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In Due Course



Gold $402 Silver $6.18 Saturday 11 September, 3am Sydney

G'day. The trade deficit was met with jubilation by one of the commentators on Bloomberg TV. He was so chuffed with the world I thought he was gonna pee himself. "Not only was the number better than expected, the previous month was revised down too!! It's all good news for the economy" he regaled. Sorry, and I don't particularly enjoy pi$$ing on someone's parade, but this guy forgets the simple, basic problem. That being that the U.S. deficit is now bigger than 50 BILLON Dollars per month. I can't for the life of me understand how that's a good thing. Fair dinkum, this should be an outrage. It was only 15 Billion in 1998 and economists would have puked if one suggested a monthly deficit of say $35 billion was coming in a few years.

This can't go on for much longer. The IMF would be up our ar$e over here if we were running this sort of economic mess. S+P just downgraded Italy a little while back if I recall correctly. Could the U.S. get a credit downgrade, just like anyone else who has stretched themselves too far in debt, and what would that mean? This deficit issue is massive and coupled with the fact that foreigners didn't turn up to the 10 year bond auction yesterday (per Prof. Succo in Buzz), this could become very problematical in the coming few months for currencies and interest rates.

The PPI was a non event. Everyone is saying that energy costs are being absorbed and not passed on to consumers. The consumer blah, blah, blah ... Who gives a toss? Someone's getting shafted, somewhere in the chain. This squeeze will hit someone in the economy, no matter how hard people try and explain it away. There is no inflation will be the word around the traps. Yeah right. Check your M's to see the inflation rate.

Gold was again a dollar follower although would've thought we'd have had a crack at $405 with the dollar through 1.23 against the Euro. Seems some resolute sell interest around the $402 spot level. Silver is well offered but I note some good sized Chinese buying in the mid teens earlier in the day, which gives me some confidence that we are witnessing a bottoming process. A few more days will tell us more. Looks like someone defending the $6.25 level in the futures. Next week is a new one but I would expct a little stronger performance from gold than we saw this week, especially given the Euro's move.

The Gold Bugs Index (HUI) looking fine today and 205 looks comfortable enough. Volumes in many issues have been decidedly light recently. The South Africans have done well recently. The smaller cap sector of the market has been somewhat ignored and there appears some nice valuations available to smart investors with some conviction. It will be interesting to see the results of some aggressive demand given the current illiquid situation. The weekend press will hammer away at the "fear factor" of terrorism and all that. Maybe it will focus a few investors on precious metals and their shares, in a time of distress/uncertainty.

The weekend is upon me.... 2am Saturday and looks like gold will close on its high for the week. Silver should close up near $6.20 and it looks to me that next week will give us another period of increased volatility in currencies, both directions. There is some concern building in the offices here that we may be building for a sharp dollar reversal. Just a heads up regarding something that has blipped up on our radar screens. More in due course.

Enjoy the weekend and good luck to those in Florida....


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