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Different Horses for Different Courses


Gold $434 Silver $6.64 Friday 10 December , 10.15pm Sydney

G'day. I don't believe that so many people around the globe didn't know what a crow sounds like. I'm not kidding, listen for yourself. That's exactly what they say, no matter what the situation is!

Another day and we see another drubbing for the precious metals. Silver was the easy markdown today. Gold bounced off that $432, again, but I have that sinking feeling that we may get a "called third strike" at 8.30am and give a little ground in Comex, maybe to $425ish. Somehow, the numbers will show inflation to be muted, I suspect. You all know my view on what the real inflation story is (I think closer to 10% pa than 3% pa, fyi). Just picturing the possibilities, and it appears to me that any inflation number that is not indicative of increasingly higher inflation, should see immediate pressure on the metals.

I have faith that the physical market is the "real" gold market. I also don't expect the physical market to replicate the stupidity of the sellers on the way up. Why would a buyer try and hold the market up in the face of such savagely determined selling? He wants as many ounces for his buck as possible. Why did sellers sit on top of gold during a massively bullish phase in the metal, securing nowhere near the optimal dollar return for their sales? Gold never had a $15 up day going from $335 to $455, not even a $10 up day. It has had half a dozen down days of over $12 in the past couple years. Buyers want the lowest possible price and by stepping aside for a day or two, may induce some capitulation in paper gold, allowing bargains in the physical market. That's what I'd do in similar position, but to each their own.

Silver is about as popular as a prostitute in church these days and is bumbling around the 200DMA. Seems to me that about 20% over and 10-15% under this 200DMA is actionable for reversion. Do we see $5.90-75 again this trip? Maybe, but again, I stress that I don't see that these levels will be sustainable for long. Silver is the most versatile metal. It's applicability in industry spans many sectors, sectors that would surprise people. It is generally uneconomic to be recovered as scrap, following many of its uses. It has the added bonus ahead of nickel, copper, tin or other base metals in that it has 5000 years of history as a monetary asset. I contend that the physical market WILL take silver, and lots of it, at a 20% discount to last Friday. Investors are stepping up and buying, as expected. What a great opportunity for industrial users to load up with inventory, for years to come, at these levels, knowing full well that in dollar terms the price must surely rise. The Treasury and Fed have said as much recently.

I suspect that producers of silver will just shrug the shoulders and take it on the chin. I wonder when/if any silver producers will take a leaf out of the Goldcorp (GG:NYSE) playbook anytime soon? Once debt is retired and normal operating production generates significant positive cashflow, GG don't sell ALL of their production at market. They sell what they require to comfortably maintain operations and a conservative cash balance at bank. With the "surplus" or "profit" production , THEY decide if they like the price of their asset, rather than accept whatever the "paper" market dictates. If they don't like the price, they don't sell. This is first class asset management, as a gold/silver mine is an asset that is dwindling all the time (unless reserve replacement covers production) and the sale of said asset, the extracted gold, should be sold at the most appropriate and profitable time for shareholders. Many mine operators just want to get it out of the ground and sold asap, as long as they can sell for more than production cost. I would rather a high cost/marginal producer stop mining, than dig and run down the asset to sell production for next to no profit. Worse still would be forward selling the gold to guarantee a tiny profit. Do they forget that the metal has been in the ground for a few gazillion years and that it's not gunna jump up and run away? Selling into the market, on your own terms, is one of the basic premises of any business. Sure, there is the question of employee job security, community support and associated moral obligations, especially if such a mine is in a remote area and the local community revolves around the mine. It's not an easy issue to address, but one that gets bugger all discussion in most boardrooms.

The silver/gold ratio is back closer to 66 and getting very close to levels whereby I would be VERY comfortable being long silver/short gold. This ratio was 52 not long ago. I expect it to get down closer to 20 in coming years. Not advice just sharing the thoughts.

The Amex Gold Bugs Index (HUI) is hanging around the 210 level and I was somewhat surprised that there was ANY green on my stock lists, let alone a majority. Some were obviously oversold from previous action, and another nasty Comex session today could give us some more opportunities to further add to metal equity holdings. It may also provide opportunities for predators looking for some super cheap targets. Who knows?

The Aussies (and South Africans) never had such a good run up due to the currency, but they are being marked down as if they did. Opportunities abound for the nimble and well prepared.

I got a stack of emails saying that people are enjoying my writing recently and had some pretty funny exchanges with some Minyans, these past few days. Thanks, it has been different having something to comment on apart from a $2.50 an ounce up day. I reckon that this comes from stepping back from very short term trading, and looking at the metals on a longer tenor basis. Focus on the forest rather than the tree. The $5 move doesn't interest me much in the scheme of things, it's the $50 move I want to focus on. I'm very much fundamentally oriented. Charts and waves and lines and stuff all provide people with information that is interpreted many ways. It's the distilling of said info that makes or breaks the results. I don't care if it's Elliott Wave, dissected chicken guts or some super-duper proprietary actuarial model that makes cakes and coffee on the side. Nothing works all the time and so I am monitoring a whole lot of different stuff. But in the end, my way is my way (even I don't exactly know what it is), and someone else's is someone else's. No one or no thing is absolute, except death and taxes. We can always learn something from someone else's methodology.

I liken it to guiding a fisherman or hunter. You can find the right bit of bush or river, follow the signs, use your experience and logic and get your client up close to the quarry, but it's up to the shooter/caster to hit the target. I reckon I'm a pretty good guide and my colleagues are much better shots than me. The shot, in this instance, is timing of entry/exit levels, intra-day reversals and the like. The game within the game is not my main gig, so as long as everyone plays to their strengths and acknowledges their weaknesses, then the unit is stronger than the individual parts. Have you ever thought about where you fit in similar instances, be it sport or family or work? Different horses for different courses.

How about that OPEC mob? Certainly they are the most ineffective cartel that I know of. Production cuts have been mooted and now talk from Saudi, Kuwait and Iran supporting such a move has "formalized" the speculation. Hmmm, interesting stuff. I guess they just worked out that they're gonna be short some Bollinger at Christmas!

Vanessatheundressa races in New Zealand tomorrow, over a mile, for a quiet $30,000 stake. There are 20 horses in the race and she is the favourite, but she drew gate 19. Tough luck. I wouldn't bet on her with your money, let alone mine. I'll wait a few more weeks for when she is racing for a million bucks over longer distance.

It seems like there is some pressure on currency and metals in early Europe - no rest for the wicked. Another dollar rally that will fail, today or next month or whenever, I don't know, but no matter how many Central Banks try and strengthen the dollar, its fate is guaranteed. Deficits do matter, Mr Snow.

Guestimated ranges till comex close (although PPI could mess up all assumptions)

Gold $428 - $444
Silver $6.58-7.12

The weekly closes in the metals will do some rather serious technical damage. My expectation is that these wounds will be quickly healed and that the metals will resume their primary trend. UP. It's just a case of when and from what level. Maybe we have to wait 'till the New Year and as I have previously stated, I don't think we will see sub $400 again, this decade. Premature speculation? Probably - but they have pills and creams for that now, don't they?

Enjoy the day and the weekend. Jets by 3.

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