-- Posted Thursday, 26 April 2007 | Digg This Article
This morning we have two mining company Q1 reports hitting the market.
South African mid-tier gold producer DRD Gold stated that gold production for the 1st quarter fell 21% versus the previous quarter.
Newmont posted much worse earnings numbers than analysts had expected and reiterated their expectations of lower production figures throughout the year.
We will see the remaining balance of major gold mining producers over the next week. It will be interesting to see if there are any further dehedging commitments made by the likes of Newcrest, Buenaventura, Barrick and AngloGold as dehedging is already coming in at higher levels than previously estimated for 2007.
South African miners and their labor unions are also about to enter contract discussions in the coming month. This always has the potential to be a contentious time for the industry and has the ability to take the flagship producing country offline for a few days or even weeks, much like in 2005.
So what's going on in the market this morning then???
The dollar is somewhat stronger this AM, but still has an 81 handle on the index and is very close to it's bottom test made two years ago. Miners have continued to report worse production figures and skyrocketing production costs. Dehedging is ramping up faster than anticipated again. The Indian wedding season is upon us. Second and third tier central banks such as the Bank of Qatar and Russia have recently announced aggressive additions to gold reserves.
We're left with the only plausible explanation and in our opinion, the correct one. ECB central banks have been throwing everything but the kitchen sink at this market in the past month and prices have still been able to hold up quite well, even advancing in the face of the increased gold sales and an unknown level of loans and swaps. We won't know until Tuesday what the sales levels have been for this past week, but we still believe that there is a significant tonnage of sales hitting the market this week, putting considerable pressure on the price. Every other bit of information hitting the market at present is as bullish as can be. (yes, even perma-bullish!) We don't believe this is an investment demand issue, we're not looking at continual profit taking or lack of follow through via investor interest. Demand is robust, as evidenced by the market's ability to digest these increased levels of sales. What we are seeing is the supply gap from mine production being bridged at present by a huge influx of central bank sales. The sales will abate. When they do, mine production will still be slumping, investment demand will still be increasing and dehedging will still be taking place.
Note to clients following up on questions received:
On any given day, I'll be more or less bullish about prices for precious metals, but always bullish to some degree. We advocate a long term trading strategy for metals investments, not a day trading strategy that will leave you second guessing your every move and driving you totally nuts watching the market. We've seen a 19% annualized return in the gold market over the past five years. Blanchard and Company believes that we have at least another five years, possibly even more, still to go in the current bull market after being in a bear market for nearly 20 years. It is our belief that we will see another couple years of 19% returns followed by returns eclipsing those levels as we move into the latter stages of the bull market in precious metals.
Yes, we are bulllish today, we were bullish yesterday and we'll be bullish tomorrow, all because we look at precious metals markets from a long term standpoint, not a day trading, change your mind every 3 hours, professional trader standpoint. The key to participating in this market is to take a position, buy on market weakness and have a long term outlook of 3-5 years. The only time you're going to hear from us that we're bearish on the price is when we think the run is through….sometime in 2012 or further.
Blanchard and Company, Inc. is the largest and most respected retailer of American rare coins and precious metals in the United States, serving more than 450,000 people with expert consultation and assistance in the acquisition of American numismatic rarities and gold, silver and platinum bullion. The Blanchard Economic Research Unit is a key source of precious metals market analysis and continues to be an important resource for financial and consumer media throughout the United States. Blanchard and its predecessor companies have called the New Orleans area home for more than 30 years. For more information about the company, visit BlanchardGold.com or call the company toll free at 1-800-880-4653.
-- Posted Thursday, 26 April 2007 | Digg This Article
