--> Friday, December 03, 2004, 6:34:00 PM EST

Gold Market Summary

Author: Jim Sinclair





As the dollar goes, gold moves in the inverse. The US dollar stopped its rally yesterday one tick away from its 1995 low. Today it folded its tent and dropped like a stone.



Why the dollar did this today does not really matter. The fact is that the weakness in the decline reveals terminal lack of positive stability. It is a simple as that.

1. Hold your real gold.
2. Hold your gold shares.
3. For the traders, stay disciplined at least to power trend lines.

In my opinion, no rally in the US dollar has staying power therefore no decline in the gold price has staying power.

Click here today's action.






Friday, December 03, 2004, 6:17:00 PM EST

Jim’s Mail Box

Author: Jim Sinclair





Hello Jim,

There is a theory that the Cartel was having difficulty holding down the price of gold to blunt the gold expirations and decided to attack the price of the gold stocks directly. Thus the 10 point fall of the HUI etc. Do you buy this theory???

Golden Comet"Mack the Singer"



Dear GC-MTS:

Let me answer this complex question in parts and then conclude.

1. Clearly the Cartel has lost control of gold which is controlled by the US dollar as an alternative currency. Since the dollar market is larger than any central bank or all central banks together, the Cartel can at best pound gold when the dollar rises. Since no dollar rally has staying power, no gold decline has downside staying power. In short, the Cartel as a risk to the gold price TREND no longer exists.
2. Today's market offers so many ways to speculate that Las Vegas only exists because casino gambling house clients have not found the market. There is little investment left as the world has become a speculative forum.
3. Major gold shares have options outstanding as puts and calls. Ratio traders make computer calculations whereby gold positions can be hedged by short of gold share option spreads while being long gold and visa versa. Funds also long gold shares operate for income by selling gold calls against their positions. The net effect has been negative on balance to major listed gold shares. Major gold shares always set the environment for smaller exploration and development issues. This has produced downside pressure first on the majors and secondly on the juniors. Downside pressure on majors can surface as muted gains in positive trends.
4. The great spin against gold producer shares is that they are not asset based entities but rather like an industrial to be valued on PE. There is no concept of the fact that gold shares are leverage items earnings wise to the price of gold via growing reserves as the price rises.
5. Some major producers still have gold derivative positions that turn off investors as gold appreciates significantly.
6. The Cartel names enter the equation for gold shares as any or many of the above reasons rather than as a strategy to break the unbreakable gold price as the dollar declines.

However, as gold gets more expensive and volatile it eliminates the average investors, even the most aggressive ones, and all but the most professional full time traders. This will soon occur and cause a desire to find alternative investments in gold with the potential of leveraged gains. Gold funds do not offer leveraged plays but do affect gold in a positive manner. This desire for alternatives to gold futures or gold options where major leverage is resident will bring a new public into the gold shares.

The impending freefall of the US dollar, regardless of any actions to mute the fall, is convincing many that gold should be considered as an investment. This is going to be the driver of a new public into the gold shares. The resident advisors in the Gold Community who have called tops, all of which are much lower than the present price of gold, are going to be run over and forgotten - if they have not already been - by investors as the price of gold appreciates.

As the juniors get kicked harder on the downside when the majors get sloppy or decline, in time, the opposite will occur. The juniors have historically moved faster on the upside than the majors as percentage return. The majors move nicely on the upside in a big gold bull market once it becomes accepted amongst the general investment firms.

This change in acceptance of gold from an ignored issue will begin to happen as analysts from major brokerage firms and financial TV cannot any longer ignore gold as news.

As majors are forced to acquire juniors because of the need for more reserves, gold shares will be brought onto the radar screen of those major firms that have long simply ignored them.

Conclusion

There never has been nor will there ever be a major bull market in gold that fails to produce a major bull market in gold shares. The key to this is the fact that gold is becoming extremely volatile and expensive. Both will happen and drive investment towards the gold shares.

If I did not believe this firmly, I would not increase my position every month in a significant way in the gold share of my choice. My play this time around is infinitely larger in a precious metal share position than in gold itself because I am no kid anymore. Only kids or nuts are able to handle the stress of large futures positions where your life passes in front of your eyes many times in one session. I do not play for peanuts. I am more comfortable in a large position in a precious metals share than I am in the futures or the metal itself because of extremely leveraged risk. I trust me and that helps.


PS: Soll dies jetzt sogar ein Fingerzeig*) gewesen sein?