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The Aussie Frontier



"What is the value of a dollar? For us, the simplest and most reliable measure is the amount of dollars required to buy a fixed quantity of gold. We respectfully disagree with Mr. Bernanke. Whether he and his fellow governors are hypocritical or delusionary in their assessment of the dollar's intrinsic worth is of no matter. What is important is that they are flat out wrong. As anyone can see, the dollar is falling against gold and has been doing so for almost five years, long before terrorism became a front-page item. As we are very busy figuring out how to profit from the view that it has much further to fall, we have given little thought on how to fix the mess. Let us leave financial diagnosis and prescriptions to those wise policy makers who got us here. Still, we cannot resist offering some friendly advice. The next time around, respect history. Anchor a new global currency to something that has real monetary value." - John Hathaway, inimitable gold guru at the Tocqueville Gold Fund, 14 Feb, 2004.

My old mate, Mr. Hathaway, is right on the money in my opinion, and the full text of his economic/macro analysis is available at ... a must read for anyone interested in precious metals, sound money and the economy(disclosure: notwithstanding the odd conversation over a steak and a bottle of red wine, I have no involvement with the aforementioned in any way, shape or form).

Shaping up gold

Gold and silver were very solid into the Comex close and further bids were found early in Asia which kept the price buoyant and well supported above $415. Silver opened over $6.80 in Asia with good fund and physical buyers noted. The dollar spurt from 1.29+ to 1.27+ Euro at the U.S. open, has ultimately dragged gold lower again to $411.50ish. I guess people are expecting official intervention in the currency markets to help prop up the dollar. Yen also a little weaker versus the dollar. The Aussie dollar cracked 80cents this morning which is a long way from 48cents only a year or so ago. The Aussie is currently struggling to hold 79cents after aggressive selling in the U.S.

Commodity currencies, with the interest rate differentials in their favor, should all do well on real and perceived dollar weakness. Gold's aggressive sell-off mirrored the minor spike in the dollar. The fundamentals don't point to a stronger dollar, no matter what the "official line" is from the Fed or Government. But don't discount a concerted rally, short-term, in the dollar. In my opinion, the dollar could easily rally back to 1.23 versus the Euro but, the long term trend has been established from my perch down here, and it's not up! Gold will follow the dollar but I suspect we are not far off a divergence with the dollar. At some stage in the ensuing months/year we should see gold rising versus every currency, not just the dollar. Maybe after the election?

Silver splatter

Silver got clobbered to $6.60 again from an intraday high of $6.85. Risk is still the upside breakout although we could see a dollar rally which could take gold back to the $403 level and silver back to $6.10ish. If so, it's just another opportunity in my opinion. We should get physical buying support in gold here at $410-11 from India and the rest of Asia, with upside resistance at $418. Today, banks in Bombay are closed so no word on premiums, but I'd suggest they'd be dodgy with spot gold above $415. India has been a buyer between $ worries!

The HUI (Amex Gold Bugs Index) is off some 3% today. CRB index is still just off its recent highs. Lead has run up 80% in the past 6 months. Copper is up 40% in the past 3 months and silver has gained 25% in the most recent 4 months while crude oil has gained over 25% in a 3 month span. Hmmm.

Have a nice Wednesday.


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position in gold, silver, euro

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