Monday, October 09, 2006

THE GOLD AND SILVER REVIEW, Oct 7th, 191st Edition.

October 8th, 2006
191th Edition
Chris G. Waltzek
*$572 Gold - $11.08 Silver*

This week, investors ignored positive seasonal tendencies in precious metals, locking in profits from the previous advance. An explosive dollar rally on Friday combined with the continued slide in crude oil temporarily presented wise investors with an incredible opportunity to accumulate gold and silver at vastly discounted prices. By Friday's close, gold gave back all of last weeks $10 gain plus $16 to close at $572 while silver relinquished merely $.33 finishing at $11.08.

In fact, precious metals continue to outperform most competing asset classes. One analyst noted this week: "Despite this apparent short-term complacency I still think gold will see a fresh high above $850 in the next 12-24 months.." In the last twelve months, gold is up over $100 while silver has gained almost $3.50, nearly a 50% climb. In 2006, gold is maintaining an impressive 10 percent return, far better than the major stock indexes as well as Treasury bonds which remain near the break-even point. Indeed, gold is higher by more than 100% in just the past few years, however, when adjusted for inflation, stocks are showing a negative return since 2001.

In energy related news, the big market event this week was the crude oil sell-off. The steep decline in energy prices is lessoning inflation fears while dampening demand for commodities. An Energy Department report indicated an unexpected climb in crude oil inventories. The news lead crude oil to $57 and change, near a 10 month low and more than twenty five percent below its record close of $80 posted earlier this year.

Meanwhile, black gold rebounded somewhat by Friday's close, on the heels that OPEC, the Organization of Petroleum Exporting Countries, would limit supply by at least 1 million barells, and in turn firm prices, according to media sources. In fact 2 member nations agreed to decrease output by a total of 170,000 barrels per day due to declining prices. For the week, crude oil finished just below $60 per barell. However, long term investors are taking heart in Jim Puplava's 200-300 price target for black gold in the years ahead.

In related news, sources suggest that the tight correlation between gold and crude oil has narrowed further, leading many to believe that precious metals are temporarily hostage to the energy markets. The senior vice president at MKS Finance noted: ``Where gold goes from here would depend on other commodities, oil in particular. " A UBS analyst concurred: ``The short- term outlook for gold and silver will continue to be dominated by movements in oil.''

In the currency market, the dollar rallied from Tuesday culminating with an impressive fireworks display on Friday. The U.S. currency has fallen 5 percent when compared with competing foreign currencies this year. Government reports indicated that manufacturing growth had stalled, registering the lowest reading in nearly two years.

In Geopolitical news this week, North Korea announced on Tuesday that it was making preparations to test a nuclear weapon. According to media reports, North Korean authorities noted the test is intended to boost self-defense.
Earlier this year, North Korea tested a handful of missiles including 2 long range devices, which resulted in UN sanctions. As a result, a global consortium regarding North Korea's nuclear ambitions has remained on hold for over one year.

Meanwhile, this weeks precious metals slide has many analysts pondering whether or not central banks are adhering to the gold sales agreement. One media source indicated that non disclosed European banks sold 100 tons of additional bullion reserves before the September 26 deadline. According Barclay's Capital, the covert operations were completed by selling contracts forward in order to mask the gold sales. Its suspected that the metals liquidation is directly responsible for much of the near $100 sell off in the yellow metal in recent weeks. Central banks disclosed gold sales of 393 tonnes for the year, well beneath the 500 ton Washington Accord annual limit. This significant revelation is leading many to the conclusion that artificial suppression of the gold price by Central banks may be closer to its end than previously suspected.

In related precious metals news, an insignificant rock found one mile beneath the sea of New Guinea revealed veins of copper and gold worth $300. Similar findings are sending high tech prospectors to Davy Jone's locker in search of untapped precious metals. In fact, Barrick Gold Corp., is partnering with an oceanic exploration firm. Ocean miners are excited about the rich ore content found at many sites. In fact, "Black Smokers" a term used to describe deep sea volcanic vents, are said to contain tons of precious metals ore. Many terrestrial mines extract valuable ore from the remnants of such geological anomalies. The articles notes that the New Guinea and New Zealand coasts likely contain the highest concentration of underwater ore producing real estate.

Thanks for reading.

Chris Waltzek
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