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Five Great Furlongs



Gold $408 Silver $6.35 Friday July 9th, 4am Sydney

G'day. Silver was the star performer today rising nearly 5% and taking out the $6.25 resistance level in decisive fashion. I am still a little wary of this move and would like to see a few days consolidation above $6.30 before getting too barred up. Gold was less robust but still managed to tack on an $8 rise from the low seen in Tokyo of just sub $400. That was a nice little pickup for someone, indeed. The last 30 mins of Comex could be interesting and a chance we close above $410, although I suspect we may well see sub $405 again in the next 18 hours.

The jobs numbers were better than expected and one would have expected more gold weakness on the back of it. The number was basically ignored by the currency markets. We may have seen a small shift in sentiment towards gold in the last 60 hours. No one is falling in love with it yet but at least it isn't being treated like a pariah, as in months past.

Gold has ignored the currency markets this week and appears to be running its own race. Today saw further fund buying of the metal throughout the day. Comex was quite liquid at given levels, although at times trying to deal in reasonable volume was a pain in the ar$e. One certainly needs to be buying into weakness and selling into strength if you want to deal in volume. Otherwise there are some major holes, above and below the given market. There has also been a small jump in short term option volatility. Smart play. I expect gold will be supported again at $405 and next resistance level of note appears about $412-14.

The Amex Gold Bugs Index (HUI) has cracked the 200 level for the first time since late May when we spent only a day or two above that level. The break of 200 in mid-Oct 2003 was sustained until mid-April when we broke back down and fell to 160ish. I suspect we will have plenty of work to do around here to consolidate the move. In fact today's move is rather restrained in my opinion. Gold was only $380 when we breached the 200 level back in Oct '03. Seems that the negative sentiment and the past experiences (painful to many) may have dampened enthusiasm for precious metal equities. Reminding oneself of the small total size of this market, in conjunction with further positive sentiment, indicates that we could see some sharp positive moves on any further underlying metal price increases. There has been a round trip from 197 to 184 and back to 201 in the last 8 trading days. Interestingly, gold is up about 2% today yet the HUI is only up about the same. Leverage to the price rises in gold appears to be overlooked today. The HUI has to rise 30% to make a new high. Gold has to rise a bit less than 5%.

The South African miners are having a hard time. The Rand strength is increasing their costs and the political situation is not overly friendly to outside investors. Glaringly apparent on my screens are the red numbers of the big South Africans. Hmmmm.

Silver has burst through its resistance and currently pushing $6.45. Some serious short covering has been noted although there are some sellers waiting in the wings that could put some more pressure on. Chinese were seen selling above $6.25 and there is a suggestion that some silver producers will hedge into this strength. I would be surprised to see any that I am involved with doing anything of the sort, and I think you all know what happens if they do. Some big multinationals like the BHP's and Rio's of the world may well step up to the plate as silver is an inconsequential exposure for them in the scheme of things. They may well just fix the price of silver and proceed with their core businesses of mining mostly base metals, oil, gas, steel and so on. Furthermore, as the silver price rises, China may well start exporting silver again due to the international price now exceeding their local silver price. India has just increased the duty on silver as a result of last night's budget announcements.

Silver equities haven't responded to the move as one might expect. Maybe the last few weeks of strength in Silver Standard Resources (SSRI:NASD) and Pan American Silver (PAAS:NASD) was a prelude to the metal move itself? We have noted often that the equities in metals have been a solid leading indicator in the last few years and we may well have seen more evidence of same just recently.

I noted that Ireland's CPI increase this month of 0.5% was the fifth consecutive increase. That is a 6% annualized rate. Another country joins the ranks of those with serious inflation issues appearing.

Well, Exceed and Excel raced today and ran a fantastic 5 furlongs. It is a pity that the race was 6 furlongs! His condition gave out with about 150 metres to go and he stopped as if shot by a cannon. I guess missing some trackwork and the lead up races might have stuffed him up a bit. Apparently he is entered into a few more big races in England in the coming month or so and maybe the Poms will get to see him at his best, yet. At least silver bolted 15c higher in the 10 minutes I was out of the office watching the race, proceeds of which may just cover the bet.

Enjoy the rest of your day...


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position in gold, silver, ssri, paas, euro

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