"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Wednesday, August 10, 2011

Gold setting new record highs above $1800 in the Kangaroo Session

As trade moves into the Australian morning, gold has shot up above $1800 and has set a brand new all time high above $1,810 reaching to near $1818 as I write this. The market is accelerating higher as fear levels ramp up.

It would seem that any euphoria induced from the FOMC statement of yesterday has been long forgotten as fears of European bank solvency are now taking center stage in the minds of traders/investors. There are enough rumors floating around out there that denials from large bank officials are the order of the day.

Traders are fearing a type of meltdown similar to the 2008 credit crisis here in the US which was triggered when Lehman went down and a domino-like toppling of major firms commenced. Regardless of the reason, those who were trashing gold as a safe haven are now having to stutter and mutter their way back to the obvious. Not only is gold going on to make new lifetime highs in US Dollar terms, but also in Euro terms, and in other major currency terms as well. It is functioning as a currency of last resort.

I had to marvel at the comments coming from some of the guests on CNBC today who when asked by the anchors about where investors can find some sort of place in which to hide from the carnage were oblivious to the simple answer - gold. For Pete's sake, what kind of savvy does it take to at least speak the word (gold) when it is making one record high after another. I kept hearing the same thing from some - "Buy large cap stocks that are DEFENSIVE holdings" - oh sure - that means buy something that is going to lose me LESS money than some tech stock.

What about some seriously undervalued mining stocks to go along with gold bullion? After all, on a day in which the equity markets were bleeding red, the HUI and the XAU were noteworthy in their strong upside showing, in spite of the fact that such heavy volume down days have tended to drag them down in the past.

Note that since the bottom reached during the height of the credit crisis which erupted in the summer of 2008, that the HUI has outperformed the S&P 500 over this same 3 year period - and this comes on the heels of a ratio spread trade by the hedge funds who stupidly have insisted on using the miners as the short end of a spread trade instead of using them as the long leg of a broader equity market spread position as I have been advocating for some time now.

While it is certainly nice to see the mining shares divorce themselves from the broader stock market performance for another day, they are still lagging the gains in the metal itself and have a lot of catching up to do. All it will take for this sector to move sharply higher is for the first wave of short covering to begin among some of the hedge funds in earnest. The trigger could very well be acquisitions of some juniors by majors hungry for new properties that could go into production right away or a serious incursion of Chinese investment money into firms with excellent prospects.


  1. The way I figure it, as long the talking heads on CNBC keep calling it a bubble and advise people to buy blue chips and stay away from gold, then this bull will go on for a long time.

  2. I am even sensing some doubt in Dan on the miners. I didn't expect the rally either haha but I will take it.


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