Thursday, April 06, 2006


Precious Metals Traders Ask, 'Now What?'

Having achieved their price targets in precious metals and related stocks, many traders are saying, 'Now What?' "Gold has reached $600 an ounce for the first time since 1981 but the real surprise will be where it goes from here, with experts predicting a drop in the near term that could clear the way for four-digit prices in the next few years."

"'Gold at $600 an ounce might be a surprise to many, but these are the same people that were surprised when gold hit $300, when it broke $400 and when it moved to over $500,' said Emanuel Balarie, a senior market strategist at Wisdom Financial. 'Most likely, they will still be surprised when gold hits $1,000 an ounce,' which could come in the next three to four years, if not sooner, he said."

"Gold futures for May delivery climbed as high as $601.90 in electronic trading early Thursday in New York, and peaked at $600 in the regular session. The contract closed at $599.70, up $7.20. The strength helped lift silver futures above $12 an ounce."

"Iran is pricing their oil in euros and China's 'spreading the word that it's likely to stop purchasing U.S. dollars and other dollar-denominated assets,' Thomas Hartmann, an analyst at Altavest Worldwide Trading said. Overall, 'paper currency is not favored right now, which shifts demand towards gold,' he said."

"'There are some worrying signs to me in the short term,' said Brian Batt, a managing member at Brick Capital Partners, pointing out that the 'gold stock/price of gold ratio is dropping. The gold shares are acting weaker than the gold price, where they usually give an investor two to three times leverage to the gold price,' he said. 'This type of action has preceded previous corrections in the sector.'
So, 'this is a time to be booking some profits,' he concluded."

Some mining news. "Although first-quarter bullion prices were 27.4 per cent above the same period last year, 'gold producers are expected to continue to be negatively impacted by higher cash costs, partly due to foreign exchange and higher input costs,' UBS analyst Brian MacArthur wrote in a recent commentary."

"'There's a lot of cost creep,' Haywood Securities analyst Kerry Smith said Thursday. 'Fuel is more expensive, reagents are more expensive, consumables are more expensive. So all your input costs have gone up. The average cost curve for the industry has probably gone up 25 per cent.'"

"Recent high bullion prices are also pushing gold miners to process lower-grade ore. 'And we went through 10 years of pretty low metal prices,' Smith added. 'Miners wouldn't admit it at the time, but metal prices were low, so they had to mine higher-grade material to make money at all. Now, with metal prices higher, people can now start mining lower-grade material. That increases your costs.'"

"Vincent Borg, spokesman for Toronto-based Barrick Gold Corp. (TSX:ABX), the world's biggest gold miner, said the company, 'like many others,' is lowering the cutoff grade in its mines because the ore is now more economic."

"Smith pointed to Inmet Mining Corp.'s (TSX:IMN) Troilus mine in northern Quebec as 'a good example of a mine that, at $325 gold, didn't make any money but, at these prices, it does okay.' Inmet put the mine up for sale this week."

"Toronto-based gold miner Crystallex International Corp. (TSX:KRY) saw its stock shoot up 28.21 per cent, or $1.45, to $6.59, after well-known CNBC 'Mad Money' host Jim Cramer said the shares should rise due to higher gold prices and because Wall Street has been undervaluing the miner over fears that Venezuelan president Hugo Chavez will nationalize its Las Cristinas mine."

"Pan American Silver Corp. (PAA:CN) dropped 88 cents, or 3 percent, to C$28.81. The mining company whose No. 2 shareholder is Bill Gates' Cascade Investment LLC said it will sell about 5.8 million shares. Additional stock may dilute existing shareholders' stakes. The stock's still up 32 percent in 2006."

What is really odd is the silence from the central banks. Not one rumor of selling, no threats of dumping bullion.

This is an excellent time to check your local physical gold 'buyers.' The ones you intend to turn to if you need to sell in a hurry. You may find they aren't as eager to do business, or that they have widened their spread. Always good to know. Althought, they will probably be buying in this climate.
Karen Wallace, a fund analyst at Morningstar...

"Not everybody could handle losing 40 percent in one year," said Wallace. "Most people probably don't need an investment in precious metal funds."

As this quote indicates, it's still very early in Stage 2.

Despite the PMs breathtaking rise, there's still a lot of time to accumulate. Kind of like the housing bubble bust... amazing how quickly it's now coming apart, but still so far to go.

BTW, mentioned I finished Leeb's book the other day. His #1 investment option for the future was PMs.
Leeb is good, as is Simmon. kunstler is too apocalyptic for me.
John the law --

I've been holding Uranium co's for about 6 months now and its been doing basically nothing.

Guys like Jim Dines have been screaming about Uranium for years now, but lately I've gone from 'Strong Buy' to 'Hold' -- partially because I've started to understand the "tails" issue. Most Uranium bulls cite production numbers and assume that there's a shortage on the horizon. But Uranium tails are in vast surplus, and mean even with China's proposed 50 new plants, we're still looking fine for decades.

Of course -- I haven't sold yet, b/c I think there are still some moves short term as the dollar falls, oil rises, etc.
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