Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
Due to a tight travel schedule, comments will be posted Wednesday this week and Thursday next.
Markets await deciding news…
While at the Denver Gold Forum earlier this week, we had the chance to hear from the CEOs of many gold and silver mining firms. A wide range of topics were discussed, from issues pertaining to specific mines to financial concerns such as cost cutting. We were especially pleased to learn that measures have been taken to reduce “all in sustaining costs” at virtually every firm in which MWM has an interest. Among those areas addressed, fuel efficiency, staff reductions, project furloughs, and even improvements in tire usage rounded the top of this list – tires run around $100K per. Production costs have been reduced in many instances by as much as $150 to $200 per ounce, providing the necessary “staying power” these companies need to combat a sluggish gold price. Aside from the majors, a tighter financing condition (in addition to the lower gold price) is applying a bit of a stranglehold on a few of the junior and or micro-cap names in the industry – though optimism in this area persists.
As far as the markets and gold are concerned, the post Fed rally has faded into numerous remarks made by Fed presidents claiming that tapering will appear in December (previous guesstimates had tapering commencing at the September FOMC meeting), followed by a few decent housing stats – again all part of the rush to beat rates higher. Moderating that theme have been stubbornly persistent dollar weakness, and a fairly meager gain in durable goods orders (up 0.1% for August, driven by a 2% gain in autos), a sizeable drop in Consumer confidence (down 2.1 to 79.7), and perhaps to some degree stalled talks regarding the US debt ceiling. By Wednesday, mid-afternoon, the metals were climbing on what was described as short covering and bargain hunting, while bonds managed a decent bounce at the expense of stocks. Overseas markets saw similar results, despite some cheerleading regarding some improvements to Manufacturing and Services (PMI) surveys.
A line may have been drawn in the sand, which is 80.0 on the dollar index, and could be defended over the next handful of days. This may hold the metals to modest gains for the duration. Fed “sea saw” policy tactics (as seen with the “testing” of repo markets in prep of future tightening) has grown stale for most traders in our opinion, and may be fully discounted in the gold price. Therefore, we continue to look for the dollar to drive commodities markets in the interim. The Fed pumped $56.0B into markets last week while supposedly staging a fierce debate on the tapering idea. Since the economic data has been a wash so far, 3rd quarter earnings, with a downshift in banking sector growth expected, may be what tips the dollar further to the downside.
Best regards,
David Burgess
VP Investment Management
MWM LLLP
