Pages

Wednesday, September 17, 2008

Stockmarkets meltdown, Gold is flying high. SSRI, RGLD, SLW, AUY, MTS.v, TNR.v, SST.v

Trust is broken, system is falling apart. Too many bailouts and liquidity pumping and just a few solid assets without anyone promise and IOU squared by derivatives.
FED did not cut, but Gold is flying without it! Cut will come and will add to the fire.
All financial economy is build on Trust, there are very few tangible assets left. In commodities market and PGM you have your assets in the ground, defined by drilling and not just "PlayStation kids Credit Default Assumptions", you still need credit to build a mine, but you have tangible assets in a "safe" and if there is Demand for them you can build on its economics.
Today is a crucial day: with rising systemic risk finally Gold behaved as it supposed to be in a free market without government manipulations - Safe haven of last resort. Raise more then 85 dollars in a one day trade will bring Gold to the front pagers of newspapers in the world.
HUI and XAU are supporting Gold rise and showing final break out from falling apart general markets.
Game here was simple in a hindsight now: with the first margin calls in July Funds sold where they had a profit: commodities, fueling the Bear Raid of PPT intervention in Gold market. Today when assets are liquidated in a fire sell to cover derivative obligations in a reality of a tight credit markets it is very important that HUI and XAU have "decoupled" finally from general market.
Economics of Supply and Demand are very simple here: Stock market of the world used to be 51 trillion dollars. All we need here is 5% of it. Investors today have seen that Gold has decoupled of falling financial markets. Even if the markets will turn on the Election Rate Cut and all these liquidity pumped into the system, investors are going to Buy Gold as Insurance without any counter party risk. Assume 3% will go into physical markets of Gold, Silver, PGM and other commodities. It is 1.5 trillion dollars! They will just fly. With 1% going into HUI it will be 500 billion: it means all HUI companies will have to rise in their valuation 5 times. Now even divide everything by 2 - it is still Buy of a lifetime by any means.
Once this will happen the most "crazy and greedy" investors will take positions in Juniors: lets say 1% of all these money for the HUI: it is 5 billion - Juniors will have to rise Ten fold just to accommodate these demand for the goods in the ground.
These investors will meet money from Majors in HUI when they will start to buy resources and buy time which is the most precious ( in case of AIG bailout time was measured in 85 billions and 80% of the company respectively). They will spend another 10% of their valuation 50 billion
on buying into Juniors with resources.
You can play financials recovery as usual or you can chose the staff in the ground which today has received very bold endorsement from the Mr Market. (Mr Warren Buffet must be nearby now, they do like each other).
We need just 1% of the money running out of stock markets these days.
Silver is showing its monetary function as well and gain here will be even more dramatic once money will come back into the sector.

No comments:

Post a Comment