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Watch Out for the Pole

By

She's a fiesty one, huh Lauire?

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Gold $427 Silver $7.15 Wednesday 13 April, 9pm Sydney

G'day. I watched with interest the deficit number on CNBC and was amused and astounded at the muted initial response, especially when they crossed to one of the trading floors. Was it disbelief or was it plain old "what the Focker?" and no one appeared to know what the correct response should've been? I dunno how people can try and spin this massive debt induced import binge as being good for the U.S., but I got a chuckle from one bloke on the idiot box who suggested that this is "good" 'coz it shows that there's very "robust demand in the USA". Credit induced spending, especially given the already immense debt load of consumers, corporations and Government entities, is very different from spending one's savings. No one can borrow their way to prosperity - never have, never will. The piper must be paid, one day.

The greatest vendor finance scheme in mankind's history is still alive and well, for the time being. Tick, tick, tick. The clock is ticking down to the day when we all say (we being The rest of the World, that is providing the capital for this historically massive largesse), "enough already". Then there'll be a significant re-rating of U.S. dollar denominated debt (higher long term interest rates) and a revaluation of the dollar against all assets, but most aggressively in my eyes, real assets/commodities. The dollar, on all fundamental basis, must devalue, lots more.

This all leads me back to why I am so convinced gold and silver and every other finite or seasonal commodity must rise in price, certainly in U.S. Dollars, but then in all currencies. More paper chasing the same or less number of goods MUST send the price up, in paper terms. Gold is the "Final Currency," when all the unbacked paper currencies disappear up their own backsides. Running the printing presses never worked before and won't again this time. It's just a matter of when.

Gold will continue in its range, I expect. I expect the same resistance and support levels to do their stuff, same as yesterday. $423-432. Lots of buying reported across the wires again today, notably in the physical market. The physical market is catching some bullish comment recently in a few of the Bank Daily Precious Metals commentaries. Hmmm.
I think we are building an important base here for gold.

Silver slammed back into my $7.07 support level and bounced back to the high teens. Nice recovery from the slippery little sucker that is silver. I think that this violent move may prove to be telling in a few months.

I received an email from Minyan Mike asking me "Hey Laurie- any thoughts on S. African production (gold) @ 74 yr lows- supposedly in a report today?

I guess this is the report referred to.

My only response is that obviously the price of gold is not high enough for profitable extraction from many South African mines. This must change. The forces of supply-demand will dictate the price, in the end. We know that physical demand is outstripping mine supply. We know that this physical demand increase has been met by sales from the official sector, stifling price increases. We know that Eastern Central Bank's are all clambering to diversify away from U.S. Dollar paper assets and should therefore also absorb any more official selling. Demand has not, nor do I expect it to significantly decline in the foreseeable future, due to the many monetary imbalances in the world. Gold will always be highly sought by man as a real asset store of wealth, especially in these days of total global "fiat currency" and with what's going on in financial markets. More demand and less supply means higher prices - every time. The results of any such imbalance in such a finite resource can sometimes be delayed, but the only Law of Economics (supply and demand) will always win out, eventually. This South African mess cannot be a bad thing for the gold price. Equilibrium will be restored, sooner or later.

Remember, the mines can be put on care and maintenance if the company is losing bucks extracting the metal. But the gold in the ground is still there. There are companies that are considering more shaft closures. Tough social issues will arise for sure. But the gold stays in the ground. It is still there. Check that the South African's are being fairly priced at present. Take into account any lost production versus hedge book obligations. 25% hedging of 1 year's production may have been lifted to 50% or more hedged by a substantial production loss in a given year.

You all know my view on hedging. I want the 100% upside in gold price. Ok, maybe I might trade off a few percent for some downside protection on marginal assets via options. What I do not want is a guaranteed margin to current spot rate. Forward selling a large proportion of your yearly production nearly makes a gold company a bond. I agree that forward selling gold can be a good thing but only for guaranteeing finance for initial exploitation of a resource, a true "gold loan". If everything goes according to the performance expectations of the Feasibility Study, the gold loan will be paid off with physical mine production.

The Amex Gold Bugs Index (HUI) dropped another percent and is hanging around 196. I guess no one is looking for any higher gold price based off this index performance, or lack of performance, so far this year. I have nothing I can add except that this sector needs a good solid shot of confidence and sentiment. Recently all rallies are seen as opportunities to sell, rather than there being any solid pressure below 200 level. Sentiment can make all the difference. I think we need a bit of reality-based fear in bond and equity markets before we can get a head of steam up in the metals equities, it appears. We just wait and see.

