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Golden Whirlwind


Gold $389 Silver $6.35 Thursday 29 July, 5am Sydney

G'day. Silver was the star again today with a savage rally from $6.14ish to $6.35ish. A rise of about 2% over yesterday's close. Gold was again solid and well supported at the $385-6 level and as we saw some dollar weakness it climbed back to the $390 level, briefly. The close was rather uneventful in both metals.

I note Copper added over 4%, Nickel +2%, Lead +1.5% , Ally +1.5%. Is silver behaving as a base metal or a precious metal or neither? Depends what day you are looking at it!

India is still importing gold strongly, based off local premiums and London gold. Dealers have indicated better physical appetite in the last few days all across Asia and the Middle East. Low prices do that!

Silver equities have been wild of late. Silver Standard Resources (SSRI:NASD) has had a 3 day range where traders had an opportunity to pick up nearly 30% . Monday's 11.78 open to yesterday's low of 10.52 to today's high of 12.40ish. Coeur D'Alene Mines (CDE:NYSE) has done similar. That's great fun for the brave or foolish. One wouldn't expect anyone to capture all of the move but it is amazing what is put/left on the table for the smart, quick or stupid!.

The Amex Gold Bugs Index (HUI) has kicked back from the 170 level for the time being to 182. Not convinced that this rally has strong legs at present but it's a good start.

I have a chart of Gold divided by the Oil barrel for the last 20 years. Anyone go back further? We are currently about 9 barrels to the ounce, historically very low. The average for last 20 years is about 15-17. To return to the historical average gold must rise from $390 to $645ish with oil at $43. Let's say oil goes back to $35. Gold would need be about $525. To have gold at $350 as some suggest, oil would need be sub $24 a barrel. Basically, to return to 15 barrels per ounce, Gold must nearly double or oil nearly halve. I mentioned yesterday that I reckon this is the ultimate "Arab swap". They sell oil that is finite and goes off after a few months above ground. Swapping it for infinite wealth/money at these levels makes lotsa sense. The forward curves of both commodities helps lift the ratio somewhat, but with such small contango in gold and the flattish back end of the oil curve, it still doesn't get close to 15-17. Just an observation for what it's worth.

The gold market is looking for some direction at present. The equities have previously been leading indicators so maybe we are due a rally in the next few sessions. It is a little difficult when economic data moves everything so violently, so quickly and not necessarily where one would expect.

Enjoy the rest of your day.....

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position in gold, silver, ssri

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