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Metals With McGuirk: The Asset of Last Resort


Gold has behaved pretty much as one would expect.

Tomorrow is Melbourne Cup Day, the day where a horse race stops the nation. Literally.

Vouvray, who is number 15 in the race tomorrow, has given us little to celebrate in her recent two starts. She has been last or thereabouts on both occasions. A big form reversal is required for her to greet the judge and grab the lion's share of the $5 million prize money.

Fortunately for me, Gold and silver have been rather predictable and hardly worthy of comment. The levels are the levels and I'm not very excited either way at present. I am just crossing the weeks off the calendar whilst we stay above $450. The longer the better for the new base around $450-60 to be formed. I am juggling 3 or 4 balls at present and the market has been kind, so only had half an eye on it this past week.. Looking forward to seeing the end of this week and preparing for the New Year!

It is now daylight savings here in Sydney and we are now 16 hours different, rather than 14. Comex for me is now 12:30 AM till 5:30 AM. Hmmm.

Gold has behaved pretty much as one would expect. Attempts at breaking gold down, whilst dramatic and occasionally worrisome, have been rejected by a very firm physical market. I suggested in previous posts that any nasty "paper" sell-off's as per late last week, would be short in duration due to the physical gold market demand. Recent headlines of lower mine production coupled with record breaking demand numbers in the physical markets, see the natural laws of supply/demand at play. Downside extremes look around $462. Upside looks limited at $476-8. I'm not taking too much note of COT numbers at present, just watching the physical metal movements. Metal is moving hands, just not quite as noticeably as if trucks appeared to take it away. Ownership change doesn't necessarily mean location change.

India has been an importer all along this rally. Only Rupee weakness has slowed its demand somewhat, but even here at $472, it is still a net importer of gold. Dubai jewelers are having a bumper season, as are Thai, Philippine and Vietnamese dealers. Gold is quietly bubbling away in the "real world."

There was a great show here on television last night. A 3-part documentary based on the work of Peter L Bernstein - "The Power of Gold." It was a French TV5 production for those who wanna go find a copy. It was shown on our Government-owned "Multi-cultural channel," which has a viewer base of less than 1% of the Aussie population. It should be shown to every person 12 years and above. It spells out why gold is the asset to own in the current environment. Anyway, it was very informative from both historic and economic viewpoints. The commentator finished with the line: "Gold, unquestionably, is the asset of last resort." Hmmm... Read the book taking note of the London Gold Pool of the late 1960's, its composition and charter, its operation and its demise. Hmmm.

The HUI is uninspiringly hovering around the 225 level. Maybe we do need a pullback to the 200 level before we set off for a new high, north of 270?? There appears a good base forming on the longer technical pictures for the HUI. Just thinking aloud and noting how many mid-tiers were crushed the other day, some down 5%, when we saw a less than 1% move in metals. It proves the "liquidity" issues of metal equities that we have mentioned before. Traffic is generally all one way with liquidity non-existent, especially when one most wants it! Downside risk is tough to manage on such days.

I laugh out loud that Ben Bernanke and his reported "unconventional" deflation-fighting measures is the "chosen" driver of the Federal Reserve Bank, once Sir Alan slides out of what is becoming a very slippery chair. Bernanke is sure to be written of in the history of mankind. My guess is that it will not be flattering, but pennies to peanuts he will definitely, one day, be finger pointing and saying. "that wasn't my fault, that was broke before I got here." It's a pity that the guy is on a hiding to nothing, IMO. Sixty billion dollars a month is a deficit no one would wanna tackle. Printing presses or not.

