just seems like a great opportunity to accumulate more gold exposure in the near term.

Anyway, back to the slowdown on my blog. I am essentially a project manager in training right now, and my responsibilities have increased markedly since January. Right now I’m at the last leg of my project, involving electrical and automation construction at the BP refinery in northwest Indiana (near Chicago). With the QC process, there is an enormous amount of paperwork where new problems come up continually and eat up a lot of my time. We’re getting the pressure to get this completed and turned over quickly, and we happen to be on a hard bid contract rather than T&M, so we have to document everything that’s changing from the contract like directed rework and making sure we charge for it and are covered for it. I’ve been working 60-80 hour weeks (Saturdays and some Sundays as well, like last week – too bad I don’t get overtime) and I simply don’t feel like digging up charts and links and writing about them when I get home. I’ve even cut down considerably on the amount of market news I typically read (though I still read my John Mauldin and Grant Williams newsletters). On the positive side, the experience I’m getting will certainly be valuable and may be the break I need to develop a long and lasting career. Opportunities to be given real responsibility are really hard to come by, often requiring a personal connection or, in my case, the luck of being there, capable, and useful when the higher-ups step down or move on. Goodbye for now and I’ll write again mid summer.

John Taylor

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About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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