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Metals With McGuirk: Do You Own Physical Yet?


Silver is wild, yet unbelievably satisfying...

"I'd always advise against buying something you don't know anything about. I would suggest that people who want to do commodities do their homework"- Jim Rogers- Hindustan Times 1/20/06

I concur. If you don't know about the London Gold Pool then get out of precious metals 'cause it will get nasty if you are looking for return rather than protecting the capital of your investors. Be safe. Just my opinion.

I don't wanna get stuck in daily movements- I play a bigger picture but watch every second of the day. The small picture doesn't fit in mine- sorry.

G'day. It's been a while since I jotted anything down and much water has flowed under the bridge when looking at the precious metals, all of it good. There's been plenty going on in the Macro picture as well, but not much good from where I sit. Iran and nuclear power, Palestine's election victory for Hamas, rising oil prices, inflation becoming more obvious to any dope, the property bubble, Bernanke etc., etc. the list goes on. Nothing in the macro picture is bearish for precious metals, except some technicals of course (but who gives a toss about them in metals, more so in times like these).

The gold market has been consolidating the past few weeks in the 550-565 range and all dips in price present eager physical buyers with their opportunity to load up. There is a very determined seller in the mid $560's and I believe it is a Central Bank or agent thereof. Who? I couldn't give a flying toss but they must be very concerned at how easily the selling is being absorbed. I have talked about the Russians and "the Stans" as being willing buyers and Kazakhstan confirmed that they increased their gold and FX revenues by 14% in 2005. Gold accounts for just on 8% of their total reserves and is rising. I read that the HSBC analyst reckons the ECB Central Banks won't fill their 2500 tonne program over the next few years. I agree. They have seen what the blokes at other Central Banks like England, Australia, Canada, Netherlands etc. have done and how poor their decisions of the late 90's were. The people of these countries have little idea what happened and the media has given them a free pass so far, on what will be seen as some of the most reckless management of "common wealth assets" in history. Wait till these clowns get hauled before their respective Parliaments and questioned about the whole "official" gold sales fiasco (it is only a matter of when, not if) - and then enter the markets as buyers - that will be nice for we holders of gold and silver. Physical not paper metal, remember.

I continue to ramble on about physical versus paper gold and silver. This is a most important point for everyone to understand. Since the advent of derivatives, there has been an exponential increase in the amount of paper gold traded in the world. Paper metal has dominated the price of physical for many years and we are now seeing a change of massive proportion. The physical market is now exerting its true strength regarding price, just as it did in the London Gold Pool of the 1960's. The physical gold amount available only rises by about 2500 tonnes per annum. Compare that to daily Futures and OTC Derivatives volume. If everyone who thinks they "own" an ounce of gold because they have a paper "claim" over some gold "somewhere" demanded delivery as they are legally entitled to do, well, there just isn't enough in the world to fulfill the paper obligations. Therefore paper holders DO NOT OWN GOLD. They own an IOU that, IMO, can and will be defaulted at some time in the future. If you're a fundy or specky, then the paper market is "your" game. If you want something left at the end of the game - buy physical - simple. Leverage to price is what is driving the whole game- be careful.

The price MUST rise – adhering to the only law of Economics- Supply and Demand (The rest are just theories!!).

The strength of the physical market can be seen in the strength of the London Fixes, no matter what happens in the paper markets. The physical only takes a few days to reassert its dominance where it was weeks and months and years gone by. India is happy in the $550's and the Rupee is the key to their purchasing at present. Thailand says their jewelry sales will be down 20% from last Christmas according to their Gold Traders Association. Fair enough, but I hear differently from my people on the ground.

Local News

Lisa and I were wandering along the street the other night, having had a few beers and chasers and we stopped at the Oxford Street traffic lights on our way home. We had just been at a meeting where a plan was set out for the Mardi Gras parade in honour of our mate Nick, recently departed. Greg and his mates were sorting out their stuff. Lisa was secretary for the meeting and took notes diligently in her diary, between "oohhhíng and aaahíng" with the lads over the Cypriot in the Australian Open Tennis final (I prefer girls, but I admit, he's a fairly good looking bloke who can whack a ball over the net).

