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And So We Wait...



Gold $400 Silver $6.80 Wednesday 11 August, 3.30am Sydney

G'day. YAWN! Does anyone realize how hard it is to stay awake at 3am when there is nothing, and I mean NOTHING, happening to keep the old peepers focused on the screen. At least I haven't drooled on my shoulder yet.

And so we wait for the Fed to say whatever they are gonna say and do whatever they are gonna do. The liquid gold and silver futures market will be closed by then and I expect to be at home asleep, as well. My colleagues can run with the ball on this occasion.

Gold struggled to $401 on a little pop in the Euro above 1.2300. Silver followed suit and touched $6.80 again before snoozing at $6.75 for the rest of the session. Not much to say, sorry.... Saw some producers hedge some silver in some fair size via some high delta options. Gold has been rejected at the $402 level again and I see a break of this level as an important confirmation of a new leg up. Until then we are cautiously optimistic on gold's outlook in the near term. Base metals all pulled back some of their recent losses, and gains of more than a percent in copper, ally, nickel, lead and zinc were noted.

We talked a few weeks back and we had a few ideas about the dollar, gold and interest rates. If this is a "one-off" tightening due to the "slowdown caused by transitory inflation, etc," then the dollar should go south and gold up, as was proferred by some smart minyans. Commentators are suggesting slower tightenings going forward. I agree with this scenario. This doesn't help the dollar and so will help gold in dollar terms I guess.

The big news today was South Africa's 4th largest producer Durban Deeps (DROOY:NASD) released its earnings and its stock price promptly fell by 20%. The Rand has hurt all the South Africans. All the SA's are already discounted heavily for their sovereign risk. DROOY has had its problems in the past and will probably have more in the future. I look at economic reserves and what they cost to produce. I also look at what sort of reserve increase occurs on a given gold price move. It's all about reserves, reserves and potential reserves. The stock fell by about 20% today on big volume, making them cheap by yesterday's standards but maybe expensive by tomorrow's? The market certainly didn't like what they heard and saw from the company. Make up your own mind and do your own digging on any investment anyone may consider. You might just learn something; I did.

I have mentioned many times, and this in no way constitutes advice in any way shape or form, that I look for the highest cost producer with the largest reserve base or resource base that converts to reserves at higher prices. This exacts the maximim optionality out of the company, should one expect higher metal prices. The exact opposite occurs with hedged companies. They have no optionality if they are heavily hedged and should act like a bond because the revenue stream is known and there is no "upside" participation in higher metal prices, depending on the types of hedges entered. I will only countenance investing in hedged commodity companies if they retain the upside whilst limiting the downside. That happens so rarely that it isn't funny. Pay the premium and buy your put options for protection and get on with pulling metal out of the ground. That is the only hedge that I wanna see in metal producers apart from hedging their energy/fuel input costs like diesel and electricity.

Interesting that gold and silver are nearly back at their lows of the session at the Comex close. Whatever.

Enjoy the fun of the tightening and don't discount a 50bp hike too hastily. .....


position in gold & silver

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