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The Golden Road



Gold $375 Silver $5.60 May 14th , 2004 3am Sydney

G'day. What an interesting Comex close yesterday. With nearly 25% of the day's volume traded in the last 30 mins, gold got clobbered and fell a quick $4-5 and closed unchanged for the day. Certainly this flew in the face of some rather supportive economic releases and I hear that there were a few funds who came in late and large and basically scared the bids off until buying emerged around $378. Most commentaries today expressed some shock as to the sudden move while others just shrugged and scratched their head. Silver is trading irrationally at present and will probably continue to do so, for the time being.

About the only thing that could slow precious metal imports to India occurred today, with a sharp decline in the Rupee following the election results which appear to herald a new government. This was somewhat unexpected. Let's see where the dust settles on this. Asia was a little more active after the Yen weakened. Gold held solid around $378-9 until about 3pm Sydney, when we saw a further fall of about $4 in an hour or two as Europe woke up.

Silver keeps finding itself back at $5.50 and we are looking to test it again just now. There seems some resolute buying down there but should that support wane, we could see $5.20ish pretty quickly. I think silver anywhere near $5-5.50 is a low risk entry point and am positioned accordingly (not advice).

I have heard some speculation that there was some producer hedging done in the last few days. I couldn't imagine the thought process leading to one being comfortable selling unmined gold at these levels, considering where we were a month ago and taking into account economic fundamentals such as inflationary pressures and the debt levels. Certainly wouldn't want to own any stock in such a company, if one expects higher gold going forward.

I see that the PPI numbers were released today and were shrugged off by the bond and metals markets. The PPI number was twice as high as consensus, and by all rights should have weakened the dollar and sent metals prices higher and bonds lower. Maybe such crappy inflation numbers are already priced into them? (Yeah right! There are no inflationary issues, just ask Sir Alan.) In bull markets, bad news is discounted and good news amplified. In bear markets, good news is discarded and bad news runs hard. In my opinion, it looks to me that this is a bear trap in a secular bull market for metals. We will soon see.

Interested to see the last time that U.S. long bond yields rose by 30% in a month or 6 weeks (3.70-4.85%), and gold fell by 10%.(420-375) even while all inflationary measures were rising. Seems out of whack to me.

Gold getting whacked again and now $373 while I note the Euro is still above 1.18... it's getting a lot confusing. Rising inflation is not a bearish metals phenomena and hasn't been at any other time in the history of mankind. What's different this time? That's right, Sir Alan is in charge. He knows how to alter the economic consequences of insane liquidity injections (also known as inflation), apparently. No one else in history EVER has. Geez, he must be smart!

Metal equities appear to me to be finding their feet and think some of the blow-off lows at the open on Monday, could be a useful guide for those looking to target some nice entry levels. The Amex Gold Bugs Index (HUI) looks like well supported here down at around 170ish. Happy to see another drop lower so I can increase some exposures. Just my opinion .

I note that Silver Standard Resources Inc (SSRI) has adopted an interesting position in relation to their cash position. They have moved 20% of their cash position into physical silver. As a large cash holder they have an exposure to the dollar but by holding silver instead of paper, they support their own product and maintain their liquidity in a "real asset" rather than paper. See attached

The carry trade seems to still be unwinding in the currencies, with Aussie and Kiwi getting slammed again today. Aussie has fallen 5c versus the USD in 4 days. Hmmm.

Gotta fly... enjoy the rest of your day.

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position in gold, silver, ssri, AUD

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