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Metals With McGuirk



G'day. What a weekend down here in Sydney. My brother celebrated his 35th birthday, which in itself would have been a big enough party, but then we all watched the Sydney Swans win the Australian Football Championship. The game literally went down to the last kick of the match.

It was truly one of the games for the history books. Anyone watching the game with a dodgy ticker should've ended in the cardiac ward, such was the heart-stopping nature of the game. The whole city partied long and hard - for three days that I know of - and we declared an unofficial "holiday" for Monday. More on that later.

I had every good intention of writing a "Silver According to Lozza" piece over the weekend, but got somewhat distracted by all the festivities. Lisa and I even got involved in a softball game on Sunday that was eerily similar to Ojai! The silver paper should be ready for Wednesday morning.... Promise! Seventy-two years was a long time to wait to win the Championship down here, so I reckon another 48 hours won't matter much to silver's wildly bullish case!!

I read somewhere on CNN that some French finance dude, Thierry Breton, reckons that Greenspan said to him: "The deficit is out of control." I guess he must have lost something in the translation, because the financial markets didn't take any notice of what should be a hugely frightening pronouncement for global financial markets, specifically the U.S. Dollar. Maybe an English-Franco dictionary should be sent to Mr. Breton before he meets Sir Al anytime soon. Surely he mis-heard the Maestro? Something like that should be very gold friendly yet we saw sub $460 trade very quickly. That the gold price fell and the dollar rose is perplexing in the face of such frank comment, attributed to Elmer.

I still have one eye on the $440-44 level for a serious "paper gold" capitulation, led by the hundreds of traders at all manner of entities, who quite frankly, wouldn't know a bar of gold from a horses backside. "Paper gold" and "Real gold" are two very, very different animals. There will need to be some further weakening of the Indian rupee to accommodate such a move, in paper or physical, for any extended period of time. Precious Metals brokers- reported last week, unprecedented demand for bullion, mostly in coin form. The physical market is alive and well and all dips are to be seen as buying opportunities. The $490 high in 1988 is my next upside target on this roller coaster ride.

Minyan Raghu, fellow Jimmy's bar stalwart and softball catcher extraordinaire, sent me the following note that should have gold bears on edge as we look towards the coming Northern winter.


This is a quote from a veteran trader friend in India during a routine daily chat with him. Take it for what it's worth.

"Finally, watch out for gold.. Wedding and Festival season starts from 4th Oct. Demand in India is going to be crazy. 1000 tonnes this year. Gold will go up, maybe on demand from India."

Minyan Raghu

Thanks for the heads up Raghu. I think we both knew this sort of news was coming and it is good to hear it from your "man on the ground". The only thing that can hold back significantly increased Indian demand will be a weaker rupee, IMO, and even that won't make too big a difference in the whole scheme of things. Not advice, just sharing the process.

The liquidation on TOCOM yesterday, taking gold down sub $460 for a brief period, looked more like foreign players screwing around in an illiquid paper market, than Japanese capitulation, as some have alluded. Whatever the case, one U.S. institution was a very large buyer on Comex and thwarted attempts to drive the yellow metal through some stoppies sitting around $456-8. Many paper traders will be "in the red" sub $460 and won't have much tolerance for a bad month end revaluation. Be careful and managing timeframes will be very important.
Goldmans made the following points in today's daily blurb:

--Perhaps the most interesting financial market development in the past week or so has been the fresh acceleration in gold prices, which Mike Buchanan discussed in detail in last Thursday's Global Markets Daily (Black Gold, Yellow Gold, and Goldilocks' Farewell?). Today, we touch on the theme again, but this time raise the question as to whether the strength in the gold price might be related to the rise in the Nikkei and indeed the, surprising, weakness of the yen.

--There are a number of oddities about the latest run up in gold, not least the fact that it coincides with the continued strength of many "risky" assets, as well as the fact that gold has risen not just in $U.S. terms but also in yen and euro terms. It is a long, long time since that has happened.

--Together with the strength of the Japanese stock market since the day that Koizumi called a snap Japanese election, the rise in gold is one of the most powerful trending price moves in what otherwise remains a rather difficult "macro" market. Could these price patterns be linked?

