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Morning Metals



Gold $426 Silver $7.33 Thursday 21st October, 6.45 pm Sydney

G'day. Gold continued its rise, albeit begrudgingly in the face of heavy apparent short selling, after I bailed out of here last night. Again there are resolute sellers continuing to exert pressure at certain price points, now $425-6 spot, and one wonders where gold would actually be trading if the recent large sellers had been more inclined to maximize the price received, which obviously was not the desired outcome. Gold shorts should be very concerned, although Pavlovian conditioning has me prepared for a technically driven sell-off causing some angst for those expecting a one-way ticket higher. Gut feel says we're heading back below $420 before week's end but whether that is from $425 or $430, who knows?

My indicators are currently pointing higher for gold across nearly all time frames but I am discounting this somewhat given gold's recent history and price action. When things look real good for gold on macro and fundamental basis, it usually spells trouble, or has recently. When it looks hot it's not, and when it looks like crap it grows a fifth leg. Just gotta alter the mindset somewhat and act accordingly.

Silver is looking a little tired up here at $7.30 and I am watching the shorter time frames for evidence of a pullback. I think we may well see $7.10-15 again before we try for the $7.45 level but must keep on our toes as this little puppy jumps around lots. Looking higher at this stage with the Euro at 1.2620.

The Indians are still slurping up the physical with gold around $421 so there appears plenty of support on dips. The Rupee continues to strengthen against the dollar so this gives some respite to the world's largest physical gold buyers. This should not be underestimated.

The dollar has no friends at present and I am beginning to think that the new year will see a dramatically lower dollar, making new lows against the Euro and the Yen and Gold. The election result won't make a lick of difference in my opinion. Bush wins and it gets hammered. Kerry wins and it gets hammered. Not saying it is all gonna be one-way traffic but with 10 year yields below 4%, I can't see why anyone would want to own a dollar that Fed Gov MacTeer says " has only one way to go in the long term". The long term is getting closer and the dollar more fragile, from my observation post. In one of those debates that I unfortunately tuned into by mistake, Kerry rattled off a litany of costs that had escalated by massive percentage points across a diverse range of goods and services yet no one has tied that together to question how inflation is then only 2 or 3% (officially). The dollar can't possibly attract friends given its current fundamentals, in my opinion. Just thinking out loud and not advice.

Gold and silver shares all caught good bids later in the morning and held those gains heading into the close. The 235-40 level may be a little tough to get through initially, especially with the metal price only a couple percent off its high for the last 20 odd years. I suspect there will be some profit taking in well performed issues that may temper enthusiasm somewhat temporarily. I still am firmly of the belief that the Amex Gold Bugs Index (HUI) will trade at levels that people would say are pure fantasy given today's levels, if I were to put a number on it. Let's just wait and see. The mid-tiers in gold certainly were the star performers like Kinross (KGC:NYSE), Golden Star (GSS:AMEX), Meridian (MDG:NYSE) and even Durbans (DROOY:NASD) all adding about 5% on the day.

The silvers all got a good lift with Coeur D'Alene Mines (CDE:NYSE), Hecla Mining (HL:NYSE), Pan American Silver (PAAS:NASD) catching a 5% updraft with SSRI only adding 4%. Apex Silver (SIL:AMEX) didn't follow suit and some have asked me why so. I can only put it down to the fact that they only achieve about 35% of their revenues from silver and the rest is from base metals. Thus their performance relative to other more pure silver plays should be self-explanatory, given the base metal moves of late. SIL is a fair silver exposure, not a great one, in my opinion. It's a fine diversified metal company but I want precious metal exposure so I think there are better alternatives. Just my opinion and sharing the thought process.

Even some Aussie gold stocks grabbed a little attention today with Resolute (RSG. AU) adding 8% and Newcrest (NCM) adding nearly 7% on the day. Newcrest, being a large hedger, doesn't fit my investment parameters and so our largest gold company is off limits to me. Happily so. I am keeping a close eye on Lihir (LHG) as a trading stock in this timezone. I don't like their hedging either but it is nowhere near as heavy as Newcrest so I see it as the best of a bad bunch.

Bad luck Todd and all the other Yankee fans. It is good for baseball to get some teams in there that haven't won in a few years. Astro's - Red Sox would be a good match-up especially the Clemens/Boston thing.

I forgot to comment yesterday on what I thought was rather a frightening display of "security" at game 6 at Yankee Stadium. I observed fully armoured riot police trotting out on the field as "security" because of unruly fan behaviour or whatever. Fair enough, if that is the applicable situational response. I then watched in amazement as 40 riot cops sat and watched the game from inside the fence, with their back towards the crowd for the entire time they were there. Where did they think the threat was gonna come from? The mound? Standard operating procedure would be for all personnel to be facing the perceived threat, not watching the bloody game at close range! If that's how the "security" forces are trained and conduct simple operations, then unfortunately it appears to me that any bad guys have a pretty easy team to beat.

Looks like gold may try for a $428 print this evening and good support is seen around the $424.70 on any dips at this time in early Europe. Silver continues to trade around $7.30 and is at a juncture where I'm more comfy with it lower but wouldn't surprise to see 20-30c higher. Watching very short-term indicators at present for some confirmation.

Enjoy the rest of your day and I suspect we are gonna see some good currency moves that will influence the metals considerably today - both ways.


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position in gold, silver, euro, kgc, gss, drooy, hl, paas, ssri, mdg, rsg, lhg

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