Friday, February 20, 2009

Rebalancing The Twins - Update (Oil & Gold)

Well, the psychological $1,000 for gold has been struck. Time to reassess the situation. Still not time to sell as I mentioned that being long gold is absolutely necessary if you are going to play some shares in current times.

The sad part was that I got out of oil futures short position too soon and did not short them again. Fair enough, cannot win everything, but I have been looking to go long on oil futures for the last few weeks and am now comfortable with the level. Hence gold position stays the same, rollover as usual.

Double long new position now:

NYMEX miNY Light Sweet Crude Oil April 2009 $38.575


Initial long gold position $802

Went double long at $900.6

Average long position: $851.3

Justification: Going long on gold is one of the safest plays for as long as I have argued since August last year because there are those doomsday scenarios playing out, whereby all assets are worthless, hence gold. I don't subscribe fully to that theory but it makes gold move up for those who buy on that premise. My stronger conviction is the amount of money being printed that is not backed by anything, particularly in the US and Europe. Technically they can absorb back the liquidity when things fare better but that is not going to happen the moment we see recovery. The slump is so bad that it is likely that all central banks and governments will keep ample liquidity in the financial systems for as long as they can - long reflationary play and a long way for players to get out profitably before we bump into the next reflationary bubble. Those on the deflationary camp might as well put more money to Madoff funds.

As for oil, I wished I had ridden it down all the way but it was too volatile for my liking. I like crude oil futures very much, one the current price is below production cost in general, thus OPEC cuts and lower investments into new oilfields. Decimation of demand is overblown if you look at consumption per day figures from IEA in December and January. If you look at crude oil futures 6 -9 months down the road, its more than $55-$60, that may be speculation or hedging, but it also points to where the trend is headed. Oil prices will rise, not so much on pure demand recovery but more on a reflationary play.

p/s photos: Lee Hyori


yj said...

I think u will see oil price staying at these level for a long long time due to:

1) Record amt of capitals and investments being poured into the O&G for the last few years, supply will be abundant and cost will be cheaper and cheaper.

2) The Auto industries will undergo a complete revamp..govt will promote Hybrid and electric cars. Tax incentives will be given for purchase, manufacturing etc. Kill 2 bird with 1 stone as this will also rescue the auto sectors.

3) Availabilities of alternative fuel such as biodiesel, solar etc. Future innovation will promote usage of renewable and clean energy..such as handphone or laptop, motorbike and etc that uses solar power and so on.

4) Recycling.

Salvatore_Dali said...


I totally agree with yr arguments... we can both be looking at the same facts n arrive at different investing decisions..

One, is it in the price.
Two, which will be the over riding factor driving prices.
Three, thats why for every seller there is a buyer. time will tell if either of us are correct.

My timeline is never more than 6 - 9 months. So, its easy to check.

Plus in my blog I wont be telling you that the Dow or KLCI will hit 11,000 and 1,200 within 5 years... so I dont hedge my views.

solomon said...

If u hv been using oil for years and was asked to turn to alternative fuel. What is the first response? Surely no, unless u r given great incentives to do so.

Well, I think oil is a safer bet than gold, in term of usage and demand. Whatever we could say, if the demand is going to be sustainable, oil price will recover. If the sinking sands in US financial recovers, gold will then be heading south.

YJ, depends on some production factors, cost of production is never the same among countries. In Kuwait, it may cost u around USD30 per barrel for cost of production but Iran may cost u USD90 per barrel. Source: Bloomberg

Jasonred79 said...

Congrats on your gold gain, though it looks like you were wrong about it not being time to sell at $1000... well, I got fooled too, since I went in after it fell 5% to 950, and continued buying in all the way to 901... sadly, it went back to 950, I didn't sell, and now it's back at 917. Huh.

Looks like we both got fooled there.

My regrets for not listening to dreamy and buying in at $700. hah. oh well...