The gold community has once again succumbed to the big lie that the only reason gold is above $305 is the potential of an Iraq War. Now every word out of the UN is accepted as gospel. All the economic rationale for gold's strength has been swept under the rug. Even the purchase of $373 million dollars worth of gold reported this week has been taken as a negative event. There isn't a chance that the UN will back the US in an Iraq War. That has been evident now for quite a period of time. We have already covered that. I see no reason for revisiting the economic rationale for gold. I have covered that time and time again. All I can say is that the majority of this Gold Community has no conviction at all.
As a result, the volatility that we are going to experience in gold will write records in the history books. There is no question in my mind that we are going over $400 in 2003 and in 2004 above $500
I have outlined the worse case scenario for gold which is, I believe, $342.50 but I have given respect to a 100% pull back or $332.50 which I do not expect.
Thu Feb 27, 2003 Why do central banks do what they do? Author: Jim Sinclair
Q: Against the backdrop of some of the Central Banks (if not all) having leased out a lot of their gold so they no longer have the physical gold in their vaults, I am having a hard time trying to understand the recent Central Bank sale of gold on the open market. Why would a Central Bank today sell its gold (an appreciating asset) for U.S. dollars, (a depreciating asset?). Was the sale for Euros instead?
A: You are most likely too high on your estimate of the amount of gold leased. It is high but certainly comes no where near the 900,000,000 ounces of gold held by all central banks as a total. The answer: To depress the rising price of gold and to obtain in exchange depreciating dollars. Also, because it is OPM = "other people's money" and for political reasons. It may well be that but more than likely they will for now hold the depreciating dollars in the form of depreciating treasury instruments for political reasons. --------------------------------------------------------------------------------
Thu Feb 27, 2003 Home is where the value is! Author: Jim Sinclair
Q: I am a Canadian holding a trading account that settles in Canadian dollars. I am interested in buying some mining stocks that are held on U.S. exchanges but do not appear to be cross-listed on Canadian exchanges. One reason for buying gold stocks is to avoid currency exposure. I expect the drop in the U.S. dollar to continue. I believe that much of what ails the U.S. dollar also ails the Canadian dollar. I am concerned about buying and selling U.S. stocks and settling the transactions in Canadian dollars. If the C$ gain on the U$ were higher than the stock price gain (net of commissions), I would actually lose money. Is there a better way for a Canadian to invest in some of the quality companies traded on the U.S. exchanges?
A: Keep in mind that when you buy a US gold share you are exiting the Canadian dollar and entering the US dollar. The Canadian Dollar at 1 to 1 to the US could be coming up. As such, you are better off in a good Canadian gold stock trading in Canada.
You are better off now in the Canadian Dollar IMO. All we can do is to look at these currency relationships as they occur. For now, I believe you should stay in Canadian Dollar denominated gold stocks. That depends on the % gain on the shares and the % gain on the currency versus the dollar.
Unless your investment exceeds $125,000, then you can go long one future Canadian Dollar equal to each $125,000 you put into a gold company traded in dollars. You protect yourself if the dollar declines but if the dollar rises and your gold share declines you have increased your loss. ---------------------------------------------------------------------------------
Thu Feb 27, 2003 Is energy sector drawing money from gold? Author: Jim Sinclair
Q: Do you think it possible that the energy price volatility of recent days is drawing monies away from the gold sector? Also, when and if the war starts, will this lead-up buying in oils reverse and will the rally in gold start as money flees oil for hard assets? This could be a last effort to cover shorts in gold as it declines into the war and then rallies on the flight to safety after drawing monies from oil, the dollar, some treasury and finally the stock market giving gold its new high to the 420.00 range.
A: Not really. I outlined the causes as I see it and it will be posted on jsmineset.com. Gold is that perverse so it may well rise and hold into as war. However, the big lie that the community had bought is that gold strength is dependent on war so it is. I look for gold at and above $400. ---------------------------------------------------------------------------------
Thu Feb 27, 2003 Will storing your gold in a warehouse keep the shorts honest?
Q: Does holding a "bullion warehouse" share (for example CEF.A - I don't know of any others) have the same positive effect in keeping the short speculators honest as me personally taking delivery of the same value of metal would? CEF.A describes itself thus: "A closed-end investment holding company which, by its articles, must maintain a minimum of 90% of its assets in gold and silver bullion of which at least 85% must be in physical form."
A: No, it will not. Your gold is still in the warehouse. If you wish to add to the risk factor for the short, you need to take physical delivery of the gold. ----------------------------------------------------------------------------------
Thu Feb 27, 2003 What the hell is going on in New York? Author: Jim Sinclair
Q: I am wondering: Who is doing all the selling in New York? What is the dynamic? Is it the US government trying to prevent a dollar collapse by braking the rise in gold? Is it bullion banks braking the rise to buy time to cover their derivatives? Just what the hell is going on in New York with these sudden off the cliff drops?
A: The major selling at $390.80 preceded a $372 million dollar gold central bank sale in the week of February 21st. It is possible that the sale was in fact the body block thrown into gold as it moved near $400.
Since then our community has in their minds the following scenario:
1/ The war will last 48 hours if it occurs. 2/ The Iraqi oil fields will not be disturbed. 3/ Iraq oil will be pumped to offset the cost of rebuilding Iraq
OR
4/ There will be no war at all. 5/ North Korea is not a problem and their rhetoric is only a negotiating stance.
This mindset by the community has resulted in the decrease in the price of gold and gold shares. If this scenario does not materialize consider the following:
1/ The War, which to succeed will involve street- to-street fighting in Baghdad, might take longer than expected. Remember the Somalia event ("Black Hawk Down" and how things can go wrong regardless of the greater military might of the USA. 2/ Regardless of what Saddam Hussein has said it seems unlikely he would leave the Iraqi oil fields intact for the pleasure of the American forces. 3/ Gold is supported by significant fundamental factors that have nothing whatsoever to do with an Iraqi war. 4/ The US dollar is headed significantly lower.
Therefore gold will reach and exceed $400, IMO. ----------------------------------------------------------------------------------
Wed Feb 26, 2003 The fax and nothing but the fax Author: Jim Sinclair
Q: Which is the best e-mail to use? Hope all is well with you.
A: You have used the correct email. Let me suggest that you use my fax: 860 364 0673) during work hours and: 860 364 1019 evenings and weekends. Ask your question and I will reply. Few people fax me. I have about 3000 backed up emails to answer that I work on every day, all day, as well as trade the gold & currency markets actively, plus running a public company, plus writing up gold market events that the community might be interested in.
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