--This suspicion grows when you think about the recent fresh, albeit so far, modest decline of the yen against the dollar. Why is the Yen not performing better, and could it also relate to the same causal factor behind gold's strength?

--Of course, each of the three assets has well known arguments in favour of their recent price behaviour but there is an argument for saying that they are related.

--To be more specific, could all three assets be signaling that deflation is indeed coming to an end in Japan and could they, in combination, be signaling a near term return to positive inflation in Japan. Indeed, could they all be symptoms of "too low" short term Japanese real interest rates. If so, then in coming weeks, in addition to these three trends continuing, perhaps a "new one" might emerge with some possible accelerated weakness in JGBs and the Euro-yen curve.


Silver traded back to the high teens, my targeted level, but one had to be very quick to get some down there. Someone was ... lol. I expect that we'll get another shot at those levels but people better be quick on their feet. Silver equities were the star performers on HUI yesterday with Coeur d'Alene Mines (CDE) and Hecla Mining (HL) doing some fancy work. I prefer Pan American Silver (PAAS) and Silver Standard Resources (SSRI) for a silver exposure, but each to their own. It looks like HUI has hit a bit of a brick wall around the 240 level that is still some 10% off the highs of last year. I see Golden Star Resources (GSS) and DRDGold Limited (DROOY), and to some extent, Newmont Mining (NEM), as the main culprits as to the lag. Hmmm.

Greg Weldon's latest Monitor covers plenty on the gold in all currencies story. Read it.

How cool is this? Don't think that this will be "bearish" for gold. It is only about 3% of the above ground value of Central Bank gold stock (which is still a huge amount), but this is far too historically significant to ever hit a market, except maybe some Museum bidding wars!! Papal rings don't generally get melted down for scrap.

Down Under

...The Swans win was a big deal down here. A recent business associate and good mate was instrumental in the Club's development and spent literally millions of his own dollars establishing them in Sydney. That he got to see the boys finally win the Flag and for Sydney to get behind the team as a city was all the reward he ever wanted. Goodonya Willow.

There were some very big races here on Saturday but I didn't see or listen to one. The game was just too intense. Seriously. The right horses won, except Outback Prince, a son of one of my favourite stallions, Desert Prince. OP ran 3rd at 8-1, beaten by about 10 inches over the mile course! Close but no cigar, eh, Sal!

Little bro' Greg hosted his 35th birthday dinner on Saturday, after the big game, at a really nice restaurant in East Sydney, Tajine. It was a big family feast with a guest appearance from my Dad's brother, who we hadn't seen in nearly 20 years. Modern Moroccan was the fare du jour and it was sensational. Aussie seafood done Moroccan style works marvelously well, as does our Lamb. Owner and maitre'd Omar, made the evening a special one that my Mum won't forget in a while. Lisa, who has some Tunisian mates, decided she would try and "read" the Arabic coffee sludge. She found a face in my Mums, with an M, but floored my Mum when she pointed to 3 penises in her own cup. Mum looked, and she saw! I couldn't for the life of me see it- must be the Y chromosome. The "oldies" went home and we kicked on a little later for a few convivial liqueurs. Cointreau is such a nice drop but doesn't it have a kick!

We headed to Greg's birthday barbeque in Centennial Park around midday Sunday with the 'other side of the family' and, through bleary eyes, we played in a 20 a side softball game. Beers were plentiful as was the vino. The game wasn't quite as serious as the Ojai rendition as everyone fielded at the same time making a very crowded outfield. It was a heap of fun and, interestingly, the final score was 18-17, just the same as Ojai! Go figure. We then all headed out afterwards to the Columbian, Sydney's favourite gay pub up on Oxford Street. We all made sure that Greg was never without a beer or vodka and the live band had everyone up and dancing, yep, even me, a staunch LDD (Laurie Doesn't Dance). Too much "doof doof" in the music for my taste, but the Absolut Citrons won out. We then went to the Midnight Shift, aka Blue Oyster Bar, where it all got a little too silly for polite company. Lisa had to run home to put on her Harley Boots, as she wasn't allowed in with her strappy sandals. Safety issues, I believe? She made a grand entrance! We had such a great day/night out with an eclectic group of wonderful people. Again? Anytime. Greg is lucky to have such good friends.

Enjoy the day


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