Sunday commentaries by Jim Sinclair

Section:

Gold's monthly loss tops $40;
is this a buying opportunity?

By Myra P. Saefong
CBS.MarketWatch.com
Friday, April 30, 2004

http://cbs.marketwatch.com/news/story.asp?guid=%7B6E489D59%2D130B%
2D467B%2D86D9%2D6B039BAD3AEB%7D&siteid=mktw

Gold futures closed out April with a cumulative monthly loss
of more than $40 an ounce Friday, as growing expectations
of a U.S. interest rate hike dulled interest in the precious
metals.

"Once the news went out that the U.S. economy was
improving and [Federal Reserve Chairman] Alan Greenspan
declared deflation was not an issue, investors were
concerned that interest rates were headed higher sooner
and maybe by more than expected," said John Person,
editor of The Bottom Line newsletter. "The dollar rallied on
this and gold tumbled."

Gold for June delivery closed at $387.50 an ounce on the
New York Mercantile Exchange -- well below the $428.20
level it closed at on March 31. The contract lost $8.20 an
ounce for the week.

But prices are trading at levels not seen since October
2003, and that "gives investors a better buying opportunity
than before," said Person.

For the session, prices climbed 40 cents as traders
reassessed a previously bearish outlook on metals demand.

"There is no way to just turn off the demand faucet in one
day," said Person.

Concerns that China will cut back on bank lending "caused
havoc in the metals complex and other commodity resource
markets" on Wednesday, he said. Traders worried that the
potential for a slowdown in the country's economic growth
would eat into metals demand.

In Person's view, the market moves -- including a more
than $13-an-ounce drop in gold futures -- "were extremely
overdone reactions."

Person believes the price declines this week were actually
a "healthy correction" in what he sees as a "longer term
up-trending market."

Peter Grandich, editor of The Grandich Letter, agreed. The
fall in gold prices "could actually increase the chances we
go to $500 or higher."

For one, the market had "many Johnny-come-lately
speculators come into the metals futures market from
December to March," he explained, and now "they appear
to be the ones blowing themselves up."

Physical buying in most metals has been strong. While
the U.S. dollar "traced out a textbook countertrend rally
that appears to be over, deficits and debt levels are
worsening, and inflation is surfacing," he said.

Grandich downplayed the metals market's scare over
China's move to reduce bank lending, noting that the
Asian country's economy grew about 9 percent last year
and that estimates show growth could now be at 15
percent.

"So if they slowed it down by half, that's still close to last
year," he said. "And with base metal supplies at or near
record lows, the lack of exploration for the last several
years should prevent large increases in supplies over the
next few years."

Looking ahead, a long weekend with Monday holidays in
key metals markets and Mideast tensions "should still
provide a background of support" for gold, said James
Moore, an analyst at TheBullionDesk.com, in a note to
clients.

Traders will likely see price dips, potentially back toward
$380, "as a good buying opportunity," while rallies back
toward $392 to $395 will be seen as a "good profit taking
area" for the moment, he said.

In the coming week, traders will look also to Tuesday's
meeting of the Federal Open Market Committee, as well
as Friday's all-important U.S. employment report, said
Charles Nedoss, an analyst at Peak Trading Group.

Elsewhere Friday on Nymex, July silver closed up 25.2
cents, or 4.3 percent, at $6.09 an ounce. It's well below
the month-ago close of $7.955 and down from the
week-ago close of $6.18.

July copper rose 1.5 cents to close at $1.2075 per pound.
It closed a week ago at $1.243 and a month ago at $1.355.

June palladium closed at $258.30 an ounce, up $12.25,
while July platinum rose $13.70 to end at $794.20 an ounce.
The contracts are down 11 percent and 12 percent,
respectively, from a month ago.

As of late Thursday, copper supplies were down 1,907
short tons at 173,900 short tons, according to Nymex.
Silver stocks were unchanged at 122.2 million troy
ounces.

Gold inventories stood at 3.985 million troy ounces, down
60,033 troy ounces.

Key indexes for metals mining shares ended the month
with losses of more than 20 percent, though trading for the
session closed mixed. The Philadelphia Gold and Silver
Index closed at 81.94, down 0.1 percent for the session.
But it closed out last month at 104.95.

The CBOE Gold Index tacked on 0.3 percent to close at
70.42 -- down 21 percent from the 89.56 close on March 31.

The Amex Gold Bugs Index closed little changed at 178.78
for the session. A month ago, it closed at 235.89.

Among the index-components gaining ground in the session,
shares of Apex Silver Mines added 4 percent, and shares of
Coeur d'Alene Mines tacked on 2.4 percent.

In metals news, G.E. Nutter, an analyst at RBC Capital
Markets upgraded his rating on Freeport-McMoran Copper
and Gold to "outperform" from "sector perform" Friday
because of the "recent share price correction." Shares of the
company climbed 68 cents, or 2.3 percent, to close at $30.50.

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