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Metal Mania


Gold $429 Silver $7.35 Friday 5th November, 11.45pm Sydney

G'day. What an interesting old week this has been. The election and its associated market histrionics were rather amusing to watch. Did anyone actually believe that anything would be different as a result of the election? Since GWB entered office, Oil has risen 60%, Gold up 60%, SP500 down 15% and the dollar index down 35%. And he won!??? I guess that a vote for Bush was a vote for "more of the same" and it is my firm contention that they will definitely get lots more of the same.

The gold selloff to $417 on Wednesday was a gimme, I reckon. The physical market had told us where gold should be. The range that I mentioned last week of $422-430 was only broken to the downside for a very brief period of 1 hour on Comex and 10 hours of Access (the physical market hoovered up everything as we had previously discussed). The physical market is comfortable at $425+ at present. Sharp corrections are a fact of life but be mindful that the gold market, unlike bonds or currencies, has a physical delivery component and that can screw up many players. The physical market is THE factor in the gold market and people should understand what's happening there before hitting the paper markets of the Comex. The paper market violence is exacerbated as momentum players jump on breaks, such as below $420, then get whipsawed and stopped out back up at $425. Watch the London fixes over time, to see where real gold is trading. Same things happen on the topside. The physical market is THE gold market and it is always happy to accommodate short-term selloffs that allow further accumulation of said physical.

I don't see that the range in gold has changed at all and I think that today's payroll numbers and other stuff will have gold close to either $420 or $440 today. My guess is that it's closer to $420 than $440, only because a weekly close above $430 puts gold on more and more radar screens and I don't think that the market is quite ready for that yet. Gut feel says we close today around $428 after a very whippy day but I wouldn't be surprised to see way higher if the numbers are dollar negative (not advice). I also note that most of the recent $10+ down days occur on Fridays with much damage done after London closes for the day. Just an observation, so watch that last hour or so in the futures.

Anyways, nothing's fundamentally changed while I'm running around like a blue-arsed fly on the new commodity fund. I am still very bullish gold and silver and that won't change on a $10 or $20 fall or a $10 or 20 dollar rise. This is a monetary system issue that may take 10 years to play out. I am pretty happy to stick with my thought of a week or two back that we won't see sub $400 again - This DECADE. I know it is less than 10% away and could be there tomorrow and that stranger things have happened, but I find it difficult to come up with any scenario that can crush gold for longer than a few days or maybe weeks(on massive liquidation of paper gold). Maybe we will see it down there but I reckon it won't be down there for very long. The physical market is very strong and will soak up much real gold at the discounted levels before it returns to its fair value, IMO. The U.S. dollar is being printed up and thrown around like confetti. Gold and Silver are the only financial shelter from the continued destruction of dollar value. Commodities are gonna rule, simple. Wait till China and India work out they can't feed themselves and see what happens to the grains and softs in the coming few years.

I note that silver got touched up the other day and spat the dummy down to $6.91. Nice buying for the smart and quick. The silver supply-demand balance is unchanged and quite frankly, the silver price should be way higher than where it is currently, opinion only. Silver in double figures is certainly in my mind's eye looking into next year. The 200 DMA is still traveling around $6.65 so be mindful that we don't get too far ahead again but I think we can push closer to $8 before this becomes too big an issue. The last 30 years of silver prices haven't given us much outside of the $4-$7 range, mainly due to the sale of the U.S. Government silver stockpile of more than a billion ounces. That sort of market force certainly alters the supply/demand equation as the additional supply must depress prices without any corresponding demand increase. I sometimes wonder who received the most benefit of said silver sales? Furthermore, the consumers of said stockpile have now lost this massive supplier of their desired commodity and now must face the real market forces of supply and demand, which has been in structural deficit for many years. Where will the new silver supplies come from and at what price? Mexico is a fine source of pure silver mines yet many won't get sighted till we see a double digit silver price, in my opinion. Silver mines may take years to develop and bring into production, so supply is rather inelastic. Demand isn't gonna go away either. Hmmm.

