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Gold Bugs Index (HUI) Goes Berserk To The Upside

 

By Bill Murphy    
August 11, 2003

www.LeMetropoleCafe.com

August 8 - Gold $356.20 up $3.80 - Silver $4.98 down 5 cents

Gold Bugs Index (HUI) Goes Berserk To The Upside

"We need an opposition in wartime and peacetime to maintain balance in our decision-making process. But it should be a 'loyal' opposition, not one that's willing to sacrifice the nation's welfare merely to secure its ascendancy." --William Goldcamp

One of the most important gold days of the year so far. When I woke up this morning, gold was $2 higher even though the dollar was much firmer, stock markets were higher around the world (with the US market due higher) and the bond market had rallied. Yet, gold was showing distinct independent strength. There is nothing better for the big picture gold scenario than to have gold move on its own. Why:

*It tells us gold demand is so strong it is overpowering outside market factors which are normally construed as negative. *It means The Gold Cartel has their hands full and has to disengage more of the gradually dwindling available gold supply than normal, badly needed supply used to cap the price. *When the dollar turns or the stock market tanks, it will have that much more of an impact on the already firming gold price.

Gold closed higher every day this week and makes last Friday’s clobbering by Goldman Sachs look all the more bogus. Gold’s close today was above that of last Thursday night’s close, erasing all of last Friday’s losses. It sure seems to me gold was deliberately trashed ahead of this week’s US Government note auctions. Now that the auctions are over, gold is going right back up. The demand out there is just too strong to hold it down for very long.

Fund stops were set off early at $346.50 basis the December contract.

The dollar closed up a hefty .61 to 96.57 and the euro fell .67 to 112.90.

Gold’s open interest INCREASED yesterday to 201,976, up 2392 contracts. The big liquidation on the price drop appears to be over. If that is the case, gold could be going back up with 25,000 less contracts liquidated than earlier in the year when the open interest also rose above 240,000. Even better, the price drop on this break was only $20 compared to a $69 drop in February. This tells me the long gold positions are indeed in stronger hands.

Technicians have to like this nicely rounded bottom formation:

Gold Futures.tradingcharts.com

Some big player sold 1500 Dec 400 calls and bought 1500 Dec 450 calls. The thinking on the floor is the trader was rolling over his position.

Even though gold closed higher every day this week, there are no gaps to fill. I like that aspect. Should mean we are due for a breakaway gap any day.

Silver sold off 10 cents as gold was making its highs for the day. VERY strange. Almost like the cabal couldn’t do anything with gold or the shares, so they bopped silver. Can’t see silver staying at these levels very long.

The John Brimelow Report

Friday, August 08, 2003

Indian ex-duty premiums: AM $6.52 PM (N/A) with world gold at $353.55. Comfortably above legal import point.

Apparently there was some appetite for gold futures on TOCOM: although volume was low - only equal to 17,835 Comex lots (down 13% on yesterday) - open interest rose by the equivalent of 1591 Comex contracts, some world gold-supporting arbitrage developed, and $US gold was $1.05 above the NY close at the end. The yen was appreciably stronger and the active contract was only up 2 yen. Japan is effectively closed for much of the next ten days for the Obon summer break: it looks, however, as if the BOJ yen-restraint team may have their vacation interrupted. (NY traded 26,561 lots yesterday: Open interest rose 2,392 lots.)\

Although apprehensive about sudden massive selling raids like last Friday, those few observers who are around are starting to factor in the resilience of physical offtake. Possibly the calming of the Treasury market and the conclusion of the big Bond auctions lessens the likelihood of abrupt slumps like occurred a week ago.

Also the technicians are becoming quietly bolder. My old friend Martin Pring (http://www.pring.com/ ) in his weekly comment observes:

"PRECIOUS METALS

December gold continues to trade between two converging trendlines at $345 and $370. Whichever way it breaks is likely to signal the direction of the next major move. From a bull market perspective, it is important for an upside breakout to develop in fairly short order since some of the longer-term momentum indicators have started to stall. We believe the odds favor this because several of our inflation indicators have gone bullish and the gold shares also look promising.

One key probably lies in the Philadelphia Gold and Silver Share Index (XAU). This Index has been lagging the other major North American Index, the Gold Bugs, which has already broken to the upside. Consequently, a rally above major resistance in the form of the trendline would most probably give the gold complex a good boost. The line is currently at 84, so a daily close above the 86-88 zone would do the trick."

(Since the XAU at this writing is over 84 this is an interesting thought.)

