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Manipulation Versus Intervention


Just like Toddo said...


G'day. I hope this finds everyone safe and well, especially those down where the big storm is. We saw some footage on the TV today and it looked pretty windy.

London being closed on Monday left the precious metals markets vulnerable to some serious "paper" metal selling and as usual the gold price was taken down a few dollars into the close of Comex. That there is now a total of 330,000 contracts open in gold with the price at $436 versus only 246,000 contracts open when gold was back at $420 a month or so ago, suggests to me that a very aggressive and resilient seller has been sitting on the topside. For gold to only rally $16 on an increase of 8 million ounces (about 250 tonnes or 10% of total annual goldmine supply), in the current "commodity friendly" environment stinks of "intervention."

Silver OI stands at about 115,000 contracts (115,000 x 5000 oz.) or contracts totaling over 550 million ounces. There are but 110 million ounces of silver in Comex warehouses. Someone wanna give me a billion bucks for a few months??? What would happen if, say, half the longs demanded delivery? This is a risk that many discount outright. I don't and neither did Mr. Buffett a few years back. Watch the delivery "rules" change if it were to occur!

As Toddo said at Ojai: "The difference between manipulation and intervention is communication." Is gold manipulated? I can offer no other sane or rational explanation. Interestingly, India, the world's largest consumer of gold, hasn't stopped buying physical metal at all on this small move upwards and appears to be a significant thorn in the side of those who want to see gold lower. Volcker said recently that "the mistake we made was not controlling the gold price" in reference to the historic run to $850 in the late '70s. The London Gold Pool proved that no one can "control" the price of gold for very long. The physical market will always win eventually. Demand for physical metal is not slowing no matter the increase in terms of fiat paper. Mine supply is decreasing. India's main buying season is upon us and this should further strengthen the major support levels for gold down around $420, should the paper market have its way and drive prices lower.

Indians are not missing the party in silver either, and we see from the physical premiums that they are comfortable buyers/importers down at these levels. Will we hear of 747s full of silver headed for India like we did some 7 months ago when silver thudded back from $8.50 to $6.40??? My bet is that we will!

The CRB made a new record high on the back of oil. Everything is up, except the precious metals. An old favorite of mine, Rhodium (not a CRB component), has risen to over $2000 from $500 in the last 18 months. It's good stuff. Rhodium is to precious metals like Vanadium is to steel. I tried getting an exposure to it in Feb '04 but found it near impossible. Bugger!

That the Oil price went nuts to the upside trading over $71 at one stage, means little to gold these days. That an oil producer can swap/trade his finite, dollar-generating assets for infinite, tangible money (gold/silver) at the best terms available to him EVER, is also lost on this "paper-centric" world. The average number of barrels of oil to buy an ounce of gold has been about 18 for the last 30 years. Today it stands just about 6. It was 25+ back in 2000. Anyone ever heard of "mean-reversion?" Oil looks toppy at $70 as this "paper oil rush" gets a little "manic" and I wouldn't be surprised to see a pullback to mid 50's before stretching to new highs, maybe even $80+. Not advice, just sharing the vibe. Has anyone had a good peep at the long-term oil curve? Hmmm. Note: Brent trades at a significant discount to WTI, but 10 years from now, we're still above $60 and that's not a bad thing for the US economy???? Thanks Hong Kong Long.

What's the deal with Sir Al? He couldn't see a property bubble a month or so ago and now he's sending all sorts of cryptic warnings about all sorts of stuff. I guess he just wants to be on the record as saying there are "problems" before he hits the streets. Of course there are problems everywhere in the economy--he created/allowed them!!

Reading some of the gibberish coming out of Jackson Hole is nauseating. Seriously, how can people like Greenspan, Rubin, etc. keep a straight face when discussing the economic travails that are becoming apparent? If one was to pour petrol around the basement of a house and then chuck a few fireworks in there and start playing with matches, one can't be surprised when the place explodes and burns down, surely? These guys are laughable, but that's just my opinion.

I note Russia and China are talking about ditching dollars as settlement for their bilateral trade. No big surprise there. Why should they use dollars in the current global economic environment?

The HUI just marks time around the $200 level and I wouldn't be surprised to see a dip back to 185-90 before a move up towards the 220 resistance. I was impressed that SSRI and PAAS, core holdings in any serious precious metal portfolio, didn't cop the caning one would expect on a 5% move lower in metal price. I was asked what I thought about Apex Silver. I don't mind the company but they aren't anywhere near as good a silver exposure like the aforementioned two. They only derive about 30% of their total revenue from Silver. They are a base metals company with a good bit of silver. I want silver exposure and so they don't cut the mustard in that respect. I expect we'll be back at 6.95-7.05 again pretty quickly. GG is still pushing its highs as are a few other large-cap golds but the mid-tier and explorers are still languishing some 30-40% off their recent highs of Jan '04. I'm patient.

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