The equities have had a wild week with many stocks providing opportunities on both sides of the equation. The Amex Gold Bugs Index (HUI) is still some 10% plus off its Jan high, yet the actual metal is pushing its highs. Maybe there is some catchup to come for some issues. I note that Golden Star Resources (GSS:AMEX) copped a flock of uppercuts yesterday and was beaten down some 12% on the day. There are a few issues on the production side that caused some cashflow shortfall and affected earnings, weather also played a part in the poor quarterly numbers, but one must remember that their assets,(i.e. the gold reserves and resources, the plant and mill, staff and management) haven't changed at all. That they didn't produce the gold this quarter doesn't matter a damn to me. It is still there and will come out in due course, maybe even at a higher gold price! Is the gold still there and can it be extracted at budgeted levels? If so, the NAV is unchanged. I reckon at sub $4.50 someone is being presented with a wonderful opportunity that will be rather short-lived, in my opinion. My guess is they are above $5 again early next week, all things being equal in gold and currencies - but 8.30am today could chuck a spanner in the works, although in my view they should be $5 with gold at $400, let alone $430. Opinion only and not advice.

The Aussie golds are still sitting with their thumb up their bum and can't catch much attention apart from the big couple like Lihir (LIHRY:NASD) and Newcrest. I'm looking further down the production and exploration curve for opportunities, especially those in previously producing goldfields that haven't had a drill on them in a number of decades for one reason or another. There are a bunch of them down here and a few smart operators have tied up some significant positions. I reckon that these old goldfields have not produced anywhere near their potential and that with the improved exploration and mining technology, combined with improved recovery methods, select small companies (who control these massive landholdings) will be gobbled up by the big boys looking for resource/reserve replacement. There are about 5 on my radar screens and these companies are literally trading in cents, not dollars (little Aussie dollars that are getting stronger daily, not those newly printed U.S. dollars that just keep on depreciating). A little bit of currency and geographic diversification for some, maybe? Just my opinion as usual and never advice.

The silver stocks got bashed as well and Hecla (HL:NYSE) traded down near $6.20 at one stage on Wednesday. I jumped in sub-6.30 for my personal account and am happy that I stood in front of the runaway bus even though I was woken up at 3am, without any screens or charts or even knowing where the silver price was. Common sense occasionally comes into play when things get a little silly. That I tipped them out yesterday at $6.82, even when they are heading north doesn't worry me at all, as the trade has just lowered the entry cost of my core holding in the company. Margin trading can be dangerous for the uninitiated, but it comes in way handy on days when you haven't got any jingle in your jeans, to take advantage of such a move.

Crude oil at $48 looks cheap to me given the dollar and the state of the supply/demand balance. With oil falling like it has, why is OPEC yabbering about SPR releases? Prices fall due to increased supply or decreased demand. Falling prices don't cut demand so where did the supply come from to drop the price 10%, or who decided not to drive their SUV this month? Too many questions that even the Cartel can't answer or adequately explain. I don't see oil staying below $50 for long, sorry. Winter is the time for serious energy problems to emerge. People die from no heat but they don't die from not driving to the beach. Best people hope for an unusually warm winter in North America and Europe ... oh, and don't forget it gets cold in China and Japan and Korea and all those Nothern Asian countries. The competition for energy will be intense and there are so many dollars chasing whatever oil is produced, and then it's gotta be refined into stuff we can use ...... tick, tick, tick.

Vouvray ran 3rd in the big race here last Saturday, after being last of 14 with 400 yards to go. She will have a little holiday and get ready for "her year", next year. One of mine, named Vanessatheundressa (seriously!), made her return to the track yesterday in a trial at Cambridge. She is being set for NZ's biggest race in January but there's lots that can and will go wrong between now and then.

The Jets are back on the win side of the ledger and looking good for a game in January. They are doing well and keeping a low profile which is appropriate due to their consistent ability to grasp defeat out of the jaws of victory! I am very disappointed that the NHL has called off the hockey due to greed. How sad is that? People play sport for fun and own sports teams as a business. I'd bet the hockey players would play for free if that's the only way they could get a game, but I understand there are two sides to each story and obviously the parties don't agree on who gets what wedge of the financial pie.

Looks like gold and silver could have a very whippy night depending on the data at 8.30am. If I were a betting man looking at the odds, a nasty sell-off appears to outweigh those of a strong rally but maybe we saw that a few days back. Personally, I'm always long so it doesn't particularly worry me what price is quoted.

An ounce of gold is always an ounce of gold - it's just the number of bits of paper it costs to get one that changes. The rush to devalue paper money is on in earnest and even the Fed admits that the dollar has gotta go lower in an effort to sort out the deficit and all that mess. Listen to the Fed, they're telling you to buy Gold and Silver and it seems that there aren't many listening in the Western world. Asia and the East are listening and acting.

Enjoy the weekend and what's left of Friday ..... must be just about "beer o'clock" down here.

position in gold, silver, gss, lhg

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