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Metals with McGuirk

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Hoofy's a beer man.

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G'day. Gold has gone for a nice little run through the $470 resistance level and is now nudging $475 in Asia. I think a few Fed heads will be quivering at the date. No matter what ex-Fed blinker laughingly said yesterday about "outgrowing gold," the Fed is certainly worried about the gold price, IMO, they just won't ever admit it! We must be mindful of what Volcker said about "gold price control" in the late 70's. The gold derivatives markets are where any such "control" would be taking place, but I can't talk about that, sorry.

It seems that the Japanese are also keen to grab some gold these days. As a massive importer of oil, maybe they are seeing the inflation a little more clearly than many others. Korea is similar in its reliance on fuel imports. India too, and they appear to be back in the swing of things and buying again. Hmmm.

The recent little pullback in the gold price, down to $464 some 36 hours ago may have been it. I was looking for a pullback into the 50s but that seems less likely today. I didn't manage to get back the equities I sold last Friday, but am unconcerned in that I still have about 85% of every cent I own exposed to gold and silver prices. It is nice to have some "dry powder" ready for any significant retracement, which cannot be discounted when one looks at the COT for gold. We are now pushing into the high end of recent activity. There obviously have been plenty of willing sellers into this latest rally with an increase in O.I to above the 360,000 contract level. How many more shorts are going to be added? I dunno, but 400k contracts don't look out of the question.

Gold in Euro terms is above $380 and has effectively broken from the dollar/euro link. The people I wanna see buying gold are people like Russia, all the "Stans" and Norway- Europes oil / energy producers, to confirm the oil/gold swap is in play. Russia has already shown they are increasing gold reserves rather quietly, but aggressively, these past 12 months.

Silver has been a laggard when looking across ALL commodities. I don't expect for very long. Check out copper and nickel. I expect the current 64-1 silver gold to be close to 50-1 by Melbourne Cup Day (not advice). I expect silver to have an 8 as the big figure in very short time, and double digits by the early New Year. The physical markets will dictate such a move. People should note that although there are some 116 million ounces in total in Comex warehouses, not all of it is available to be delivered. Many people store their metal at Comex and this metal is NOT AVAILABLE to be delivered to any longs looking to take delivery. Someone already owns it! The "available" metal that one is able to "demand delivery" on is roughly half that volume. See "Eligible."

The HUI continues to grind higher although I note the massive volatility of Crystallex International (KRY), a company that has its main asset in Venezuela. Apparently Mr. Chavez is talking nationalizing mining interests down there and cost KRY about 50% a day or so ago, of which they got half back yesterday. This brings up the sovereign risk issue that I have harped on about over the years. South African producers have always been "discounted" due to the political/social environment. The same goes for some of the West African based guys. How you "price" sovereign risk is not my concern. Companies with multi-mines in different countries are significantly less risky. A good geographical and political spread is imperative in a serious portfolio. One mine, in a "dodgy" country shouldn't be a core holding in a portfolio. Just my opinion.

I also prefer companies that are not incorporated in the USA. I don't care where they're listed, just under what "laws" they operate. When people like Greenspan and Bernanke talk of "unconventional" monetisation, I get worried. If / when the gold price goes nuts, would they usurp ownership of gold mines? I dunno, and frankly don't care. I will go with the Canuckleheads, every time. Nine-hundred years of English common law property rights look way safer to me than U.S. property law, especially under this current administration in the current economic and geo-political environment. I'm no lawyer but I can still have an opinion!

I have brought a bit of my equity exposure from the North American markets back home and am looking to put it to work down here in the same sector (read- repatriation of funds). It's a pity that there's 2/5ths of sweet FA to invest in down here when it comes to gold exposure. Every major goldmine in Australia is owned by the big "foreigners." It's tough to find a local miner with advanced exploration assets/early production, that haven't already been gobbled up by the big boys looking to replace reserves.

That's the big game to be involved in, Minyans, those big boys will "buy" reserves and advanced exploration companies because they haven't spent a cent drilling holes themselves!! Find their next "target" and you'll make a bucket load of cash. Newcrest and Lihir are exceptions to the above, but I wouldn't buy them with your money. Telfer, Newcrest's "saviour" development, is far from robust, IMO. Lihir's management inspires no confidence with me. While you're at it, check out its hedge books--not advice.

There's a lotta blue sky above $490 in gold and we could easily be through there in a few sessions, especially if Rita does her worst. Any shorts will be filling, should this turn out as bad as some are expecting.

Oil

I think we are gonna see a further explosion in crack spreads as there's a heap of crude around but nowhere to refine it to stuff we can use. Planes, trains and automobiles don't run on CRUDE!

I also am hearing a lot of commentators who are all jumping on the bandwagon of gold and it is interesting to hear them telling all the reasons why. Nary a word was heard from such over the past 4 years, let alone even 3 months ago. I wonder where they got all their now "useful" info?

As much as I wanna see gold head directly north, I fully expect a nasty cleanout, just when "everyone" is "certain" gold is headed higher. Not that I'd sell an ounce here! The physical market will provide the support, but we have seen the paper gold market overwhelm the physical for short periods. There will be some long-side players who will have little appetite for a $10 fall. Be alert, but not alarmed.

...Today's blurb has been written earlier than usual (at significant cost to my usual horizontal hours) because it is my little brother's birthday. Lisa and I are cooking him and a few of his mates, a birthday dinner here at the apartment. We've knocked together a pretty swish old feed. We're starting with Lozza's special marinated chicken wings, some tasty home-made cracked pepper pate and a nice washed-rind soft cheese. Lisa is in charge of the main course: her world-famous Tortellini Boscaiola. Dessert of choc-dipped strawberries and Sara Lee French Vanilla ice cream should just about shut them all up. I know Minyan Sal will be keen to know what vino we'll be slurping down - and it's all good! A few 1996 Tyrrells VAT 1 Semillon and some 1996 Penfolds bin 707 Cabernet should do the trick, eh, Sal??

Enjoy the day!

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position in gold, silver

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