I have been MIA since mid December. I am on reserve and I have been flying a great deal the past month and have not had time to post or read too much with the holidays and the flying. I will only post if I feel I have something of interest and value to the readers. Precious metals and miners seem to be consolidating since my last post on selling some of my trading positions.
I have bought back some AEM and GSS ,GDXJ,and junior explorers, but I am waiting for lower prices to get more aggressive on juniors and explorers. Most of these stocks are tiny and illiquid and I will not mention them unless I feel they are quite cheap. Some of them have made new highs in the past few weeks and they are not cheap right now.
AEM is very attractive to me at 53 and lower. I have not bought back SLV or GLD but I have bought some physical including platinum Eagles. I will be a buyer of platinum and the ETF's if they come back to the $1400 area. I will be heading back to the homeland of Minnesota this week to see the family and watch the Vikings game on Sunday.
I hope to do a post soon on the airlines as I think there will be money to be made on the short side very soon. During my travels the past month things did not look good at all. The hotels and restaurants appeared to be under severe stress with simply heating the facilities a problem. My guess is cost control rather than coast to coast technical difficulties.
I was very happy to see the following in my inbox last week. I was even happier when she told me she had some 1/10 oz platinum Eagles. I bought the Eagles from her and thanked her kindly for taking the time to answer some questions for us. I hope you find this useful and if you have more questions you should call her directly, and if you are interested in physical metal, she can deliver. I am going to get the jump on you and call her now to see if she has any less than 1oz platinum Eagles as they don't seem to last long.
Today we have
been graced with a visit from Kathryn Derbes from KDerbes Precious Metals, LLC –
Hi Kathryn, I
want to thank you for taking the time to give us a view on the precious metals
1) Before we get started can you give us your background
and how you came into the business?
After graduating from Vanderbilt in
Civil Engineering, I spent 17 years in institutional investment management.
Although I have never been a gold bug, I started investing in coins in the 80’s.
After leaving investment management in 2003 I decided the time had come to
become fully focused on precious metals. What has fascinated me for 30+ years is
the study of money from a psychological viewpoint, especially the psychology
surrounding events leading to hyperinflation. I read everything I could about
Rome, France, pre-Civil War US and Weimar Germany. Of course, there have been
many more episodes of hyperinflation but those are the ones I initially focused
on. I’m not saying we are going into that type of environment in the US (we may
but it’s not ordained), but the credit bubble and subsequent debasement of money
by our government was/is the reason I’m trying to get precious metals into the
hands of as many people as I can.
2) Please tell us what you have seen in the recent past
that may be helpful to keep in mind as we look forward from here?
demand for physical gold, silver, platinum and palladium coins and bars has
grown exponentially over the last year+ even though the average American still
has no idea why they should own them. Since gold can only be minted and not
printed, it seems the supply/demand imbalances will continue to support a higher
3) What are the differences in retail silver and gold
markets right now or in the recent past?
Retail (average Americans) are
selling scrap gold and silver
for cash. They are not even close to understanding why they need to own precious
metals much less purchasing them for “insurance” against a loss of purchasing
power. At KDerbes we all spend a lot of our time educating people. How about commercial markets? I assume you’re
referring to institutional investors and central banks. Many institutional
investors were very vocal about their support for gold in 2009. They continue to
buy. The central banks (at the margin), as you know, reversed course in 2009 and
became net buyers instead of sellers. When India bought the first traunch of the
IMFs gold last summer investment demand exceeded jewelry demand for the first
time in recent history.
4) Can you explain the secondary precious metals market
briefly and how it has changed over the years?
The secondary market had
been the major source of supply for a long time. It makes sense because the
Mints had been producing Krugerrands since 1967, Maple Leafs 1979, Eagles 1986
and so on. Then in late 2007 the US Mint stopped sending silver Eagles, which
would not have been a problem (we sent back dated Eagles to fill in) if it had
been an isolated event. But in 2008 the US Mint stopped sending silver Eagles in
March, and after sending some in May, they delayed shipments several more times
that year. At the same time overall investor demand had picked up dramatically
and fewer people were selling. Now we rely on supply from the Mints more than
5) What is going on in the cash for gold scrap market?
The scrap market is huge. To put it in perspective, the refinery we work
with in Dallas averages $19million a week in scrap purchases, and they are only
one of 12 refineries in the Dallas area. That doesn’t even count the surrounding
areas. A lot of people need cash but they need to beware, there are many
pitfalls in selling your scrap gold. It’s terrible that the public is being
“taken” once again in many instances. I had a hard time (mentally) putting
together a scrap business plan until we designed a “scrap to ounces” program.
