Tuesday, January 11, 2011

Ben Davies - Specs Flushed, We Have Been Accumulating Gold via KWN Blog


With gold and silver continiung to digest recent gains today, King World News interviewed Ben Davies, CEO of Hinde Capital out of London. When asked about the action in gold and silver Davies stated, “Paper participants have once again tried to call a termination for market by buying downside protection 1250 puts most notably, but I would suggest they are premature.

It is possible we see a low for year in January, even this early on after the bullish period for gold, primarily because we are at the point where it is the most essential to maintain precious metals holdings. Failing that we will consolidate until early summer, but this is not our premise. The crises are all coming to head this year.”

Ben Davies continues:

“The post Xmas lurch higher to close the year higher at record nominal highs was tested as we saw a customary reversal of dollar weakness. This felt more speculative in nature and so subjectively as a firm we weren’t trusting of the bid.

Physical demand wasn’t chasing those highs but since the back up we have yet again experienced how two tier this market is. The reverse in all risk assets was precipitated by a dollar bid both on the Asian crosses, the aussie dollar and versus the euro. Talk of growth momentum in US helped precipitate a move out of “safe haven” assets like gold and the swiss franc vs the dollar. I say a move out of gold, more a liquidation of paper ownership and the initiation of shorts. Some macro funds are now playing the energy and agriculture trade having had a good run in precious metals. We feel the precious metals covers all of this.

The paper sell off was stymied by a pick up in real physical demand out of Asia, most notably China. Purchases for the February 3rd New Year celebrations usually begin post Xmas. This year has not disappointed. The Chinese are here in force and we have witnessed good premiums on the HK markets, suggestive of very tight supply. Refineries have a long lead time and a gasping for inventory to meet the demand.

Rate hikes in our opinion will not dampen the ardour for gold. Quite the opposite – real rates will be extremely negative and if a credit crunch was to brew in China – families and institutions will head their first. Afterall property is not their real asset safe haven, since the government pulled the plug on it. It is a centralised dictate that gold and silver markets become opened up in China. The announcement of this last year was a seminal moment for this market. What the Chinese have been for the US bond market they will be for gold and even silver markets.

Speculative paper longs have fallen to levels associated with the summer doldrums of this past year. The dynamics are setting up nicely for retest of highs, any break of those levels on volume will set up a new unbalanced up market as we will be creating a trajectory out of a multi decade price channel going back to the 70s.

We have been reinvesting sales we made at Year end here in the market primarily in gold, although we would note that silver is actually in an unbalanced up market, but we are wary of equity market liquidations weighing on silver short term. If ever you wanted evidence of tight front end supply for silver let alone on a longer timescale, Eric Sprott’s comments on delivery for their Trust says it all.

Nessun Dorma “No One Will Sleep” is the title for our 2011 report out next week. I try to buy some sleep by owning some gold.”

Ben Davies complete in-depth KWN audio interview regarding his thougts for 2011 will be available shortly.

Eric King


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