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To: ms.smartest.person who wrote (1133)	6/8/2006 6:06:45 PM
From: ms.smartest.person	Read Replies (1) \| Respond to of 3198

Bill Cara: Why the gold price is falling, Thurs., June 8, 2006, 11:40 AM Gold is a commodity both like and unlike any other. There is a supply-demand factor as well as an emotional factor. That much we know. But there is another factor called speculation, which is based on market guesswork. Today comes word from the Prudential Equity Group metals research analysts that metal prices have died and gone to heaven. Download Prudential Metals Report dated June 7. billcara.com By that I mean to say that Pru is interpreting markets that speculation has been zapped. Bankers would like to think that way. I’m not so harsh on speculators because I think they have a more open mind. Presently the gold traders of the world are hung up on their questioning whether the U.S. is going to fight inflation or not. They see a 10-year U.S. Treasury Note that yields about 5.0 pct and a Fed overnight bank lending rate at about 5.0 pct. And they know that through this dance between key rates, the ultimate outcome – economic growth/inflation or recession/deflation – will happen. So their figurework goes like this: if Fed rates go higher than bond yields, then score one for the recession/deflation side; but if bond yields go higher than Fed rates, score one for growth/inflation. So – try to follow the logic – if bond yields fall, then the Fed can actually drop its rate or keep it from rising higher. That way we can avoid recession/deflation AND have growth without inflation, i.e., without an inflation problem. So what the Fed and the bankers are trying to do here is to drop the bond yields and drop the price of gold in order to give the appearance that the economy is still a “goldilocks” one that they can manage. Of course this is not what the gold traders expect will be how the game will be resolved in the end. They think that inflation is an issue, brought on by the waste of war, and that interest rates and bond yields will rise, but rise only to the point that the housing market comes to the point of a breakdown, whereupon the Administration will step in and print its own money (through its fiscal actions) in the belief that the Fed will not remove it (through monetary policy). So, what I am really saying is that Henry Paulson was brought in to do a job that Ben Bernanke can’t seem to accomplish with the tools he has, or that Paulson’s predecessor at Treasury could not do, which is to get his Wall Street banker friends to direct their capital and their client’s capital more to bonds in order to hold those yields down. So I do expect to see, from this point forward, more heavy asset weightings in bonds and less for equities in the Wall Street bankers recommended portfolios. Moreover, I expect to hear more talk from Wall Street that inflation is not a problem (such as Stephen Roach at Morgan Stanley) and that a “soft landing” to this economic cycle will resolve the problems. In fact, I think we are all going to be hearing the words “soft landing” to replace the old and stale rhetoric of “goldilocks”. These people have a vested interest to have the gold price fall and the $USD rise. The world, however, is bigger than the Fed and Administration and a wiser place today. So ultimately the world will decide where the price of gold will go. Yes, today the price of gold is falling. It is being pushed down. The further it is pushed, the bigger will be the reaction. Ultimately the people will decide. The people, here and abroad, will decide if they want to buy certain goods at higher prices, and they will decide if they will spend from their savings or demand more return for their labor in order to maintain their habits. Elected representatives too, here and abroad, will decide if they will continue their penchant for deficit spending – always borrowing from the future. As I see it, the people in power – the Presidents and Prime Ministers, the Finance Ministers and Central Bankers -- are there for a short time. Some things, however, never change. And that is why gold might fall in the short run, but very long term it must continue to rise, and that’s because costs (including inflationary costs) are always rising. Btw, I see from the Prudential report available here, that Dr. John Tumazos has metal cost estimates in future pegged to somewhere near his estimates of the cost of production. He feels the cost to produce (the majority of) gold bullion is not higher than US$450, so his estimate falls in line. So (without knowing for certain, and without having the time to read his lengthy report) I gather that Tumazos is negative on the metals because he believes that economic demand is weakening, the interest cost of inventorying the metals is rising, and that speculative demand will soon die. All of that is possible, but I’ll take the other bet. Posted by Posted by Bill Cara on June 8, 2006 11:40:50 AM \| Category: Bullion billcara.com

To: ms.smartest.person who wrote (1133)	6/14/2006 10:52:57 PM
From: ms.smartest.person	Read Replies (1) \| Respond to of 3198

&#8362 David Pescod's Late Edition June 9, 2006 We’ve been off the job a while now, but we were lucky enough to attend some Canaccord meetings in southern France and then hey—if you’ve gone this far, why not hang around Europe a while longer and enjoy it...especially in this market! We fully expected to keep up a running market commentary over this while assuming the advances in technology could keep us up to date. Well, that hasn’t happened, but more realistically, why bother? We are in a correction and why fight it? Going back to February we wrote long and often about a correction being due—the market just doesn’t go that far, that fast for so many without some pain. Having said that, once in a correction, you always realize you didn’t sell enough, raise enough cash or remember how painful corrections can be and how long they can last. The charts say it ain’t over yet. There has been no sign of base or support levels put in yet and we have to come back to work and face this reality next Tuesday. Sure, we’ve been nibbling on a few things (you’ve read Jim Welykochy’s report on Capitol Energy (CPX) by now—if that water flood works…)but things get cheap and then cheaper. Meanwhile, in England, this country is what the tourists expects in some way—but surprises you in others. The country has gone agog with World Cup fever—all bars will be showing the games, many cars flying their flags and the press seems to have nothing else to talk about except soccer (Meanwhile, with that much more important sport, hockey, you’ll find nothing about it over here and the Oilers find themselves like at the start of the year, without a goalie) ... The City of London bustles with 9 million people and is obviously a growing financial hub of Europe. A trip on the boats on the Thames, show that financial history and evolution and as far as culture, the West End is hard to beat—42 theatres attract the evening crowds and a flood of good restaurants surround the area. With pre-show and after-show crowds, the restaurants are full and you can ignore the knock on English food. In one short block in the West End, we counted 15 restaurants that were as varied from Mongolian to Thai to East Indian to you-name-it. And the employees are from everywhere. One good meal featured a café owned by an East Indian gentleman where we were served by Polish and Jamaican waiters and the menu was Italian. As for the plays, we saw Phantom of the Opera at Her Majesty’s Theatre where it debuted 20 years ago and is still going strong. An intimate theatre with oodles of history—it was great. The Producers was another good show with a strong cast and better yet supporting cast. While many think of England as the financial and cultural centre, it’s a pleasant surprise where we visited in the rugged coastline of Devon and Cornwall. Towns like Tintagel, with its unbelievable rough coast and fame as host to King Arthur’s Court of almost 1000 years ago and it’s a place that simply has to be seen to be believed. When you speak of history, how about Plymouth, where 500 years ago, this Spanish Armadda tried to trap Sir Francis Drake and the English fleet. Up through the Second World War when 35,000 Canadian, Aussie, British and American troops were launched from this location on their way to D-Day. Now it’s the home to the British Navy and a tour of the harbour to learn its history, you also see the site of all those nuclear subs, frigate and more ships and it is a taste of power and the real world. This area folks, should be on one’s “To Do List” of places to visit and we are a little appreciative of the few shares of Connacher (CLL) that helped pay for it. When we do get back, we still expect more choppy seas, but an interview with Canaccord’s Peter Brown is coming that I think you will find interesting as well as a visit with Dick Gusella of Connacher fame and hopefully a few surprises. Ciao for now from Bideford, Devon, England.