Does anyone else think that everyone is far too "wound up" for their own good these days? A funny (both ha-ha and weird) thing happened yesterday at lunchtime. We decided on a mega-burger at a nice outdoor café just on Taylor Square. It's a really open space with a very busy intersection, both pedestrian and vehicular, great for people watching whilst enjoying a beer and burger in the sun. The area is very cosmopolitan and you see all sorts of people and personalities. We were sitting on the outside boundary of Café 191, they had a little railing around the deck of the café, and I had my back to the majority of the intersection. A "Manhattan burger with egg", washed down with a Tooheys Extra Dry was the fare of the day. Anyway, I heard this loud "klunk" behind me, and Lisa started laughing (and not very quietly). I thought she was gonna pee herself. She was not alone in her amusement as other diners saw it all too. I turned, just in time to see this bloke, about our age, reeling from what obviously was a very serious case of "not looking where you're going". He was walking his little white "Pekinese-type dog" of some kind, and, while concentrating on his dog, failed to note the large shiny metal light pole that he was rapidly approaching. You know that "walk that dog show" people do, the "best in show" walk, you know, up on the toes with the dog at arms length and all that, well he was walking like that, so Lisa tells me. Kaboom, he walked smack-bang into it only 20 feet from where we sat. It was a loud "klunk'. Lisa said that you could see it coming way before it happened and that it was like in slow motion. Half the intersection started laughing at what was truly a piece of the finest slapstick. But then the fun started.

"The pole banger" took serious offense. Embarrassment turned to rage. Lisa, who laughed loud and long and couldn't stop, became the object of his embarrassed rage as she was the first person he saw and she was the closest. He was obviously unhurt, he just got a little bit of a fright. He stormed toward her shouting profanities and very threateningly asked her if she was laughing at him and his misfortune. "Absolutely, that was a classic" was her reply. Then this bloke launched into an outrageous tirade. He got right up in her face and he had about a 6 inch distance before he "crossed the wire," separating the café from the sidewalk. Lisa said to me that she had the situation under control. She'd had two beers which obviously was just enough. This guy was ropable, his face went beet red and her American accent didn't help matters. I think he must have missed his medication this particular day. Stern words were exchanged. Lisa casually and quickly reeled off some profanity-laced directives, that I was proud of. Some, I even wrote down for future reference. The general gist of her eloquent response was for him to "get out of my face, lighten up and get a life, or else you'll be brushing your teeth through an orifice not usually associated with oral hygiene." I can't believe I kiss that mouth. (She is still giggling like a 12year old schoolgirl, whilst reliving the moment). I learned a lot about the Princess in that 2 minute interval. They breed 'em tough up in Pennsylvania.

Anyway, he wandered off up Flinders Street, all the time looking back at us. The whole cafe was in stitches. Some handclapping ensued, in appreciation of the comedy show, I'm sure. Well he then decided that he hadn't vented enough and so he made his way back towards us. Lisa now had her back to him but with that, "woman's intuition," and a quiet heads-up, wheeled around and beat him to the punch (figuratively speaking). Another quick burst of, "don't come expletive near me, expletive expletive lighten up and get a life you expletive expletive" was issued. This sent him packing, still yelling and all the time pretending that he wanted to "take things further". An irate gay man cradling a fluffy white puppy on the corner of Oxford and Flinders Streets, does not altogether strike that much fear into her heart, obviously. We enjoyed the rest of our meal. Anyway, the café crowd and staff were still chuckling when we finally decided to leave and we even got asked if we do these daily floorshows at any other venues. It was truly that funny.

I wouldn't have believed it unless I was there. How come people can't just laugh at themselves with little things like that? We've all done it at some time, and yes it's embarrassing, but it's bloody funny to an observer. If we can't laugh at ourselves, we're all stuffed. Whole television shows are dedicated to that sort of incident. The 3 Stooges couldn't have done it any better, seriously. We later saw another of the patrons who was at the café, walking along the street, and he cheekily said to Lisa as we passed, "watch out for the pole" that was on her left side.

Watch out for the pole...

Laurie.

position in gold & silver

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