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Rookie Mistake

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Gold $454 Silver $7.94 Monday 6th December, 12.15pm Sydney


G'day. I suppose the Friday gold rally put a few noses out of joint somewhere. I felt pretty sure that there wasn't much time to be spent under $450 and am pleased to see the rapid move back up. Everyone seems to want it lower but the swing back up to $455 was impressive. Many people don't appear to understand the significance of the dollar's decline.

The oil price can't head down much more unless OPEC wants to continue to short change itself. Last year a barrel of oil got the Sheik a bottle of Bollinger from France. Today he only gets 4 glasses of the overpriced fizzy water. If the decline continues, he might just get one of those little "hand grenades" for his oil barrel, you know those little half-bottles that all the trendy chicks drink champagne through a straw. He wants to keep his purchasing power, but the lower oil price combined with a falling dollar nearly doubles his grog bill, just when he's trying to get the beers and wine sorted out for Christmas dinner. Hang on a sec, Sheiks don't drink Bolly or celebrate Christmas do they? Anyways, ya get the idea about why anything denominated in dollars must rise in price, or else the dopey producer will cop it up the clacker. Oil is a finite resource and those who control its production aren't dumb enough to give it away. Just opinion as always and worth whatever you make of it.

There feels like some significant selling interest on the topside around $456-8 may keep us in check for a while. Either way, it won't make much difference in the scheme of things going forward for gold. There is no "magic" number of where I see the price headed, over time. If asked, I just say that I expect 4 figure gold and 3 figure silver. It is just gonna be a lot higher than where we are currently. There is no other LEGAL outcome possible, IMO.

I was hoping for another dip to $448 to get some more gold in but it isn't looking all that likely at the minute. Silver still hanging on to the $8 level and I expect we see a new high very soon, if not before Xmas then just after. The silver price won't go straight up but people should understand that supply is rather inelastic due to it generally being a by-product of mines of another metal such as lead, zinc and copper. That many "pure" silver deposits won't come into production for a few years and require a significantly higher price of silver before they become economic is somewhat overlooked in many discussions regarding real silver.

The Indian stock market continues to close at record or near record levels. The currency can only strengthen against the dollar (notwithstanding official intervention). This will only increase demand from the world's largest consumer. China slowing down is less of a risk than many see, IMO. The demand for commodities, both hard and soft will continue for years, I believe. There are 2 billion mouths to feed, clothe and house in those two places alone. Their labor costs are negligible compared to the West. Their living standards are rising and their "middle classes" are burgeoning. Sure, China's got a few big problems but nothing like what the U.S. is facing.

The Amex Gold Bugs Index (HUI) continues to disappoint and I am surprised by the lack of interest in many issues. Some larger issues that are on my radar are Hecla (HL:NYSE), Golden Star (GSS:AMEX), Kinross (KGC:NYSE), Harmony (HMY:NYSE) and Durbans (DROOY:NASD). The little guys in late stage exploration or early production are even juicier, IMO. No use fighting the tape, but I suspect it may be the new year that we retest the HUI highs. There seems some antagonism towards metal stocks for some reason at current levels. Dunno why. Either HUI heads lots higher or gold somewhat lower. I don't think there's much chance of any other outcome.

It has been noted that Goldcorp (GG:NYSE) have thrown a bid in for Wheaton River (WHT:AMEX). Seems everyone wants to have a crack at this little puppy. I haven't looked all that closely at the combined new entity should the deal proceed but it appears give a good geographic diversification for GG, which is always a positive when I assess a company. They would become a multi-mine company, another big plus. This alleviates some of their operational risk. Production will be north of a million ounces. They will then be a big-leaguer which should put them on more investor radar screens. There is no debt involved in either entity. These are all positives and about the only negative I see in the deal is that they are such low cost producers that the leverage to price rises in gold is negligible compared with say a $350 an ounce producer. I'm not gonna be drawn into discussing the fairness or otherwise of the deal so do your own digging around on it. The new entity may well be the "safest" gold equity going around but its share performance could underperform the higher cost marginal producers as the price of gold rises. If you thought gold is headed back to $300 or something but you want to be long in case you are wrong, then the new entity may be a fair alternative to buying covered puts...just a thought - not advice. Producing at $75 an ounce all up for these guys means they shouldn't be anywhere near as badly hit if we got a $50 or more pullback in gold price. I think you all know what chance I reckon there is of that happening, 2/5ths of F-all but ya never know these days.

Anyways, only 10 mins out from the Comex open and wouldn't surprise if we come off a buck or two initially.

The "Homebake" concert was a big deal. Sunny weather combined with a big happy crowd created a great atmosphere and the performances were excellent. Jet were great, as was Grinspoon but best on the day was Spiderbait. If ya get a chance to hear or see them live, do it. It was interesting to see the "young-uns" who turned up at opening time in tank tops and shorts (it was very pleasant on the eye for sure), got sunburnt and pretty "liquefied" and somehow forgot that the temperature drops when the sun goes down and that sunburn doesn't help you feel any warmer, even when you're toasted! Smokes and booze also become hard to find late in the day and therefore hugely valuable. Simple supply-demand economics at work. We old experienced players, who had our "stash" of a sweater, a spare pack of smokes and the old hip-flask, didn't feel much pain at all! There is one good thing about getting old, ya just don't make those rookie mistakes any more.

Enjoy the day ...


Laurie.

Some interesting reading for those with a few minutes.

position in gold, silver, gss, kgc, drooy, hl, hmy, gg

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