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Horse and Pony Show


Where ya been Laurie?

Gold $403 Silver $7.25 April 19, 2am Sydney

G'day. I shoot through for a couple of days to sort out a few equine issues and the metals markets do the bolt on me! I certainly didn't expect it on the fundamental side but our technical people here (and their models) were sending out all the warning signals and so we copped a shiner rather than getting our necks broken. Sometimes it's nice being incommunicado when it's hitting the fan!!

Not quite the week that the Minyanship required no commentary in the metals and for that I apologize. The timing of the metals sell-off sucked in that respect (although in my defense, the Australian Derby and the Easter Yearling Sales have been running the same week for 135 years).

Gold has now rejected 3 very serious attacks at $390ish on the downside. It has had 2 rejections of $430ish. Who bought on the downdraft? Physical players like India, China, Russia and the rest of Asia. (And some smart people who are just getting on the inflation/fiat currency/real asset bandwagon). Who sold on the topside? Paper players like funds, large speculators, brokerages and banks. Who wins in the end? Whoever owns the physical gold (eventually and not offered as advice). The paper gold price cannot continue to control the physical gold price forever.

What about the Central Banks who are all blowing their horns about dumping their gold?? France, Germany and to a lesser extent, Italy are the likely culprits and I see the Frogs reckon they are keen to sell as per the FT. This, according to the FT, is a big overhang on the gold market and should send gold lower and that anyone holding gold is a moron. I've been called a moron by people way smarter than the FT scribes so that's no biggie. Fair enough, that's what makes a market! We will see.

Let's think about this critically though. I would be surprised if 1 (one) ounce of that gold ever made it to the physical market. Someone was talking about a sale of 1000 tonnes by the Froggies. Let's quantify that for a sec. 1 tonne equals 32,150 ounces. I'm no math guru but according to my HP12C, at $400 per ounce, that is just over 1.25 Billion bucks. Let's say they sold every last ounce between them, let's call it 15,000 tonnes. That's about $20 billion dollars all up. China and Japan could open their petty cash drawer and just take it. They wouldn't even have to go to the folding ones, it's spare change for them. Don't they own about $750 Billion of U.S. Government debt?? Russia would join the buying spree as would most of the Middle East or anyone else with an appreciation of the history of sound money. Reserve diversification and all that stuff we spoke about a week or so back would come to the fore, in my opinion. They'd love to swap some abysmally expensive U.S. Gov't debt for some of that shiny stuff their ancestors warred over for the last 5000 or so years.

The Rothschild announcement has been met by all sorts of comment and speculation. It sure seems a strange move to pull the pin on Commodities in this bullish market. I noted that there was much made of the lack of "profitability going forward" in commodities. Dunno what they are on, but I reckon it's gonna be the big market going forward. Real stuff that people need, not want (and that includes sound money that can't be inflated away). Not profitable?? Who are they kidding?

I see the CPI number came out at plus 0.5% or something. Is that all? That's only a yearly running rate over 6% with a long bond at 4.5%... hmmmm, negative interest rates for 30 years. Who is buying that paper? Inflation is everywhere, except at the Fed and the BLS. Something doesn't add up for me, sorry.

Gold well supported physically, and suspect not much time will be spent sub $400 going forward.

Silver certainly had a monster week. I got phone calls and all that with people hypothesizing and pontificating about why and who and all that. My reaction is that there has been no new cheap silver found, certainly none produced, the 15 year deficit still exists, the previously accumulated massive stockpile is irretrievably gone and that this is just paper silver games. Speculative selling by banks touched off stoppies which triggered the Techies who just go with the flow. Wouldn't be surprised at another crack at $7 (we have held 6.80 nicely the past few weeks) in the coming couple sessions followed by a further test of the topside again. I believe there is a serious structural problem in the silver supply-demand equation and there is only one way it can be resolved and that is significantly higher prices for the physical. Paper silver just won't cut it. Just my humble opinion...

Metals shares got slaughtered. This is absolutely not advice and people can do with this whatever they want... but for those who thought they had missed the precious metals boat previously, you just got lucky and got a third bite of the cherry. Many are off some 30% from their January highs. I think some portfolio restructuring is in order for many people! Would I take 12 Coeur d'Alene (CDE:NYSE) shares for 1 Fannie Mae (FNM:NYSE) share, or 1 Newmont (NEM:NYSE) for 1 General Motors (GM:NYSE)? In a heartbeat!

Will take a day to get through the messages here, and as sad as it is to admit, it's good to be back.

No, my yearling didn't reach reserve, and my horse didn't win the Derby, so it looks like another mouth to feed for the next few years! It is way easier to buy a yearling than to sell one. Combined with the metals action of the week, it was pretty bloody expensive, all up!

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positions gold, silver, nem, cde, fnm

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