Grandich Letter Special Alert
Gold and Markets Update
Peter Grandich
Grandich
Publications
September 14, 2005
 While
not crowded at all (a contrarian bullish sign?), the recent Las
Vegas Gold Show proved to be quite worthy for me (not counting
the losses suffered in the area they call a casino, but I turned
into the Mirage building fund). Not only was I able to get several
updates and learn of new companies of interest, but by spending
a lot of time with attendees, I was able to get a feel on how
the typical retail player is thinking these days. The good news
is also the bad news. What? I found many of the people to be
disenchanted with the junior resource market, particularly when
compared to how well metal prices have done relative to their
shares. So the bad news is that the crowd doesn't seem prepared
to be buying with both fists anytime soon. The good news is that
that means the speculative fever last seen in 2003/early 2004
is now gone and going to set us up for a much better 2006 once
some serious tax-loss selling is completed in the next 120 days.
Gold - We began the week in a fairly overbought condition
technically while the U.S. dollar was oversold. Sure enough,
gold pulled back and the dollar bounced. This is actually healthy
for those of us who don't live and breath gold's every tick up
and down.
I've said it over and over
again but it's always worth repeating - the longer we move sideways
to up (we've made three succeeding higher lows in 2005), the
bigger the base we'll have to challenge and surpass $500. Don't
lose sight that the gold market has never managed to stay above
$500 for any real length of time. Therefore, a solid base above
$400 should give it the foundation necessary to break this ultimate
resistance.
News that global demand for
gold jewelry reached a record $38 billion in the year ending
this past June (according to the World Gold Council), bodes well
for those of us who continue to be impressed by the strong physical
demand. I can't emphasize enough how different this bull run
has been from those in the 1990s and before. Back then, the paper
market (Comex) would continue to rise but physical buying of
gold dried up. This would eventually limit the rally and cause
sharp sell-offs that lasted for many months. Now, any sharp sell-off
is almost immediately met with strong physical buying and before
we know it, the lost has been more than made up.
Silver - "The poor man's gold" continues
to play second fiddle to its namesake and while it can have its
own moments in the sun, it will continue to need a higher gold
price to help lift it up.
Platinum and Palladium - Watch paint dry. It's more fun.
Base Metals - I greatly lowered my overall opinion
a few months back on the belief that we would see an overall
slowdown economically worldwide. Industrial output has risen
in only four of the 23 leading economic countries in the past
12 months compared to the previous year- a sign we're indeed
slowing. I see copper back to $1.25-$1.40 but if you remember
how not too long ago that was a great price, you shouldn't get
too disappointed if I end up right.
U.S. Dollar - The party is over long term. Anyone
who doesn't conclude that the days of being the reigning worldwide
currency are numbered should immediately become a card-carrying
member of the "Don't Worry, Be Happy" crowd on Wall
Street.
I've noted that the 86 area
on the U.S. Dollar index is the key support and we have now bounced
from there twice. So long as we don't take out 92 to the upside,
the 86 area should prove to be the level we end up taking out
on the way down to the critical 80 area by early 2006.
Oil - Given the enormous damage, it's hard to imagine
that such a devastating event like Hurricane Katrina ended up
being at least the short-term water mark for energy prices. But,
I think it did for the main reason I turned bearish on oil before
the hurricane - there was too much speculative interest and only
a one-way mentality that had gripped the market. Now, I don't
see $25-$40 oil again, but I do think the heavily-overweighted-towards-energy
mentality was way overdone and in need of some significant correction.
Peter Grandich
 Grandich
Publications
P.O. Box 243
Perrineville, NJ 08535
phone: 732-642-3992
email: Peter@Grandich.com
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