THE GOLD MARKET

Since my last Letter, the gold market has exploded in price. As discussed above, I believe that it is telling us that we should now expect more of the same. Friday’s London second fix was $495.90. Its 50 day moving average is 470.59 and its 200 day average is 441.34. Thus it is in a full, bullish mode under its moving average study.

I anticipate that the $500 to $510 range will temporarily act as strong resistance for the yellow metal. This is due to three reasons. First, round numbers typically act as support during market declines and as resistance to advancing markets, and $500 is often a major hurdle. Next, after gold’s temporary $297 Bear Market low in1982, it has been unable to rally above the $510 mark. Finally, it is quite extended compared with its 200 day moving average, and may need a rest to let this average catch up with it. However, when it surpasses the $500-$510 zone, I anticipate a sharp advance to unfold. Importantly, to my mind, any show of substantial near-term strength from this level should be viewed as a change in the tone of the market. It will indicate that far greater demand, if not panic, abounds for the eternal metal.

Throughout gold’s Bull Market, we have experienced numerous advances and frightening price reversals. This has acted to keep the public out of the market, which is a long-term positive. When John Q. Public enters gold he will act to drive its price to astounding levels. I do not believe that this event will occur for quite some time. However, when it does transpire it will be from a far higher price, and will generate a breathtaking advance that will richly reward us for our belief, anguish, and patience.

The road ahead will similarly be fraught with periodic, sharp price declines as gold works its way higher in price. If you anticipate their appearance as I do, your life will be far less stressful. It is always best to limit your exposure in gold or any other investment field. You should never commit more money to a position where a serious adverse market action no matter how brief, will give you sleepless nights. Owning gold is no different. I have found that whenever I overinvested in a given area I always exposed myself to being tricked out of the market at precisely the wrong time. It was typically when I had endured an important price reversal and just prior to when an important bullish continuation was about to unfold.

The silver market is exceptionally performing. The white metal is on the cusp of breaking to a new Bull Market high. It closed last week at $8.13 after posting $8.20 intra-day. This places it within striking distance of its $8.31 bull peak. It too has been plagued with countless, sharp, price reversals. We may yet be forced to endure another when it probes a new, Bull Market high. However, when it decidedly leaves its present high point in the dust I believe that far higher levels will be shortly posted.

The uranium market continues higher without even a hint of a set-back. Its most recent spot price was $34.25. I continue to view this market as a primary beneficiary of the unfolding global petrochemical shortfall. With oil and natural gas likely destined to remain at record- setting levels I believe that uranium’s future is sealed. Uranium is a natural replacement for oil and natural gas in the world’s quest to satisfy its seemingly insatiable demand for electrical power generation. Given its large annual supply deficit, combined with the typical five to seven or more years required to move from the discovery stage into production, I believe that upward price pressure will be with us for the foreseeable future.

I discussed copper at depth for the first time that I can recall in last month’s Letter. I explained my reasoning for a quick move to the $2 or higher level. When I did so I had no inkling of the intrigue that was about to unfold in that market. It surrounded China’s major copper trader and their government. It is rumored that their head trader is short between100,000 and 200,000 tonnes of the metal, and its delivery must begin by mid-December. Further, the Chinese government has stated that they are not responsible for any losses that he may have accrued. Additionally, rumors are flying that this may be a Chinese ploy to positively influence the market.

It remains to be seen what the outcome will be. However, I believe that it is likely that there is a massive short position overhanging the market, that has the potential to drive it significantly higher. One of the items that suggested to me that the market was ready to explode was the minuscule commercial net short position given the fact that it was probing all-time high Bull Market levels. In retrospect, I believe that this existed because the major players already knew or suspected the news that was about to break onto the scene.

This is the reason why you should rarely bet against the commercials in any market. They are the most sophisticated, best informed, and best connected group in virtually any market. This is why I view their net positions as being among the most important factors in helping determine the state of any market that I follow.