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Minyan Mailbag: The Metals Bull Case

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There's usually a bull market SOMEWHERE!

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Toddo-

I worked up this thought process before I went to the Precious Metals Conference in Vegas recently, in a manner in which you think about things.

This contains links to some of Frank Barbera's work, along with the recent piece he did in the technical section. Frank Barbera worked for John Bollinger in the early 1980's and did technical analysis for Financial News Network. He sold his tech in February 2000 and called the major HUI bottom in November 2000. He nailed the May 2005 bottom in the HUI Index and has been resolutely bullish on that complex since then (and still is).

I love it when I hear the bear case on metals because it makes me think long and hard about the bull case. If I were a metals bear, I would think long and hard about all these pieces to the metals bull case, especially the ones by Frank. I certainly think long and hard about the metals bear case, with only hindsight revealing the correct view.

Minyan JB



METALS BULL CASE:

1) Structural:

a) The Fiat Money System By Congressman Ron Paul

b) Warren Buffett on The U.S. Dollar


2) Fundamental:

a) Gold

b) Silver and more Silver.


3) Psychological: The Gold & Silver COT Structures

a) Narrative

"Silver has been in an opposite situation compared to gold. Not only has the price action stunk, precisely because of that poor price performance; there has been no deterioration in the market structure. In fact, based upon reported and extrapolated COT readings, silver's market structure is great, with a reading suggesting low risk and high profit opportunity." 8/16/2005 (as per silver expert Ted Butler).

"The most recent Commitment of Traders Report (COT) confirmed expectations of a continued deterioration in the market structure in COMEX gold, and a further improvement in the market structure in COMEX silver. As mentioned last week, we have the unprecedented condition of gold holding at historic negative extremes, while silver sits close to its best readings of the past year and a half. Since this condition has never before existed, it is impossible to offer examples of prior resolutions. It's new to us all." - 8/23/05 (as per silver expert Ted Butler)

b) Graphically

COT composition

Technical:

As assessed by Frank Barbera, founder of the XAU

As assessed by Point & Figure by Kevin Depew

WEAVING IT ALL TOGETHER - The Case For The Metals Bull:

Gold Bull Market Defense, by Frank Barbera (6/3/2005)

"Da Bottom" for Gold Stocks?, by Frank Barbera (5/19/05)

Minyan JB-

Excellent assimilation and one that offers food for thought on each leg of the metal trading table. As you know from your Ojai experience, I offered some follow-up thoughts to my oft-stated opinion that energy and metals are the new tech and financials (a vibe that I've scribed for a few years now). While the "handing of the leadership baton" made intuitive sense to me, however, I can't claim that I anticipated a 20% "wish bone" between the two since we left the mountains in our rear-view.

I'm of the view that one of two things will evolve in the years ahead--either the dollar must devalue (as more greenbacks are printed to buoy the markets) or asset classes will deflate in synch. While we'll likely jockey between the two as the Fed maneuvers the minxy marionette, I would assign a higher probability (75%) that we'll see a much lower dollar when the dust settles in a few years.

That bodes well for our collective belief that the metals are a good long-term vehicle although it isn't without attendant risk. With the world holding dollar denominated instruments, there is an unforeseen tipping point where the potential exists that they'll migrate away from our once proud basis of exchange. If (when) that happens, the stealth bear that is the US Dollar will offer an unfortunate wake-up call for most Americans.

R.P.

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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