JB

CARTEL CAPITULATION WATCH

The tale of two markets again. The DOW couldn’t pick up any steam, but wouldn’t go down either, closing at 9197, up 65. The DOG wanted to head south so badly, but was clearly affected by the DOW’s positive price action. It still sank 8 to 1644.

One reason for the dollar’s strength today:

Aug. 8 (Bloomberg) -- Italy slipped into recession in the second quarter for the first time in more than a decade as the euro's gain hurt exporters and consumer confidence slumped.

The first report on second-quarter gross domestic product among the 12 euro nations showed Europe's fourth-biggest economy shrank 0.1 percent, the same rate of contraction as the previous quarter, the Rome-based national statistics office said. The economy hasn't contracted for two straight quarters since 1992. –END-

The big news of the day could have been the late bond sell-off. The 30-year was soaring early up to 109 5/32, but faded in the afternoon to finish down 6/32 at 107 21/32.

Regard this beauty of a story:

Reuters

China to tell U.S. to cool yuan criticism--sources Friday August 8, 3:47 pm ET By Eric Burroughs and Gertrude Chavez

NEW YORK, Aug 8 (Reuters) - Chinese officials plan to tell U.S. Treasury Secretary John Snow they might reconsider the country's hefty buying of Treasuries and U.S. agency debt if Washington doesn't cool its calls for China to revalue the yuan, according to a report this week seen by market sources.

This week, the currency market buzzed with speculation about the report, which is sent only to paying subscribers and which was one factor behind the dollar's dive of more than one percent against the yen on Thursday.

"Part of the (dollar)'s decline may have (also) been caused by rumors of a consultant's report that official Asian accounts will be less inclined to purchase U.S. Treasuries," strategists with BNP Paribas wrote in a research note on Friday.

The report, by geopolitical advisory group Medley Global Advisors, quotes Chinese officials saying they will reiterate that they have not sold any Treasuries or agencies and have in fact continued to buy those securities, sources said.

But unless the U.S. calms its criticism, Chinese officials plan to tell Snow during an expected visit this year they may reconsider their purchases of Treasuries and the debt sold by the two biggest U.S. mortgage financing agencies, Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News), market sources quoted the report as saying.

Those steady purchases from China and other Asian countries have helped bolster the dollar and keep a lid on long-term U.S. interest rates.

Medley declined to comment on any reports issued to clients.

"We do not publicly comment on our reports. We have been covering the topics of Asian interest in Treasuries. Yesterday's rumors seem like a hotchpotch of different stories, combined with violent market action," said Sassan Ghahramani, senior managing director, Medley Global Advisors in New York.

China, Japan and other Asian countries are all big buyers of Treasuries and agencies as a way of keeping their currencies weak to the dollar, thereby boosting exports. The countries often funnel dollars coming in from their trade surpluses back into Treasuries and agency debt.

Through May, Japan and China were the two largest holders of U.S. Treasuries, with $428.6 billion and $121.7 billion respectively, according to Treasury data.

Total Treasuries and agencies owned by foreign central banks stand at a staggering $935 billion, and most of those belong to Asian central banks.

Any slowdown in those purchases or even outright selling would almost certainly drive up long-term U.S. interest rates, hurt the dollar and increase borrowing costs of Fannie Mae and Freddie Mac, not to mention the U.S. government.

Snow's recent repeated calls for China to revalue the trading band of the yuan has been widely seen as a political move as the Bush administration attempts to calm the ire of struggling U.S. manufacturers heading into next year's presidential election. In late July Snow brought up the yuan revaluation at a manufacturing plant in Milwaukee, Wisconsin…..

-END-

Medley Global Advisors is widely respected and have great connections.

China can also put a gun to our head when it comes to the gold market. All they have to do is to threaten to sell Treasuries and buy gold with the proceeds. GATA pointed this out to Speaker of the House Dennis Hastert when we met with him in the Capitol Building on May 10, 2000.

GATA’s Mike Bolser:

Hi Bill: Today the Fed added only $1.75 Billion in repurchase agreements but with an expiration of $7 Billion the pool of funds available to primary dealers to support the DOW has fallen to $17 Billion. This is far below the pool's moving average and conspicuously bends the down slope further down.

With the dollar firm so far today the Fed's ESF funding is not noticeably challenged so we can surmise that the Fed is getting serious about prompting the DOW to fall. Remember that expiring repos must be repatriated by the close of business so this clerical fact tends to precipitate end of day DOW slumps.

