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The Original, Original Gold Bug. No Paper Worm.

By Jon Nadler       Printer Friendly Version Bookmark and Share
Mar 19 2009 4:42PM

Good Afternoon,

Follow-through buying in gold, silver, platinum, palladium, and oil was the standout feature of the trading day today. If there were any shorts left in the game after the passage of the last 24 hours, we have yet to hear from them. Following the overreaction of all time, gold prices traded over a fairly broad range on Thursday, but still finished only a few dollars from their highs. Yesterday's Fed 'surprise' engendered conditions as wild as only those that veteran traders witnessed in prehistoric times, dating back to 1980.

Mind you, the real 'surprise' was only the matter of timing and size (of the proposed buys). Following the G-20 tete-a-tete in Brighton last weekend, the markets had received plenty of body language signals that those who attended were going to start buying debt. Very likely, it was left to the Fed to act first and take the lead hit. Now the ECB feels the heat.

Gold's latest spot price check indicates the metal at $958.70, for a $17.20 gain. A three-week high, that. Might we see $1K before the week is finished? Could we see a fallback to $900? How about: either number is plausible inside of several hours' worth of action? Perhaps we should remind readers of 1980 spreads of $50 in spot gold and several dollars in silver. Perhaps we should also bring up the fact that, at the time, there were several instances of a market showing no bid but only an offer, vice-versa, and none at all (for brief periods). Hopefully, all the electronica at our disposal these days will make for different conditions. Hopefully.

Traders we polled this morning, indicated they had no specific expectations (or, could that be 'ideas'?) as to where the next two days might take gold prices. A few opined that the $930 area now needs to hold, and that if $975-$985 is demolished soon, then the sights are back on the four-digit target. Silver finally took off and made substantial progress on the day, following last night's rather anemic reaction to the Fed hoopla. The metal was ahead by 71 cents at $13.60 an ounce. Platinum was way ahead of the complex today, gaining $60 to $1124 per ounce, along with a $6 gain in palladium to the $204 even level. Noble metals players read the Fed's ultimate stimulus depth-charge as a precursor to some kind of automotive sector renaissance. The US dollar was last seen at 83.14 on the index, and crude oil added $2.95 to rise to $51.09 per barrel.

Economic conditions continue on the murky side, as gleaned from the US leading economic indicators' fall of 04.%. Nothing murky about the US House's passage of a 90% tax on the infamous bonuses that were paid out at AIG (and other TARP beneficiaries). In fact, the words were pretty crystal-clear: "These (bonus recipient) people are gatting away with murder." - Apparently, not if legislators have their way. "Let them eat cake" did not work out this time. Echoing the state of bonus affairs, swift projections of an imminent 25% fall in Manhattan condominium prices were issued by Maesrati-driving real estate star agents. Reality bites (The Big Apple). Restaurant seating re-sellers folded up tent as well. No bull, no Nobu.

Time to visit with the original gold bug himself, Jim Dines. Peter Brimelow dissects the latest in Jim's outlook and finds:

" Is Dines doing it again? A spectacular start to the year suggests the veteran might have reinvented himself -- at last. But if he's right, we're in for a rough ride. The Dines Letter was up 19.9% year-to-date through February by Hulbert Financial Digest count, vs. a decline of 17.72% for the dividend-reinvested Dow Jones Wilshire 5000. But that's an average of several portfolios. Dines' top portfolios were up a startling 67% and 30.4% respectively.

Wild gyrations have been typical of editor James Dines' record throughout the more than 40 years he has been publishing. He called himself "the Original Gold Bug," but held on too long after gold peaked in 1980. However, he then dramatically reinvented himself as a short-term stock trader. Several reinventions later, he was back triumphantly riding the recent commodity bull market when I named him Letter of The Year for 2006. After that, Dines hit the wall. He lost a staggering 62% over the past 12 months through February, even worse than the negative 43.32% for the total return DJ-Wilshire 5000.

But I check in periodically to see if he's reinvented himself again.  If you're just getting on board, those rebounds are worth knowing about.

Dines is a respected technician. His latest issue, dated March 13, is larded with charts and cryptic comments, for example Anglo Amern Plc. ("Looks underpriced at these low levels, for conservative long-term portfolios").

But Dines also specializes in Big Ideas, often seemingly off the wall. ("The Coming End of the Age of Travel," "The Coming Physical Immortality" -- people will clone themselves and harvest organs). Dines' long-term view is apocalyptic. He thinks that government-manipulated money will lead to a second deflationary Depression and will ultimately be replaced by gold.

But medium-term, he expects hyperinflation.

As for the short-term, he wrote recently:

"Maybe 2009 will be better than anybody in the world expects, so we should begin nibbling at some depressed stocks, some 'probing attacks' to see if the initial thrusts result in positive returns. We figure that by 2010 or 2011, money creation of epic magnitude will catch up with the world and have a great impact on currencies, but that is another story."

He commented: "We expect selected metals, especially uraniums, golds and silvers -- perhaps other metals -- to lead again on the upside in 2009."

Among other factors, Dines cites:

"Some key economic commodities, such as crude oil and copper might have begun Base Formations, confirming our new bullishness toward China [a major consumer] ... some blue chips have gone down so much that they actually begin to compete with the price outlooks of some of our uranium recommendations, so we are watching these big companies drift lower like falling leaves to what will somewhere be incredible bargains."

Uranium is a sore point with Dines. He made a lot of money on uranium mining stocks, then gave it back. He says sourly that the metal did (relatively) well in 2008, but that the stocks were killed by hedge fund liquidations. However, he expects a resumption of "uranium's major bull market begun in 2001" to be triggered by the Obama administration's realization that there is no clean alternative to nuclear power.

Dines expects gold to reach $3000-$5000. But right now he says there's too much media interest and that it will consolidate.

Radically, Dines writes holding cash rather than T-bills. One of the reasons he's been expecting a rally is that he regards bonds as a bubble that will burst and trigger a stampede into stocks."

Those of you who have known Jim for a while, know that he does not lack panache and humor. Those of you sitting on radioactive portfolios, well...blame the hedgies. The only thing we would take exception to herein, is Jim's take that the media is disintrested. Just go to a local magazine stand and glance at the covers. A sea of gold bars and coins will greet you.

Until tomorrow.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.