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Metals With McGuirk: Let's Get Physical


Silver is a ticking bomb ready to explode!

G'day. Well, the metals looked very ordinary early on in the NY session on Friday. The reversal, particularly in silver, was very impressive. That the CPI numbers are being talked down made little difference. How many people survive without Food and Energy? There are some very deep pockets supporting the precious metals on all dips, it appears.

India just loves the sell-offs like on Friday where they received a nice 2% discount in Rupee terms. In fact, gold was down in every currency I could see. The buying season in India is in full swing and that should have a few people on edge, namely those who are short gold, paper or physical. I would not wanna be short gold in the current environment, even betting with someone else's money.

For me, being square "paper" gold is as close to short as I'd wanna be, at present. I am NEVER anything but long physical metal. My personal physical metal is NOT for sale, not now, not even if it went to $600 tomorrow. I own my physical for many reasons that you all know, most which are just becoming visible to some in the mainstream. When I hear a cabbie tell me that he's bought xyz gold stock or xyz gold coin, I will start thinking about selling some of my physical metal. I was certainly a bit concerned about a paper metal sell-off once London closed on Friday, but there were many, many buyers waiting to jump into the fray. I still think we are gonna test $490 before Melbourne Cup Day, IMO and not advice. The downside for gold looks $435 at worst, and I couldn't guess what would send it back there. Current support at $465-67 looks robust and again just above the $460 figure.

That doesn't mean we totally discount the "3 sigma" event and so take adequate precautions. Cheap, short dated OTM options should be explored. I don't, as a rule, sell options- but that's just me. I am a bit of a control freak in that regard. I like to be in control of when and how much anything I may or may not be committed to. I pay premium - I can "lose" no more than that. I may sell an option to lock in some profits but that's about it for me. Someone like Prof Succo, an options guru, can certainly take and manage those risks, but I'm no Succo! I have seen a number of disasters involving sold options in commodity and currency markets over the years and I don't ever wanna be on the wrong side of one. No matter how "unlikely" the event.

The Refco mess has some nasty smell to it. This mob went public recently, didn't they? Isn't there supposed to be some sort of due diligence done by someone during all that process? Surely there is someone "else" who knew, not just Refco??

I sent the following article through to Toddo on Friday so people may understand why silver went a little nuts to the upside, touching $7.80 after an early smack-down to 7.58. Wasn't that a lovely snapper!? I couldn't comment at the time due to heading to the airport for Brisbane, but this looks like an admission that silver is in short supply by some who should know a fair bit about the physical market for silver.

This is a very interesting developing situation and it appears that the SUA is confirming what we have been saying for a few years - that there is a physical silver supply problem. If there is so much silver in the world, as many silver nay Sayers contend, then what's up the SUA's arse? It's only a little ETF! Supply/demand dynamics will prevail, every time, sooner or later.

How many people know about the Silver Users Association or what they do? Can anyone name another commodity where the users of said commodity influence the price like this mob? I guess the SUA were the beneficiaries of the sale of the 1.5 billion ounce stockpile of the U.S. Government over the last 30 years that has held the silver price so low for so long. This was artificial "supply" that effectively suppressed the price of the metal, IMO. Here is a rather pointed article about the SUA written back in 2001 by outspoken Silver analyst, Ted Butler. Make of it what you like. Silver is a ticking bomb ready to explode, as I have been harping on about for a few years, and there ain't nuthin' the SUA (or anyone else for that matter) can do about it. ETF or no ETF. Physical silver is scarce. Why else is delivered physical silver some 25 cents over paper? tick, tick, tick.....

Think we see an 8 in silver by weeks-end and probably a two-digit by Christmas. Not advice, just thinking out loud.

Those who were at MiM2 for the Saturday morning metals session with Professor Weldon and I, may recall that I talked of historic goldfields as a likely source of advanced exploration targets/acquisitions and that companies who control said areas would be a high priority to me. I have been on that point for some years. Furthermore, many historic goldfields like Bendigo, Ballarat, Western NSW, West Coast Tasmania among many others, all in Australia, haven't had a drill put into the ground in 100 or so years. It is my contention that these fields will yield significant amounts of metal in coming years. Why? Because of advancement in technology making exploration and exploitation feasible now, that wasn't in the "old days."

I have little doubt that a goldfield like Charters Towers in FNQ (Far North Queensland) will yield significant resources, especially at higher gold prices. There hasn't been anything done up there since about 1916 when it produced millions of ounces in prior years. No way they found ALL the gold back then when they only went down a few hundred feet. Hmmm. Someone in the daily rag here finally caught the vibe. There are a heap of these types of situations across the globe. Go find 'em.

I see crude is growing some legs this morning. Seventeen barrels for an ounce of gold- remember that!

Local News

The weekend up in Brisbane with the kids was fantastic and every second with my kids was very precious. We hadn't seen each other for 3 weeks and they had grown noticeably, even in that short time. We went to the races on Saturday and if ever I were an "omen" bettor, Saturday would have been a very profitable day. I prefer "science" to "omen" betting. I didn't bet on the races but was astounded when the winner of the first race was a horse called Gold Victory, who saluted the judge at $8 to 1. I noted it but didn't give it a second thought as we went off to the kids face painting Little Jacqui was appalled that we didn't have a dollar on it. "Daddy," she said "why didn't we bet that horse, the gold is what you do!!" The second race was a 2-year-old's race and none of the horses had ever raced before. There were 16 horses in it and there is no way I'd bet in a race like that without an "edge"(or a perceived edge). I did note, though that there was a horse called Gold Edition in it. I looked to the bookies and they had him at $16 to 1. Surely lightning wouldn't strike twice, so we let it go. It romped home by lengths. After two races, a 24-1 opportunity was purposely overlooked! If my Mum had been there she'd have made a killing as she is a big "omen" believer!! Surely there couldn't be another one coming? I vowed to Jacqui that if there was another "Gold" anything that we'd have $10 on it. There wasn't, of course.

Vouvray was "butchered" by her jockey/tactics in the big race in Melbourne. She jumped well from Gate 14 of 18 and, unknown to anyone but them, the connections of the horse decided that they would ride her forward in the field, rather than her customary going back and storming home. After 2 furlongs of the 12 furlong trip, she was caught two horses back from the leader, but 4 horses wide, facing the breeze the whole way. No horse wins when caught like that. Surely the jockey could see the problem and be a little flexible? It was tear-up-your-tickets time already. They still had 5 furlongs to go as I turned my back on the race in disgust and said to my ex-wife and her new man - "she'll be lucky to beat one horse home." She didn't. How do people justify screwing around with a tried and proven method of racing for a given horse, in the biggest race of its career? (The same things happen with investing- stick to your knitting or whatever you know works for you.) Oh well, there is still the Melbourne Cup in a few weeks and maybe she will race how she always has.

At least the winner, Railings, was by the "right" stallion - Zabeel, the champion son of the great Sir Tristram (the father of my gun mare). It was something else to see him flying home after bursting out of the last half dozen horses around the turn. He hit the line like he'd just run 5 furlongs, not 12. I want one like that!!

At the same time, the worst sight in thoroughbred racing was beamed across the world. Mummify, a $5 million plus stakeswinner (and previous Cup winner), was leading with 50 yards to go this year. He appeared to stumble a little, in full flight, and was just pipped on the line, running 3rd. He pulled up very quickly after the post and it was apparent that something was very, very wrong with the great beast. He smashed both sesamoid bones in a front fetlock (knee) and had to be put down. Jacqui was horrified. Grown men at the track were in tears. The "other" side of racing can be very dark.

Enjoy the day.

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