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Gold School

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G'day,

Gold had a relatively quiet session throughout Asia, although India was seen as a big buyer, and judging by such high premiums in the major centers, they are very happy with gold sub $400. The physical demand is very strong. Gold briefly touched $392 an ounce and has promptly bounced back to $395 where we have seen 3 solid bounces from over the past couple months. Maybe buyers will periodically get overwhelmed but there is a serious physical support in the yellow metal and an appreciating Rupee makes it a double whammy for buyers in the Far East.

Gold equities have clawed back most of yesterday's decline. The high cost marginal producers such as Durban Deeps (DROOY:NASD) performing nicely with +6% moves noted. High cost producers get hit first and hardest on the way down, but they are the ones that have the greatest leverage to the price. There are plenty out there that fit the bill.

Silver has been on a wild old ride today. The physical market appears to me to be winning the battle over the paper shorts. We know how tight the physical market is and after today's initial belting down to 6.30, it reversed violently and whooshka, we are back to within a whisker of closing at a new high for this move. That is a 40 odd cent move up in a very short period. The rally stunk of a major short covering purchase and with silver closing on its high for the session this could seriously have some legs. I know some of the hardcore gold people out there are calling for a big squeeze in March and no way would I discount it flatly. Today's price action was a little wake up call to someone. Note that the COMEX silver contract has had two major margin requirement increases in the past three or so months. Does that signal some sort of stress in the silver pits? Let us see what the delivery notice instructions look like in the next couple of days.

Silver has broken away from its gold or dollar link. This is important as I expect gold to break its dollar/euro link in the coming period.

The CRB is on a roll with plenty of action in commodities and just for your guide, rising commodity prices from oil to orange juice to live cattle, whatever input cost you want... it all adds up to inflation.
positions in gold , silver and drooy.

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