We now have seen a $10 billion drop in repo pool totals [30-day moving average] from their highs with the primary dealers struggling mightily to extend the DOW's government sponsored "Iraq War Rally" as long as possible.

It's just about done.

With the DOW flat and gold up at this hour the Fed can't be lighting to many cigars.

Best, Mike

Chuck checked in this morning:

Bill: I am sure you have noticed that the golds and the metal are moving up against a down Euro and that gold is now above the Friday massacre of last week. Hmmm!

Finally, and I think very prophetic. The amount of puts bought the day before yesterday on the gold futures totaled 33,000, easily the most I have ever noticed. It means that something big is here, and my guess is an explosion upward and onward. Rally the troops. Chuck

and again after the close:

We're setting up some explosions here. The fact that silver didn't join in is a positive. The TFC silver sentiment indicator is very negative or very positive from our perspective. The move against a relatively strong dollar is very positive, and more and more stocks are breaking out or ready to. I wouldn't be surprised to see some of the little ones double in a week. This is a once in history event, and the action in the stock market today indicates that the tide has turned.

Bill, you know I mean this: Your outlandish statements of what is going on behind the scenes and what will happen will appear to be much more real and accurate than all of the false prophets that are crying "peace, peace" where there is no peace. Exciting couple of months coming up. Chuck ikiecohen@msn.com

Right on the money commentary from The Netherlands' Eric Hommelberg:

Hi Bill,

Interesting news regarding demand for Gold : "World gold consumption is set to increase by 300 to 400 tons a year over the next five to ten years, as a result of new industrial applications of the metal, according to the World Gold Council, concludes Conradie."

www.miningweekly.co.za

So what can we expect upcoming years regarding demand for Gold ? 1 - Chinese Gold Market is expected to generate an additional demand for Gold of 400 ton/year (conservative estimate) 2 - Introduction ETF’s for Gold are expected to generate an additional demand for Gold of 400 ton/year as well. 3 - Industrial applications are expected to generate an additional demand for Gold of 400 ton/year as well. This brings us to a mind boggling increase in demand for Gold by at least 1000 ton/year. This will increase the total demand for Gold to at least 5000 ton /year.

Knowing that the current production of 2.500 ton/year will drop by 30% to less than 2000 ton/year by 2010 only the complete brain dead people will continue to believe that this Bull-market in Gold won’t last !

All the Best, Eric

Irony:

Bill, according to latest news reports, the Cabal member JPMChase is starting to outsource analyst jobs to INDIA. What irony, as the continued growth in the INDIAN economy will result in larger offtake of GOLD and help to blow up the Cabal Gold Derivatives!!!! JC

GATA consultant Rhoda Fowler of Durban, South Africa has been nominated as Rotarian of the Year. She has been instrumental in helping Zulu orphan kids around Durban. GATA, myself and a bunch of Cafe members have contributed funds to help Rhoda in her efforts. If anyone would like to know what we are doing and what this is all about, you can contact Rhoda at rfpromo@iafrica.com.

From Café favorite, Mahendra:

dear Bill,

I still remember on the 9th September 2001, in an interview I made at 1.30pm at SABC TV in Johannesburg. There were five most important predictions that I made on that day:

South Africa economy will rise because of the Gold rise.

Extensive terriorist attacks against the USA. Collapse of US dollar - Major scandal will come out on counterfeit of the US dollar note; this would be one of the reasons the dollar will collapse in the international market.

Aids cure will come by the end of the year 2003.

Last but not lest, and the most important prediction was; gold will rule this century and the prices of gold will rise for the next 51 years.

-END-

PS I knew of that interview from Rhoda who sent it to me at the time from South Africa. Mahendra also said gold would bottom on a certain day in November and go up from there. I said as such in MIDAS that September. Gold turned on that exact day. From then on, he became a favorite of the chairman of one of the world's most prestigious gold producers.

LATE EDITION serving:

Hi Bill

Jolly good day ..ey...made a years pay today,a whole freaken year...gata be in to win!!

In the MIDAS you mentioned Mahendra predicted a certain that gold would rise....I have a scrap of paper pinned to the coakboard at the trading desk.

It says: "POG 11/27/01 273.50" ,,that was the day Mahendra picked and I wrote down the low for that day. It's been hanging there since.

