Buffer Becomes Barrier
Jack Davis | Jan 18, 2017 12:49
Originally published by Chamber of Merchants
This will be a brief but noteworthy post.
Just as I’ve discussed since last year, gold has been rebounding.
Not only has gold rebounded, but since yesterday, silver has closed above $17 USD which is a positive sign.
Additionally, just as I discussed a few posts ago, the US gold price is bumping up against some resistance around $1215 (my post said $1205-$125).
Now, as a reminder, I have sold out of 75% of my positions…however I still hold 300,000 shares in Silver Mines Ltd (AX:SVL). I certainly will not be missing out if there is a significant move in the AUD precious metals miners.
But we have a high risk situation developing in the Australian miners that should be considered.
h2 Buffer or Barrier?/h2Gold in US dollars has broken through $1207 and touched around $1218 yesterday.
Australian gold price however briefly touched $1615 AUD before sinking back to lower levels than last week,
What?!
Yip…
The AUD/USD exchange rate has been on a rampage….
How does this affect my mining portfolio?
Well…last week the Australian gold miners were receiving $1608 AUD per ounce for gold.
If we take the USD gold price now, which is $1215.40 USD per ounce and divide it by the exchange rate of 0.7567 then we get $1606 AUD per ounce. That is $2 AUD less than last week Friday.
So the buffer which has protected us if also becoming a barrier preventing AUD miners from enjoying the rally.
Who cares?!
Well. I do. And any funds that are heavily invested in gold miners. That’s because the exchange has been set against Australia’s favour. The risk is that any pullback in gold beyond the dollar strength influence will cause a drop in the AUD gold price.
An example would be if the markets move toward a risk on approach (which means less capital in gold, more capital stocks) then our exchange rate may stay stacked against my portfolio miners while the gold price drops. this could easily result in sub $1600 AUD prices…and that would cause a major pull back.
What about the opposite?
The opposite and ideal scenario is a rebound in the US dollar and an upward push in gold prices…There are scenarios where that could occur and that would be fantastic for Australian precious metals miners.
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We could also enjoy a scenario where the US gold price starts rallying quicker than the falling exchange between Australian and the USA – This could happen too.
h2 Gold and Miners/h2Gold could likely be setting up for a another jump… It’s quite possible.
The US miners were up roughly 3% last night which is definitely a shift in sentiment…That same sentiment may pass onto our miners, although the Australian miners are in a slightly different position with regard to the exchange.
h2 Conclusion/h2To each his own.
If I rush in to buy some miners today, I will be buying miners that earn less than they did one week ago.
That doesn’t sound right to me. I could enter on the gamble that at some stage the exchange rate will relax and the gold price will stay high – sounds like a gamble…not like a trade.
Could I miss out? Yes of course…The gold price could jump $10-$20-$30 from here…then the local miners will certainly catch a strong bid. But there are an infinite amount of opportunities waiting and I can enter in the event that occurs, albeit at a higher price than I could receive today. This is not a do or die situation.
Remember, I’m sitting with a few hundred thousand on the sidelines. I’m not going to chuck it at anything that moves.
As a Merchant I trade clear opportunities and bargains.
I can’t see bargains and the opportunities are not clear to me right now.
I urge you to do what suits you best. I don’t give advice. I simply share what I see.
For now, I am still waiting, sitting on my 25% return and waiting for the next good trade which will reveal itself sometime or another.
May your trades, whatever they are, be profitable and logical.
Think Better.
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