Market Update

Peter Grandich
Grandich Publications
July 20, 2005

"It is amazing how many people think that they can answer an argument by attributing bad motives to those who disagree with them. Using this kind of reasoning, you can believe or not believe anything about anything, without having to bother to deal with facts or logic." --Thomas Sowell

Is the world crazy or is it just me? I seem to ask myself this whenever I have watched CNBC-TV for a period of time. Maybe these talking heads are right after all?... Nah!!!!

Americans have been robbing Peter to pay Paul and Peter is tapped out. They have bought into Madison Avenue and Wall Street's mirage that having more money and more things can only make you happier (which means a bus driver can't be as happy as the owner of the bus company). Thanks to this falsehood, places like public storage have flourished. Funny, our parents and grandparents didn't need to "store stuff." Does this mean they didn't experience true peace as we now do? ABSOLUTELY NOT!

The "Don't Worry, Be Happy" machine on Wall Street has lulled the sheep to the gates of the slaughterhouse - again. You would think that after so many lambs were lost or slaughtered (thanks to the equity bubble bursting at the turn of the century), that the remaining herd and baby lambs would be wiser. Unfortunately, the real estate bubble that appears ready to burst can bring widespread carnage at a time when Americans have very few friends around the world willing to be there for them to help pick up the pieces.

Oil $59 -
It's my belief that we're at a cyclical economic peak and therefore the thought of oil much higher than the recent highs above $60 don't seem worthy in my book. The next $15 could be down, not up. More on this in a special oil commentary soon.

Gold $419.10 -
Except for a period of about three years (2000-2003), yours truly has closely watched the gold market. I've been both bull and bear but have greatly favored the bullish side since 2003. During this time, an organization called GATA (www.gata.org) has argued that a gold "cartel" has purposely and willfully manipulated the gold market in order to suppress prices. I have many times been the emcee at major conferences around the world when GATA's leader, Bill Murphy, has spoken. While I had respect and have admiration for his work, I could never "pull the trigger" and enter his camp, mainly because I didn't want to just have an appearance of an excuse when ever gold fell.

On July 1, 2005, my position changed. In my heart of hearts, I personally have no doubt a "bear raid" took place in the Comex pits. Since then, some very peculiar trading has taken place that I can't justify due to general fundamentals or technical trading. Will there ever be a "smoking gun?" Possible, but not likely. But whether we ever see one, I know personally I've now smelled one.

The period of July and August is one of the seasonally weakest periods for gold. Whether the bears are able to break key support around $415 and even get us below $400 briefly isn't a major concern of mine long term. The fundamentals for gold have never been better. Mine supply continues to decline. Jewelry fabrication remains strong. Investment demand outside the U.S. is good. Will the day ever come that American investors sell their tech stocks for a mining company that they don't even know where the company mines? Yes, but not before gold hits and stays above $500. In my mind, such an event is not "if?" but "when?"

Silver $6.93 -
Silver continues to play second fiddle to gold. It gets pushed around far more than gold does, and I don't expect that to change. For now, $7.50 is big resistance but under $7 looks like it offers speculative appeal.

Platinum $863, Palladium $1.81 -
Like watching paint dry. Supply and demand are very well balanced. Meanwhile, new platinum super alloys have been created that can offer more efficient aircraft turbines and power generators. According to researchers at the Platinum Development Initiative (PDI), located in South Africa, this could boost platinum demand by hundreds of thousands of ounces. That is still years away. Palladium, meanwhile, is still in a bear market that each time it seems to see a light at the end of the tunnel, the light turns out to be another bearish train of news that runs over early-bird bulls. Eventually the train will run out of steam. But in our lifetime?

Base Metals - I began 2005 by stating that most base metals should make their highs in the first half of the year. I see little reason to change that view. I believe an economic slowdown is underway worldwide and a softening in commodity prices in general can be expected. I don't believe they will fall off a cliff, but I don't see much further upside until further notice.

Copper ($1.65) for instance, may see a significant drop in the size of its 2004 deficit of about 675,000 tons to maybe as low as 250,000 tons for all of 2005. We could see copper down near $1.25 or so come early 2006. But this would be a buying opportunity, not the first leg of some downturn that takes us below $1.

Uranium $29 -
Love it! Going higher! Any questions?

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

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