That’s because, of course, I believe we need to own precious metals now, not
6) What type of buyers do you see in your shop other than
the odd lotters like myself?
We are incredibly fortunate that most of our
clients are “sophisticated” buyers in the sense that they understand our current
economic situation, the history of money and gold’s role as a monetary asset.
They buy consistently and look at it as a FX transfer. We also work with a lot
of first time buyers. We spend more of our time educating them on the different
coins/bars than the economic justification for owning them. They generally come
to us when they want to hedge their US$ exposure.
7) Can you share any personal investment ideas or themes
that you are using during these perilous times?
Right now most of them
are related to ideas that will benefit from money printing. I do believe that
fixed income will become a real problem (rising rates) so there’s probably a
good shorting opportunity there but who knows when it will manifest into a
sustained trend. I also have exposure to the Canadian and Aussie dollars.
8) Do you use technical analysis into your trading and
LOL, yes, but the sophisticated slope traders make my very
limited knowledge of technical trading look like pre-K. Maybe I’ll graduate to
kindergarten this year if I’m lucky. I do love my candles though, my futures
broker does a good job at short-term support and resistance levels and the
seasonals are always interesting to review. I
never trade my physical positions although that may change if we get back to a
sound currency (don’t want to go over the waterfall if things change). We’ll see
how our economic future unfolds. Miners I do trade a portion of my positions
while keeping my core positions in place, unless, of course something changes
with them fundamentally then the entire position get sold.
9) Do you have a technical view in the short term vs
The slope gentleman and ladies would know far better than I
would about the short-term prospects for all the precious metals. Long-term I
really believe we will go higher unless and until sanity comes back to the Fed,
or we abolish it and throw out the serial destroyers of wealth.
10) What if I
currently had no exposure to precious metals, but was trying to possibly get
into the market, what advice could you give me at this juncture?
Put a plan together and implement it
systematically. We help people do that
everyday. Think about the potential cost of not doing anything vs. doing
11) And if I had been carrying a very heavy load over
some previously treacherous terrain and it now appears that the promised land is
Every day I become more and more convinced we will have a real
problem with the US$ in the not too distant future. If that actually happens it
should keep a bid under the price of gold. As we all know, though, anything can
happen so it’s best to stay tuned to the events everyday and see how it all
unfolds. There are very few promised lands and fewer clear paths to them. We’ll
12) If a SOH trader wanted to diversify her petty cash
into gold could you get 10,000 ounces? 50,000?
We could and we have but
it would take at least a week or two to get the ones they wanted. At this time
of year (early January) it would take longer as many of the 2010’s have not
arrived yet. You could always take delivery off the Comex but remember if you
then take physical delivery (vs. leaving them in a Comex approved depository)
they will have to be melted and re-assayed before you can sell them. I’ve done
it but it is a process.
13) What would make you outright bearish on precious
1) Paul Volker takes over the Fed from Ben Bernacke, 2) Congress
aggressively LOWERS taxes on businesses and individuals, 3) The “government”
stops lying to us on the statistical information (CPI, employment numbers, etc.)
that they produce and disseminate, 4) We have term limits and tort reform…..
14) Do you own any miners?
Yes, I have a small
portfolio of less than 20 names.
15) Do you own majors or juniors or a combination?
Both, but I like the juniors more at this point. You have to really know
them and stay close to what they’re doing. Many will not make it for sure but if
they do they could explode. That’s a big “if”.
16) When I first
spoke to you about doing a post on SOH, you visited the site and mentioned
surprise that folks as bearish as we are, seemed to view precious metals in the
same light as the stock mar
ket in general.
You were surprised that they did not seem to like gold much. What are they
possibly missing other than another anti-dollar pairs trade (SPY and Gold =
virtually the same thing) and what are the risks if any to very succesful SOH
short term traders by not having precious metal exposure?
Well, they all seem incredibly accomplished and most seem
to have reached the pinnacle of success, so for me to tell them they are missing
something seems like I would really have my Indians (me) and my Chiefs (slopers)
difficult to understand the gold market because for most people gold seems like
just a price. That’s because it’s hard to value based on corporate metrics like
PE, price/sales, EBITDA, etc. So it’s hard to get your head around what it’s
true value should be and what price you should pay for it. Looking at it in the
macro (vs. bottom up) is easier but still leaves a lot of questions. Truthfully,
it is more than just a price. There’s a lot behind it but you have to seek out
the information from non-traditional sources.
is a true honor to have this opportunity with the SOH readers. Thank you always.