His correct statement was "gold will go up beginning Nov 27,2001 and never go back".....hot dam!..I've watched it in relation to that prediction and it never has yet gone below 273.50. all the best,

Jim Cullinane..Rye-NH

One thing for sure, we are seeing more and more stories out there which are gold friendly. From www.bulliondesk.com today:

Australian Gold Industry Looking Forward to High Prices

Demand for gold to surge: WGC

Month-long gold festival in Kerala By ChennaiOnline News Service

Kochi, August 7: In an attempt to revitalise interest in the yellow metal and showcase the traditional craftsmanship of the gold jewellery in Kerala, a month-long gold festival is being organised in five cities in the state from October 10.

The West Australian

MELBOURNE

NEWMONT Mining Corporation president Pierre Lassonde said today that while the gold price was expected to reach $US450 within 12 months, the Australian dollar price outlook was less optimistic….

Then, from Reuters this afternoon:

Gold Bugs Send Index to 6-Year High Fri August 8, 2003 02:09 PM ET By Alden Bentley

NEW YORK (Reuters) - Seeking refuge from an imploding bond market and troubled dollar, investors are piling back into the gold sector, driving shares in pure-gold-play mining stocks Friday to their highest levels in more than six years.

On the American Stock Exchange, the HUI Gold Bugs Index .HUI -- comprised of mining companies that only sell gold as it is mined, instead of pre-selling to lock in future prices with forwards and options -- surged 3.3 percent to 174.33, its highest since March 1997.

The spot price of gold bullion and the Philadelphia Stock Exchange's more inclusive XAU Index .XAU of gold and silver mining shares were also grinding higher but lagged the non-hedgers, which some small investors and portfolio managers see as a more liquid proxy for physical metal.

The XAU Index was up 2.5 percent at 84.73.

"The stocks are telling you that gold should do something," said Caesar Bryan, manager of the $210 million Gabelli Gold Fund. "People buying the equities clearly think that the gold price is probably going to make some progress."

The HUI is up 18 percent this year, doubling the 9.5 percent gain in the XAU and the 9.8 percent rise in the Dow Jones industrial stock average.

The XAU is considered the benchmark U.S. precious metals index. But the HUI has stolen some of the attention this year as miners rethought long-time hedging programs under pressure from investors angered at companies that overhedged and could not benefit from rallying bullion prices.

Newmont Mining Corp. NEM.N , the world's largest gold company, also set a new high at $38.24 on the New York Stock Exchange Friday, continuing to capitalize on an anti-hedging policy.

Greg Weldon, publisher of Metal Monitor and Money Monitor, said "That same breakout is not being confirmed by the hedged XAU and some of the other blue chippers," specifying AngloGold Ltd. ANGJ.J of South Africa and Barrick Gold Corp. ABX.TO of Toronto, both hedgers, which round out the top three producers.

"Is this simply money flow out of bonds and bond funds and into shares as we see the stock-bond ratio flip the other way toward stocks again?" he mused. "Since financial shares are on the ropes ... You are looking at cyclicals, and more specifically some of the base metal stocks have gotten a bid and some of the leading mining shares."

Newmont, with a market capitalization of $14 billion, rose from No. 2 to No. 1 in the industry last year after acquiring Australia's Normandy Mining in a three-way deal with Canada's Franco-Nevada Mining Corp. Ltd.

It immediately vowed to unwind to unwind some 10 million ounces of Normandy's hedges, a task it has nearly completed.

Gold was the winningest stock sector in 2002 and remained a darling this year, as nervous financial markets favored hard assets while the United States went to war in Iraq and the economy teetered on the brink of recession and deflation.

Bullion rose to its highest price since 1996 in February. While its current price around $357 is off some $31 from the $388 peak, there has been no sustained let-up in interest.

Ironically, mining companies last year turned into net buyers of gold as they unwound forward sales. For years gold bugs had complained that hedging was depressing the gold price.

This contributed to the about-face in sentiment since 2001. In the 1990s gold looked like a relic of the old economy and its price hit a 20-year low at $252 an ounce in 1999 before the stock market boom went bust. (Additional reporting by David Brinkerhoff)

-END-

Reports came back to me today that huge amounts of private pooled money is pouring into the gold shares, which we could see by today’s surge. The good news is that JQ Public still remains clueless about gold. They are not in this market yet. Their buying is still to come.

I’m pleased to say it appears this is all about the "Paradigm Shift" I have been talking about of late. No sense repeating all of that. New Café members can review the reasoning by putting "paradigm" into the Café Search function found at the bottom of Le Menu.

As stated in past MIDAS commentary, gold is going to be the GO TO investment. We’re on our way!

