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A Whole New Bag of Prawns

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Gold $435 Silver $6.78 Monday 13th December, 10 pm Sydney

G'day. The gold and silver markets made a pretty good job of it on Friday. The inflation numbers were supportive of a higher gold price, in economically rational times anyway, yet it gets interpreted as "good for the dollar" as "interest rates won't go up so soon." Following that logic, gold should've probably closed below my "not before Xmas" call of $432. I reckon it's better than evens that it's back at $442-4 quick smart, but stranger things have happened and who knows anyway? It just doesn't matter to an owner of physical gold. He has no margin calls or anything to worry about. He OWNS it. The ounce of gold won't change, only the amount of paper people are willing to exchange for it will and I contend that it's destined to be lots more bits of green paper than it currently is. Heaps more.

The Indians are still happily sucking up physical gold and I suspect there will be some relieved buyers over there who were hoping for this type of pullback. Reports of retailers and wholesalers running down inventory, looking for the pullback were noted this past week. Inventory will be aggressively built at this discounted level I believe. I expect more and more physical to be taken from the market, which will continue to support the paper prices when the inevitable price downdrafts occur. The physical market is buying at the paper price. Paper gold should therefore punch higher, IMO.

Silver looks like it has taken its medicine and is back swinging hard again. Fancy it being cheeky enough to break $8. The subsequent massacre in silver and their equities should teach us silver bulls a thing or two, right? What a crock! That silver bargain of sub-$7 never really existed. Certainly not for us mugs who buy REAL SILVER. The public are paying 30c-35c or more over spot for the real stuff. Not that many people are stepping up to the plate for 5000 ounces at a time, with which you could transact a Comex futures contract, and at maturity, cough up the previously agreed number of beer-tokens and demand physical delivery. That sort of deal is at spot rate as per Comex quote. 5000 Ounces is only small in size and would fit in a 48can Esky, but you'd need a few mates to help carry it. It weighs nearly 300lbs and believe me, I'm not budging that little puppy on my own! And that's just for 1 contract.

An Esky is Aussie for a portable beer cooler. It was first invented by some Aussie bloke while working for Malley's refrigeration in Sydney, way back in 1952. He shudda been made a saint! It was a well insulated box with a polypropelene outer shell and a polyurethane inner. Cold stuff that went in it, stayed cold. Esky was trademarked way back then and is still made, yet advances in insulation, plastics etc. have made the original style esky's obsolete. I think my Dad still has one though. Many people mistakenly think it has something to do with Eskimo's. As if they'd have been involved in inventing something like this. Last I checked, they hadn't had much trouble keeping their beer cold!

But, I digress. If you want the physical stuff at home, stored near your high caliber weapons, canned food, diesel power generator and lots of fresh water (I'm mostly kidding people!!), not in someone else's vault interstate or overseas, then you've got transportation and insurance and whatever other bloody costs there is gonna be. Anyway, the opportunity for most to get sub-$7, just didn't happen. It may tomorrow, I dunno, but everything tells me we are headed back over $7, maybe today. Just thinking aloud.

The Amex Gold Bugs Index (HUI) still looks like it is on some sort of life support system with muted bounces around the 210 level but nothing with much conviction. It is my contention that we are gonna see a very sharp move higher. Probably sooner rather than later but, in all fairness, I think we'd be greedy looking for it before the New Year. There are probably plenty of people who will try and put some P(profit) in the tin on any rallies, especially if they're currently looking at an L(loss). The New Year should be a whole new bag of prawns.

I watched the performances of the silver equities with some bewilderment. That some were trashed nearly 40% yet others only say 20% was interesting. Dunno who was doing the valuations for these companies to be trading where they are, but I note some nice spread moves between individual entities that may prove to be profitably exploited, IMO.

The Newmont (NEM:NYSE) / Barrick Gold (ABX:NYSE) spread trade I mentioned the other day as an observation should continue to make interesting viewing. It seems the ABX hedge-book has made no difference to investors, and their stellar performance this past couple of months is a little unsettling to me. Maybe some funds who can only buy TSE top 100/200 or whatever restrictions that almost force them to have these guys as their "gold exposure". I dunno but the biggest hedger can't beat the biggest non-hedger in a rising gold environment. It just can't add up. The negative mark-to-market has gotta have some bankers worried. Every dollar the gold price rises increases the liability to the banks, by $15 million or so. Without doing anything at all, ABX credit lines with their banks will be chewed up by "passive credit excesses" as the gold price rises. I wonder how many ounces they have closed out on this dip? 'Coz they did fall when we went to $385 on the last cleanout. They could implement matching opposite trades and therefore limit the MTM loss, but they then lock into a "spot minus $100" scenario or whatever the cost per ounce of the closeout is. Why not buy way out of the money call options to prevent disaster scenario? Why not deliver faster into their hedge obligations so as to kill the book quicker? Maybe they just can't afford to close it out? Lots of questions and not many answers, sorry. Either way, they surely can't outperform NEM whilst they have the hedge book in place. Just my considered opinion and nothing more.

I was watching the footy today, redskins-eagles, and saw that the Jets get rolled by, of all teams, my girl's team. Thank goodness it wasn't shown here. It is very good though, watching with her as she fills me in on some of the more esoteric rules and stuff. You should see us watch cricket, though. It all gets a little confusing for her but now that the short version of the game is in town (it only takes 7 hours, not 5 days like a Test match!) she has finally "got it". I had to turn it into baseball parlance and now it is easy for her. Each team only gets 1 inning each: Broken down it is -

6 pitches in an over.
50 overs in an inning
10 outs in an inning with no repeat batters
Most runs at the end wins.

Simple. But above all else, ya can get a heap more beer down ya neck in 7 hours than at a baseball game!

Vanessatheundressa ran a shocker on Saturday, last in the race. She was ridden back in the field because of her gate and never wanted to be in it. She is a front-running type so we wait a fortnight and hope for a gate. Maybe she was worried about chipping a nail or something, back in the pack?

Looks to me that we could retest $440, maybe tonite, and that maybe silver could have a crack at $7. Either way there will always be moves based off the dollar, no matter how irrational. As mentioned last Friday, ALL dollar rallies will ultimately fail, either fast like Friday's or over a few weeks or months in my view. It is just a matter of time before the precious metals regain their mantle as "the ultimate currency" again, and I'm not planning on heading anywhere soon, so I guess we better sit back and relax over a coldie or ten 'coz this will be something for the history books, IMO.


Laurie
position in gold, silver, nem, abx

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