This appointment is a very bullish outcome for we believers of gold as money, IMO. This guy is an academic and one would think that such a highly-touted "academic" would know his economic history and refer to it as a matter of course. He could tell us that it was indeed true, that EVERY fiat currency system in history has FAILED. None. Not one. Zilch. Gozza. Nil. Never had one stood the test of time. He would then go on to tell us why "It's different this time" and how his printing presses and helicopters are gonna rule the roost. This could get laughable as we hear him explain how good inflation is for us all. Inflation has eaten 53% of the dollars purchasing power since 1973, so Caroline Baum at Bloomberg tells us with horror. Whatever. I'll keep watching, but with my hands on my precious metal bars. They feel so nice and warm after they've sat in your hand for a few minutes. Hmmmmm...........

Silver was a gimme on the trip down to 7.50 the other day. I believe we are building a base here at the $7.70-80 level from which to catapult dramatically higher. Not Advice. I know I said $8 by Melbourne Cup Day but hey, the race is still 24 hrs away. Those dips like late last week are a perfect opportunity for a low-risk entry level. It (the major liquidation of futures) didn't flow into the equities which is a good tell in itself. Picking up physical silver on those dips is tough but doable. Strongly recommended, but never advice.

Local News

Melbourne Cup day has snuck upon me this year. I s'pose the next "day of note" that we will use for "timing" when I make silly prognostications/forecasts/loud thoughts will be Derby Day- April 15th 2006.

The Breeders Cup has been and gone. I saw none of it this year as it has clashed with our own big Spring Carnival, that I saw little of on account of having the kids down staying with us for the weekend. It was the first trip back to Sydney since they've moved up to Queensland. It was a great weekend, spoilt somewhat by the torrential rains that Sydney has endured the past 24 hours.

Our little 3 year old filly, Maitirise, made a rather inauspicious racetrack debut a week or so back. She ran a very unflattering LAST of 12 horses. She got freaked out a bit when the gates opened and she settled last after about 400 yards, about 10 lengths behind the second last horse. She came home very fast and was beaten only about 6 lengths all up. "She made up a heap of ground in the final few hundred yards," the jockey told us. "She went pretty well and don't worry about the result," he said. She did get home very well, I thought, but she gave them so much start. Hmmm. The trainer was happy. "She's gonna be racing twice that far when she's a bit older," he said. Hmmm. I s'pose we keep paying her bills for the time being. Hope springs eternal.

The Melbourne Cup will be run and won by midnight NY time Monday. It is a big session. I dunno any other country that stops work for the afternoon to watch a horserace where the best horse it weighed down so as to make it "fair" on horses with lesser ability. A great day of punting on horses combined with high-quality Perving on the 2 legged-fillies, all the while with a glass of something toxic in hand. Australia, ya gotta love it.

Anyways, the women get all tarted-up and wear their cute new frocks and hats and stuff. They wear their billion dollar shoes, all beautiful heels that just sink into the grass in the Members Enclosure or get covered in spilt beer at the parade ring and compete for something like $250,000 in prizes in what is known as the "Fashions of the Field."
Seriously, the women go somewhat overboard on their togs for the races. Not us blokes. We're lucky to get a new pair or RM's once a decade.

Vouvray carries our hopes in the big race, but not one cent of my hard-earned. It's all just optionality with her. She doesn't look capable on current form but one never knows over the two-mile trip. She has blown out from 15-1 to 81-1. I think a horse called Railings will be in the finish along with Leica Falcon and Xcellent. Lisa and I are out at Randwick for the Sydney version. We will be doing the "tarted-up thing" out in a corporate marquee. The weather for Sydney where about 40,000 will turn out at Royal Randwick for the Cup Day meeting, is due to be wet. Lisa is just ditching the good shoes idea for the strappy party-sandals. Function over fashion on wet days at the track! It is quite a day and night and I will report back on Wednesday, just in time for Oaks Day on Thursday!

BTW- We have a horse running tomorrow, that we bred and still own a little of (1%, but that's another story) - Danihilate. He hasn't won a race in his 12 starts and is always just 2 lengths or so off the winner, and one day he will scare them all and win! Tomorrow would be nice, but I wouldn't hold my breath waiting on him.

Enjoy the Cup day....

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