FDR: Moving the football downfieldEric Coffin yesterday mused publicly that the magical institutional effect may now be decisively pulling for FDR. If so, that might mean another two million shares or more have been abruptly removed from the float in the last three trading days.
How does an institutional portfolio manager think? I can only guess based on what I’ve read, but they do seem to put their pants on one leg at a time just like the rest of us. I recall cynical commentaries through the years about Apple being “overvalued” because every single endowment and pension fund manager simply *had* to own it… or face endless irritating questions from his less-sophisticated bosses on the board of trustees.
Not that FDR is, or ever will be, a household name. But it is likely true that once there are two or more sophisticated bidders interested in a given auction item, the selling price rapidly approaches an objectively fair value.
And while the general public may still see gold as an ancient irrelevant relic, enough people in our little sector know the score. What’s more versatile and essential today than a smart phone? Money! Especially the non-depreciable, non-defaultable kind. Even if it mostly sits in Central Bank vaults and home safes.
Analogies may make weak and imperfect arguments, but they do help illustrate complex concepts. If investment in gold explorers is like a (North American) football game, we retail buyers are the humble running backs. We can advance the ball a few yards on a good play, maybe get a first down if we crack a seam. But the touchdowns are made possible mainly by the wide receivers: the institutions.
Assuming we play on an outdoor field, the gold price breaking out to new highs would be like a strong wind at our backs, making everything work better for us longs and worse for our opponents (the bashers / cynics / short-sellers). Enough touchdowns and we win the championship: the lucrative buyout.
Speaking of short sellers, we should know in another 3 or 4 trading days where the current short interest sits. A great reported reduction in shorts, coupled with the first solid results from Buese, alongside a new record gold price – and look out. We don’t have Apple’s broad appeal, but we are already a serious contender for gold explorer of the year. Our sector is not exactly a winner-take-all game, but it probably feels that way right now to 98% of our fellow resource juniors.
So, when the gold fund PMs take a look at where to allocate the new retail cash inflows, which are surely accumulating rapidly as we speak, FDR comes up on their radar immediately. Meanwhile, at a level above retail, when larger non-specialized institutions decide to increase allocation to gold, might they not allocate a small slice of capital to the highly-leveraged play that is our sparkling little company?
All of this pushing us quickly towards what I think will be a key inflection point in our attempt to reach escape velocity for our share price: the smallish but equisitely timely extra kick from retail margin use. Too dizzying for most civilians, which is generally a good thing for their financial health. But a predictable handful of daredevils will arrive and form the new tip of the spear – to spectacular effect.
That, however, deserves its own commentary. When we get closer to $3.00.