I have spoken of and guaranteed a gold share buying panic. We’re not there yet. But, today’s dramatic gain by the HUI is an indication what is coming. PANIC!! Shares will go nuts at some point in the near future because everyone will want in, the gold share float is tiny and few gold shareholders will want to sell. It will be like the Internet crazed days except the gold move will be for real.

The HUI went berserk to the upside today, closing up 8.49 to 177.12, up 5.03%. The best HUI performer again was Golden Star Resources, my largest holding. It soared 11.6%, up 37 cents to $3.55. Yep, $21 doesn’t look that far away anymore. The XAU climbed 3.81 to 86.44 which will make John Brimelow’s friend, Martin Pring, happy.

Runaway HUI

bigcharts.marketwatch.com

Bellwether Newmont closed up $1.38 to $38.33, yet was only the 5th highest percentage gainer in the HUI.

So much for the Newmont short trade.

Samex, SMXMF on the Bulletin Board and my second largest holding, closed at 29.5 cents US, up 7.27%. I fully expect Samex to pull a Golden Star in the months ahead.

GATA BE IN IT TO WIN IT!

MIDAS

Appendix

Subj: ECU Silver Resumption of trading

Dear shareholders,

We finally got the letter of conformity from the BCSC and the confirmation from the TSX Ventures that trading will resume Monday morning August 11th, 2003. It has been a very difficult period but it has ended and we can now look forward to executing our development plan described in our last press release. We expect to keep you all posted of new developments regularly over the next couple of months.

Michel Roy

Aflease, DRD team up on the cards

By: Daniel Thöle

Posted: 2003/08/04 Mon 17:10 ZE2 | © Mineweb 1997-2003

JOHANNESBURG – The market speculation is accurate - South African gold junior Afrikander Lease is exploring opportunities with marginal miner Durban Roodepoort Deep (DRD), Aflease chief executive Neal Froneman confirmed yesterday.Aflease has been the subject of intense interest over the last few months, as the controversial Kebble family has increased its interest in the group and speculation has mounted about the group’s talks with DRD.

At the release of the group’s second quarter results yesterday, Froneman said Aflease would maintain its focus on its current assets, which were well on their way to performing satisfactorily, but the board had also approved a strategy of growth. "There is a lot of potential for synergy in the Klerksdorp area, with our assets and DRD’s North West division," Froneman said.

DRD spokesman Ilja Graulich said the talks between the two groups were initial, but the geographic proximity of the operations opened up a range of possibilities.

A leading Johannesburg based gold analyst said the group had "interesting assets", which it should concentrate on developing before it entered into a deal which may give Aflease more flexibility, but would also be risky.

The group plans to increase production at its existing mine to 100 000oz by the end of this year, from the current 35 000oz – an expansion which Froneman said is well on course.

"They’re exuberant…they’re growing and their ambitious, I just hope they know what they are doing," the analyst said.

Froneman also announced an operational empowerment joint venture with Umbhono Resources, which will see the two parties develop the Turnbridge and New Kleinfontein assets on the East Rand, which Aflease sees as non- core.

Aflease and Umbono will team up to conduct the feasibility study for the project, and will then co–develop it. Umbono also acquired the right to acquire Aflease’s stake in the project once it is performing according to plan.

Aflease has been the target for a handful of empowerment deals lately - Randgold and Exploration acquired what Aflease said is a 3.9% stake in the group through an empowerment deal it concluded with Phikoloso mining last month. "This is not a significant stake – we’re not sure of their intentions," Froneman said.

Prior to this, Kebble controlled JCI financed empowerment group’s Kabusha Mining’s acquisition of a 12% stake in Aflease, giving JCI 6% voting rights in Aflease. "It means something that Brett Kebble is interested in Aflease – he’s obviously seen something he likes," the analyst said.

June results

Aflease doubled its operating loss in the second quarter, as gold production slid 32 percent to 129kg from 191kg due to problems with the new CIL (carbon-in- leach) plant, which will reach full throughput in October.

The R28.5 million loss was in line with expectations – in a profit warning released on June 6, Aflease said its June quarter loss would double from March’s R14 million. In the group’s last set of full year results, it posted a cash operating profit of R28.02 million.

With the new CIL plant, Aflease will see throughput jump to 200,000 tons per month from the current 135,000. Plant recovery jumps from 57% from 95%, while the recovered grade doubles 0.6 to 1.25 grams a ton.

The stronger rand also prompted the group to follow Gold Fields’ lead, by amending its planning price to R85 000/kg from R95 000/kg.

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