-- Posted Friday, 8 June 2007 | Digg This Article
Fundamentals Vs. Technicals
It's weeks like these that are a shining example of why I'll never get bored working as an analyst in the precious metals space. The supply and demand fundamentals have been nothing but positive all week; SA production is continuing its slide, Newcrest Mining is talking about closing out a multi-million ounce hedge program in the next few months, SA mining unions are getting quite testy about a strike on the horizon, the average investor is finally getting an idea of how much Central bank activity affects the market, energy prices are jumping, JP Morgan put out a note calling for potentially four figure gold prices in the near future, North Korea and Iran are continuing to thumb their nose in the US' direction and geopolitical grandstanding is right at the forefront of the news scene at the G-8 with Russian President Putin taking a surprising new role as the heavy.
But while all of this news is entering the space, the prices are getting hammered lower, which sends me back to the drawing board on coming up with an even remotely feasible explanation. I've scanned the space and seen everything trotted out from higher treasury yields or marginal dollar strength to lack of investor interest or another potential round of global market meltdowns being the culprits.
I guess I could throw a dart at the wall and any one of the explanations for price weakness could fit the bill. The explanation that this could be a forecast of a flight to capital or cash is understandable, but only goes to underscore the necessity of precious metals diversification in a portfolio for protection as other portfolio assets begin their pull back.
The funny thing is that as this technical breakdown is taking place in the market, the underlying market fundamentals for why precious metals prices should continue a multi-year bull run are only getting more and more bullish. So we might be caught in a trap right now where technicals are moving the market, but the fundamentals are only continuing to improve. We're going to hit an inflection point in the future where the technical trade points aren't going to matter any more; the fundamentals are going to be so attractive for investors, the technical trading picture will get tossed out the window and prices will simply be forced higher; paper trades be damned.
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