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Wheel in the Sky


Journey Rules!!


Gold $394 Silver $5.85 Thursday June 24, 3am Sydney

G'day. It appears that yesterday's non-market content pushed a few buttons of Minyans around the world. That's good. Don't be shy. I'm no soccer player, and am happy to cop any barbs thrown back at me especially when they are set baits to elicit responses. See the last paragraphs for some fun.....

Ho-Hum. Gold was up and down a few bucks throughout the day here in Asia with some currency moves like Euro and Aussie having some influence. Still we tested both ends of the recent trading range of $393-397. Something's gonna give soon, one way or the other. Maybe next week it will move decisively, once people see what the Fed is up to. If I were a betting man, I'd be betting for a 50bp rise or bigger. The recent Canadian and U.K. inflation rate blowouts should also be taken into account by the Fed when looking at interest rate policy. Or do they believe they are immune from the same mess? It's already evident, and growing. Double digit inflation is frightening. Doing nothing about it is even more so.

India has stopped importing gold as the premiums charged to world gold make importing uneconomic. The Indian summer season is not a traditional buying season so demand will drop off unless there is a significant fall in price. Turkish demand has been low due to a customs issue crippling supply. Pent up buying in Turkey has been noted as supply is restored. Apparent Aussie producer hedging has also added pressure with my source suggesting there has been good size done this week. That can only mean one of 3 counterparties off the top of my head. I own none of the 3 companies who would be the likely culprits.... And wouldn't, even with your money!

The Japanese Dowa silver smelter is still not producing silver and their customers are having to pay up for 99.99% silver. Premium to London is now about 30c. Domestic Chinese silver buyers are paying over $6 per ounce and no export supply is expected until closer to 6.30 or so. Sources also tell me that South American silver producers will be aggressive hedgers on any rally, as they don't want to miss out again, like with the last move. Best we make a few phone calls to the management of our silver companies and find out what they plan to do if silver is say, $8. If they will hedge at higher prices, ask why, how much, how far forward, maximum % of reserves that can be hedged and ask them to provide you with a copy of the board paper discussing the merits / drawbacks of hedging and why they need to do it. Was it voted on by the board or insisted on by a bank? There are lots more questions one can ask. I doubt that any that I own would hedge, based on prior discussions with management, but a good excuse for a chat. I certainly will sell the stock of any that I own who sell more than 25% of 1 year's production forward, but I would never short a silver equity. Too illiquid and more importantly, the risk reward payoff is so far skewed to the long side, that it's not funny.

The other week I mentioned that someone was buying big volume ATM calls and puts in gold, building a large gold volatility position. It is known that one U.S. investment bank has been buying or attempting to buy longer dated Aussie / gold volatility the past few days,. They are also thought to have been sellers of around $1billion Aussie dollars in the same period. I'm trying to connect the dots and work out what's cooking. Volatility is up about a percent in the 1year Aussie / gold ATM, over the past week or so from 12.75% to nearly 14%. Maybe they are unrelated, yet coincidental? I don't know, but am exploring the possibilty of them synthesizing an outright USD gold volatility exposure. The Aussie banks who have done long dated hedges for producers over the years are generally long Vol. The amount of sold call options by producers to their bankers over the past 7 years has been very large. The Aussie gold hedging market is very sophisticated and the tenors of some transactions are out to 15 years. Offloading some Vol in those very long dates would be attractive to some banks, I'd imagine. Maybe the bank in question can eliminate the Aussie dollar side of the Vol equation through currency options and outright currency sales? This would leave the bank long USD gold volatility with long dated maturities. I haven't really thought this through that much and think will require a little time on the whiteboard drawing the swap-boxes and trying to piece it together. At 3am and it's been a couple of years since I got paid to play that game, so it can wait till tomorrow, I think. A few phone calls around my old playground, may be required as well. I'm probably so far off the mark that it's not funny, but we may as well suss out what's happening while it's relatively quiet. Today's volatility article in Buzz and Banter is timely.

An hour to go and we are stuck in a $2 trading range for gold and a 10center for Silver. This is like watching grass grow. The only thing I note of interest is that Silver Standard Resources (SSRI:NASD) appears to have grabbed someone's attention lately, and have performed strongly in the face of distinct indifference to their peers. I dunno why, either, but am happy to have them in my retirement portfolio. I suppose gold has some downside risk below $392 and it is topped out at $397 offered. What will alter the status quo? Nuthin today.. gold closes at $395.

Non market chatter:

Firstly, I got 13 emails regarding that band, Journey, of which 12 agreed with my humble opinion that they suck - ad infinitum. One fellow Minyan, Brett from Texas, agreed with Toddo that they are good. Is Texas like Perth? I got asked what I listen to these days so I thought I'd put a list of the 10 CD's I have in the office here, in no particular order. Loud music at 3am is very healthy!

Foo Fighters.. One by One
Powderfinger... Vulture Street
The Offspring .... Americana
Midnight Oil ... 10 to 1
Hoodoo Gurus ... Electric Soup
The Radiators ... Radiation - the complete Anthology
The Doors.... LA Woman
Linkin Park... Hybrid Theory
Coldplay ... A rush of blood to the Head
Blondie/Debbie Harry .... Best of

Take your best shot at those Toddo!!!

Lots more Minyans, mostly Europeans, were very defensive regarding bigtime soccer players, and reckon I was too hard on soccer players in general. I don't think so. I said "most" players were Nancies, not ALL. I'm sure there are a few soccer players who don't cry when they chip a nail. I will leave you with a letter to the editor published yesterday in Sydney's daily rag, written by a girl, no less.....

" Last Friday I watched a match from Euro 2004 and realized why that game can never take off in Australia. In 30 minutes, I stopped counting after noting no fewer than 30 instances of players falling over and rolling around in agony, crying and carrying on as though a leg had been chopped off with a chainsaw. But in each case they quickly got up to take the free-kick or got on with the game because they couldn't milk one." ...

I suppose I may have offended nearly everyone in the world because soccer is played in so many places. Sorry about that, no offense intended, just an observation that I am happy to debate. Obviously women down here don't rate it. As I said yesterday, they're undoubtedly skillful and aerobically fit, but about as tough as my Mum. By the way, is it national day of mourning in Italy and Spain, today? I guess so, following them not making the final 8 teams in Europe. That will have everyone crying in their cappuccino and Paella, for sure. Then again, it's only soccer. Australia has some very good players that play in Europe and we did beat England in England last year 3-1, I think it was. But no one down here gave a toss.

And yes, I do recall that England beat Australia in the recent World Cup of Rugby. They deserved to beat us on the night. It was very lucky for England that we beat New Zealand in the semi finals so the Poms played us in the final not them, certainly the easier assignment. I note that England just played NZ twice in the last 3 weeks and lost by a combined score of about 72-20. But we still have to listen to the Poms tell us that they are the World Champs and they will be 'till 2007, when we do it all again.... As much as I hate to admit it, New Zealand will win the 2007 Rugby World Cup .... You heard it here first.

Enjoy the rest of your day, for those who are not asleep at their desk.


I'd like to acknowledge my mate at Mitsui NY who, amongst others around the globe, regularly keeps me informed regarding the physical metals markets, especially Asia. Thanks.

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