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Heavy Metal

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"Throughout history an unlimited expansion of fiat money and debt has always resulted in the collapse of the currency. And if you don't realize the significance of that, try and recall anybody ever saying, we can have prosperity once we destroy the value of our money! This leads people to try and go somewhere with the money that is NOT unstable and artificial. And one of those places is, and you knew I was going to say this, gold. And since we are speaking of gold, let me remind you that if you are not buying gold, then you are indeed an idiot." Richard Daughty (a.k.a.The Mogambo Guru) "The Daily Reckoning", Feb 9, 2004.

Now that's a pretty forthright opinion from one of the smartest economists (and biggest smart-arses) out there. Richard is an Austrian School economist and most educational as well as entertaining.

Gold came off a buck or two after the Comex close and silver fell a few cents in early Aussie/Asian trade. The move to $410 in the New York session was all Greenspan's doing. Currencies have rallied hard against the dollar including Euro, Aussie and Kiwi. As mentioned previously, there appears concerted gold selling around the $410-12 level. A breakout to $418+ could be in the cards if the big seller will just get out of the bloody way! Gold was $430 with the dollar this weak a month or so back. What's different today? Someone is selling (lots). I suspect a central bank sale but who knows?

Silver burst out of the blocks today at $6.30ish and had another nice little jump to $6.55. Geez, that cheap silver last week at $5.90 has a certain look to it, in the rear view mirror. I wonder if we will see that sort of price again in the coming months. I hope so for those that missed the boat, but I wouldn't be holding my breath waiting for it in my opinion.

WMC Resources here in Oz exceeded market expectations with their profit numbers by about 10% (or $25 million) on the back of higher nickel, copper and uranium. This is a giant multi-commodity resource company and it would surprise me if we did not see similar companies produce similar pleasant results. They were adversely affected by stronger Aussie dollar, but then again, which Aussie exporters haven't been harmed? These currency wars hurt someone, every time. One Aussie dollar got me 48 cents 2 years ago. Today it's 79 cents. Sure makes a beer in NY a little cheaper!

We briefly touched on Central Bank reserve allocation over the last few days with Japan murmuring something, OPEC and others looking at international payments etc. HSBC had a closer look at the Australian Reserve Bank's sale of our gold. I wonder how comfortably Canada, England and Netherlands (among many others) are sitting with regards to their sales? Risk diversification in asset allocation doesn't appear at the forefront of the minds of these central bankers.

" Indeed the last time that the Australian currency was so strong was in July 1997, which coincided with the announcement from the Reserve Bank of Australia that they had sold 167t of gold, reducing their gold holdings to 80t. The sales were at an average gold price of USD340/oz and realized USD 1.83Billion. Assuming a return of 3% on the cash, US dollar reserves would have increased to USD 2.18Billion over the last six years, an increase of USD355Million. Had the RBA kept the reserves in gold the current valuation would be USD 2.19Bn, a return of, err, USD 365Million." (from HSBC daily commentary)

The Aussie Gold sale was a national disgrace, in my opinion. This will come back to haunt us. The excuses used to justify the sale were flimsy at best and a cynic would be predisposed to questioning the competence of the decision makers, as some of us formally did at the time. Let's see who the next Central Bank will be.

Busy old day at the coalface today. The HUI is on fire again with all 15 members up nicely. Let's see what happens after Comex closes. There has been an eerie pattern emerging where most damage to metal stocks gets done in the last few hours of the day.

Enjoy your Wednesday.

Laurie

Positions in Silver, Gold, Euro, NZD and AUD

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