Anyways, as we wobbled on home "The Lisa" was yabberring on about something very controversial and said something that probably 70% of the world would agree with. Fair enough, that's what we do down here. We staggered across the intersection with a bunch of other yobbo's and she said "it looks like I'm carrying a Bible- we must look like god-squadders." Immediately, this 6 foot 4 inch tall, red headed bloke in full "Mick Dundee" accent turns and says, "yeah, and I'm Mao Tse Tung." Maybe you had to be there. But I digress.

Back To Metals

All commodities are on the fly at present as Professor Weldon points out in his daily metal monitor. Read him. Lead, Zinc, Copper, Sugar, Platinum, Rhodium blah blah blah. Gold and silver have only doubled from their multi-decade lows of 4 or 5 years ago. Check the others for their moves. Crude oil has moved from $18 to $70 in that time frame (and won't see south of $50 again anytime soon- read "never"). Natural resources are finite. Gold and silver are money and an infinite store of wealth. People will realize this soon. Watch the gold/oil ratio and the gold/silver ratios (down from 62 to 57 in the spot market). Giddy up.

I saw someone commenting on "political risk." That is what I call Sovereign Risk and we have touched on it a few times. You CAN'T hedge sovereign risk no matter what anyone tells you. Simple.

Sovereign risk is what we are seeing in South America and what we have seen in South Africa for the last 30 years. If Harmony's mines were in North America they'd be a $100 stock!!!! Durban Deeps are another massive discount due to their country of production. They would be $25 if their mines were elsewhere. The thing is they aren't. Nor is Crystallex (KRY) in Venezuela - cop their chart (I don't and won't own them). You cannot price sovereign risk- some try- that's why one should always look at companies with diverse geographical spread and number of mines, rather than a single mine in a single country. I don't wanna get stuck in the quagmire of credit risk so do it yourselves.

I noted that Wayne Murthy, CEO of Newmont (NEM) (my second favourite blue-blood, after Goldcorp (GG)) reckons that Ghana is the place to go. Everyone who knows me has taken a bath with Golden Star Resources (GSS) in the last 2 years, for next to no reason apart from bad management. Their reserves (not resources, there is a huge difference, but you should already know that and if you don't let me know) are unchanged - 10 million ounces (and growing). Golden Star "owns" Ghana. How many times have I yabbered on about "reserve replenishment"

"Newmont CEO Favors Ghana Over South African Investment" - Bloomberg News, January 25, 2006

"Ghana will become a core operating region for Denver-based Newmont as it boosts its gold reserves above their current level of 16 million ounces this year. The company will make ``targeted acquisitions'' and continue its policy of not investing in South Africa."

GSS IS THE MOST UNDERVALUED (on reserves) COMPANY THAT I KNOW. Just my opinion and am nearly always wrong!!

I mentioned a few weeks ago that my physical dealer reckoned people would be waiting for a dip back to $480 before entering the physical market. I don't see it happening and we will see some "stop loss" covering from investors who want metal, but are fed up with waiting while watching the metals march higher. I still believe that not many people, and certainly not the investing public, are even aware of gold and silver investments and that we are yet to see any real move to the metals. This is just the beginning, IMO.

Silver- yeah right- it should be $12 at least NOW. I could go on and on about it but I will save your time. Own it personally. Silver is wild, yet unbelievably satisfying (if it's physical). Sounds like a friend from college – oops, best we don't go there.

Did I say last month at $8.50 that we would see silver over TEN by the end of February – or was that ELEVEN??? Something is cooking in silver and there are Feb deliveries to get through--- own physical or Pan American Silver (PAAS) or Silver Standard Recources (SSRI). Just my opinion.

Gold now 570 in Europe and silver is lagging. Love this - beware a cleanout to 552 in next few days/weeks. Someone will dump. But there are lots of buyers waiting.

There has been a lot happening down here and sorry to have been away so long. I really do feel like I miss my "Ville." Cheers.

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