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Metal Edge


Gold $380 Silver $5.60 May 13, 2004 Sydney 3am.

G'day. Lots happening in the metals/currencies today, so will be brief. An ordinary close in the metal futures yesterday was a little disturbing, although I was impressed that metal equities rallied again, despite the underlying metal being softer. They have been notable leaders of the metal price for the past few years.

High oil prices means inflation for the USA. With 5% of the world's population using nearly 30% of the oil, these prices are gonna hurt more than many imagine. I believe we are moving to a higher priced energy environment than what many have become accustomed to, the consequences of which are not rosy for the economic well-being of the biggest debtor in the world.

The economic numbers released today weren't too supportive of the dollar and we saw it fall versus most currencies with Yen being an exception. The Yen doesn't count with me because we know that game is rigged - i.e massive official intervention. Gold jumped quickly to $384 but was met with a wall of selling and pulled back some. Silver kicked up to $5.72, but again the paper players forced some sell stoppies and sent it back to $5.55ish for a brief moment. Not immune on that one. I note we are trading back at $5.63.

Lots of Indian physical gold demand with premiums still reflecting comfortable imports to the world's largest consumer. Premiums in other Asian centers are above normal and there has been some suggestion of a shortage of bars. Will be watching closely.

Looks to me that we are in a $5.50 - $5.75 range in silver and a $370 - $385 range in gold. Many of my indicators still have not stabilized and so we still have downside risk to be cognizant of. I feel we may be in for a strong move to the upside to take out some stoppies, maybe to $390ish, and then another leg down to a new low. Silver should try for $6 again but there is a risk we see $5.15ish, in similar trading to what I have described in gold. As always, not advice, just sharing the thought process. The market will try and take out as many players on both sides, before resuming the primary trend. Wonderful trading opportunities present themselves in such circumstances.

The Amex Gold Bugs Index (HUI) has rallied about 10% in three days, but still sits 30% off the January highs. Lots of work to do to regain the lofty $260 level again but I'm comforted by the fact that the sector is so small that even relatively small new allocations of capital can have an explosive impact. But it is a double edged sword as evidenced by the last month or so. Sentiment is everything in commodities at present.

Gotta fly unfortunately.... Enjoy the rest of your day.

position in gold, silver

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