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Metal Settle


Gold $387 Silver $5.90 Thursday, April 28th, 3am Sydney

G'day.... So much for getting a few zzzz's today. Silver opened in Asia at $5.81-83 and a U.S. investment bank smashed any offers and drove the price to a low of $5.52 while most in the U.S. were watching the Maple Leafs kick some Philly butts around the ice. The Leafs played well enough to suggest they can go further in this hockey season but as an avid and experienced fan, I know what comes next... a bit like the silver market... get you all fired up in anticipation and then it kicks you in the teeth.

The wild moves in Asia today in silver were unusual to say the least. If someone wanted to seriously liquidate a large position (it was millions of ounces.... paper silver mind you, but it affects the price either way), one wouldn't be dumping in Asia unless it was for a reason, especially with Japan closed. I can't really find a reason as to why one would basically guarantee that one would receive as bad a price as possible unless it was new short sales and it was done at that time for the largest effect. Who knows, but the first bid on Comex today was $5.70 whilst the investment bank sold a few million ounces below $5.60... go figure. I know one trader who bid $5.58 for 500k ounces and was immediately filled and asked if he wanted any more, and that was early Asia time. Maybe a bit of scare tactics from someone who is either short at higher and saw an opportunity in a relatively illiquid market, or someone trying to portray massive selling pressure and shake out the longs... either way, it scared the buyers somewhat but it could not go on with it.

Further to the above, it appears the Open Interest in gold actually ROSE yesterday by about 1200 contracts ( as at yesterday's close) which was met with some shock/disbelief on the floor. One of my floor people reckons the number must be dodgy, but I s'pose if it's in the news then it must be true, just look at the lack of inflation anywhere as an example! What this tells us is that the sell off has not seen a massive liquidation from the longs as we would expect open interest to fall considerably on a $15 fall for the day. That OiI has risen tells me that the sell off has created some very large new SHORT positions and that new buyers have absorbed the volume, in fact increased their position size. This should have the shorts squirming in their boxers. In contrast and as expected, silver open interest fell 2639 contracts to 103,000 or a fall of about 13 million ounces equivalent.

Indian premiums are as high as has been seen the past few years with gold around $380 and I expect we will hear more about the physical buying/ importing as it is disclosed in the coming months. Japan was closed today and will be early next week as well.

My technical crew has been all over this move and I said a week or so ago that I didn't agree with them and that we shall see where we go... I was wrong, they were right. What surprised me was that they still reckon we haven't got a bottom in as yet in either gold or silver. That worries me some and they reckon we are a fair chance of silver sub $5 and gold sub $360. Fundamentals don't agree but, hey, nothing surprises me any more. People should remember that gold started 2003 at $350 and was $390 within a month and back to $320 a couple of months later and then back to $380 a month or so later again... and don't forget the metals equity cleanout in July and September last year. Stairs and elevator shafts, remember.

With the silver/gold ratio pushing up against the 70 level again (we were at 50 a few weeks back) I am continually looking to fine tune my metal equities exposure and there are some nice switches that can be effected today that one wouldn't have dreamed of a few weeks back. I see the (HUI) Amex Gold Bugs Index is struggling to hold onto any gains today and that most issues are well off their intraday highs. Notable laggards today are Golden Star Resources (GSS) and Coeur d'Alene Mines (CDE) which is not unusual as they are usually in either the big winners column or the big losers column... no half measures for these guys! Looks like it may take a while to repair the damage of the last few weeks as there will be some burnt fingers for many in this sector. This month alone has seen some issues fall by more than 30% with even the bluest of blue chips, Nemont (NEM:NYSE), losing 20% this month. There could be some nasty draw-downs for funds in the commodity and global macro space, me included.

Looks like gold is trying for a close above $385 and silver above $5.80 (although I expect we may see some late pressure on both - as always not advice)

Enjoy the rest of the day...

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position in gold, silver, nem, cde, gss

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