Sand Spring Advisors LLC

Oil Silly, But Gold Maybe Not

September 7, 2002

by, Barclay T. Leib

Back on August 8th, within the Sandspring.com chatroom, I offered subscribers the following gold market thoughts:

Although having turned agnostic on gold awhile back after a nice run of profits, and having saved myself all the mental anguish of the recent choppy range and sharp decline in some AU stocks after the Bullish Consensus reached above 90%...

...one will also see in my writings a historical proclivity to expect that Nov 2002 could be a gold high.

What we need now to confirm this in my mind would be TWO solid closes above 315.20 in cash (a level that failed Wednesday Aug 7th [and several times thereafter in August]). Upon such an occurance, then 354 then becomes a realistic target.

Conversely, a break of 290.70 cash, and I'm afraid to say that gold will likely be caught in a short-term fall in the price of other commodities -- copper, oil in particular -- into an intermediate-term (2003-2004) sewer of debt deflation.

In between these two levels, I shrug.

Well, this past Thursday and Friday finally represented two solid closes above 315.20, so I must look to the chart below and anticipate that a target of approximately 354 is now in the cards.


Chart constructed using Advanced GET End-of-Day

Given the relative appearance of the physical metal chart versus a slightly more "broken" appearance by many gold equity charts (As an aside, many burnt fingers now exist from having chased the likes of obvious big-cap gold names -- particularly Newmont and American Barrick -- as high as those stocks went in late May/early June), we would not be surprised to see the actual cash metal outperform many gold equity plays during the latest anticipated gold price advance. Notwithstanding that view, we believe Ashanti Gold (ASL - $5.35) might be one stock in particular with a good shot to reach new highs in the not-to-distant future. We see resistance on ASL between $6.85-$7.35.


Chart constructed using Advanced GET End-of-Day

Now please do not confuse commodity markets. Sandspring.com once again turning bullish gold does not necessarily make us want to throw in the towel on our previously espoused bearish crude oil (dead wrong to date) and copper (dead right to date) views. If Iraq is attacked, and its crude supply chain disrupted, Iraq's one million barrel per day supply will easily (and happily) be supplanted by other OPEC producers who have ready capacity to produce up to 5 million more barrels per day. In addition, just look at the chart below of the U.S. strategic petroleum reserves. The friend of mine who sent me this chart referred to it as the "Clinton Dip and the Bush Refill." There is simply tons of petroleum out there just ready to be released to the market. Crude prices may still spike up to $30.75 or so in the short-term, but is such a price consistent with gasoline prices in the U.S. being at 2-year lows? We think with time a gap that exists in the daily crude chart down near $22 will be filled.


Chart constructed using Advanced GET End-of-Day

If Iraq hostilities mount, gold, not oil, might be the market in tighter technical supply -- particularly if producers feel compelled to close short forward hedges. Rumor has it that a wave of such activity already started to transpire this past week. We are not GATA conspiracy theorists, but producers do occasionally go through waves of unwinding forward hedges, and this buying can be quite important to market price behavior.

A November 7, 2002 high in Gold? We'll see with time of course, but that certainly feels increasingly right given the gold price action over the past two trading days.


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