Metals Update
Grandich Letter Special Alert Wed Feb 2, 2005 snippet

Peter Grandich
February 4, 2005

If someone said back in 2001 that gold would manage to stay above $400 an ounce come 2005, they would've called for the men in the white uniforms. While those same men are not yet needed, the mood within and around the gold market is quite glum and somewhat depressing. Hulbert Digest recently reported that the percentage of newsletter writers who were bearish was at levels last seen during the depression-like markets of the late 1990s. The percentage of large funds on the Comex short hasn't been this high since 2001. Sentiment has almost turned 180 degrees to the bearish camp since I moved to the sidelines in late November. But, has the long-term fundamental pictured changed since then?

The term "secular bull market" has often been used to describe gold's rise. While I don't disagree with this assessment, I think it's very important to note that the rise itself has been mainly on the back of losses in the U.S. dollar. The real gold bull run will be evident if and when gold is rising in most major currencies. Such a scenario appears most likely to begin in the second half of 2005 and into 2006. For now, the dollar is merely correcting a deeply oversold position and rallies should be contained in the 85-86 area basis the U.S. Dollar index.

Now before you buy into the "mouthpiece" of the "Don't Worry, Be Happy" crowd on Wall Street, Mr. Larry Kudlow of CNBC-TOUT-TV and think that Uncle Sam's peso impersonation-the U.S. dollar, has found new long-term legs, consider the fact that both Warren Buffett and Bill Gates continue to predict and bet on the dollar's decline. All those who think Kudlow has a leg up on these two gentlemen need to be told the following:

· Santa Claus, The Easter Bunny and The Tooth Fairy are not real
.
· Elvis died
.
· NHL hockey is not dead (okay, maybe this one isn't 100% correct)

I'll side with Gates and Buffett, thank you.

Because this week is chock full of economic and monetary releases, and Friday's employment release is likely the single most important news to the gold market this week, I'm going to suggest that unless that report shows far above expected job growth, gold is making a very important bottom. Even if they can massage that number, any wash-out caused by such a feat should also lead to a major bottom. Either way, the correction gold has been going through seems to be nearing an end.

I have raised my opinion of silver on the basis that it should act like the poor man's gold if and when we move towards $500 an ounce on gold. I do believe gold and silver deserve equal billing with base metals after suggesting that one overweight towards base metals during most of 2004.

The one metal that looks like it should only work its way higher is uranium.

Peter Grandich
Grandich Publications
P.O. Box 243
Perrineville, NJ 08535
phone: 732-642-3992
email: Peter@Grandich.com

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