gold shares are taking leadership

----- Original Message -----
> From: "Jim Sinclair's MineSet"
> To: "John Percival of Goldsearch Limited"
> Sent: Sunday, June 01, 2003 7:33 AM
> Subject: Heads Up: What's a Trillion?
>
>
A study commissioned by US Treasury officials, many of whom served in the present Bush administration, indicates that the United States faces a chronic federal budget deficit of at least 44.2 trillion in current US dollars.The findings of this study were conveniently excluded from the Bush administration's budget presentation to US legislative bodies but found
their way into the hands of the prestigious Financial Times of London. The news may have sparked a highly anomalous spike in senior gold stocks towards the end of the trading day on Friday. And jsmineset obviously wasn't the only gold news site tracking the story. While we don't profess this to be a highly scientific test (let's just call it a straw poll), our efforts to source the actual report through
Google, arguably the best search engine on the Internet, generally produced the following announcement: "The server is temporarily unable to service your request due to the site owner reaching his/her bandwidth limit. Please try again later." Even with summer coming on, it seems like the Bears (Bad News variety only) have been forced back into hibernation. Discussing the US budget deficit, The Financial Times recently suggested that "The inmates are in charge of the asylum," a commentary that
was "rumored" to be right above a review of the video version of "One Flew Over the Cuckoos Nest."
For you younger folks out there in cyberspace, Cuckoos Nest was very much a condemnation of an administration in a hospital that seems to mirror
a political administration in Washington a bit more than most Americans are willing to admit. Let's face it, the Brits have a wonderful way of delivering the most
severe of indictments, ones that initially draw smiles from those accused but frowns a weak later once they've understood exactly what was said.
In the past year, the Bush administration has lost a Secretary of the Treasury, Paul O'Neil; soon-to-leave White House Press Secretary,Ari Fleischer; EPA Chief, Christie Whitman; and the Commander-in-Chief of US Central Command, General Tommy Franks -a highly respected, no-nonsense military man who no doubt is miffed that Hollywood has moved from making
movies about war to actually orchestrating them (the recovery of the memory-challenged Jessica Lynch being a good example).
Keep in mind that this administration has said repeatedly (even to its historic allies) that "You are either with us or against us" which may explain the new revolving doors being installed in many government buildings in Washington.
Even the President's own budget (and of all people - Allan Greenspan) have warned about the crippling effects of these long term structural deficits and their impact "on generations to come." Before I continue any further, it might be wise to define a few terms in the context of the current budgetary situation. According to Webster's Collegiate Dictionary, "structural" means "something arranged in a definite pattern of organization."Chronic"means, "marked by long duration and frequent recurrence"
and "cumulative" means, "increasing by successive addition." The numerical revelation of the built-in costs facing the US Government, and the political downside of reducing retirement and health benefits to
its citizens, is that you will be thrown out of office if not lynched in effigy immediately. Democracies have many wonderful benefits but are totally incapable of rectifying financial foolishness based on political
greed for office. This means that over many years, demand for funds in world bond markets by the US government in constant 2003 dollars could total $44.2 trillion. That being the case, the US national debt will grow by an order of magnitude of at least 20. In a sense, every US family will be responsible for 20 times its present debt of approximately $70,000. You will owe $1,400,000 per family in 2003 dollars.
This has serious implications for: 1. US 30 year Treasury Instruments which will crash in time. 2. Gold. It will be impossible to keep gold below $529. New highs will be established. 3. Gold producer hedgers. For your sake and your shareholders please swallow your egos and dump those hedges before they dump you. I am not your enemy. I am your well wisher. 4. General equities. These may well perform as German equities did under the Weimar Republic. 5. The US dollar. A dying reserve currency. It will decline to the
full potential of the huge multiple head and shoulders formation that even my bulldog, Mia, understands. Banana Republics have been built before by
outrageous spending with no offsetting income. There is no rule that says if the current economic situation continues, the US cannot become a "Banana Republic." We may have to import some trees (which will only aggravate our current account deficit further) but it could well happen. Please read all the recent presentations made by the Chairman of the Federal Reserve at:http://www.federalreserve.gov/newsevents.htm. The above situation can only be handled by deflating the problem away or inflating the problem away. The Fed has told us in no uncertain times that inflation
is the method that will be used.
Democracies everywhere are run by politicians. No politician in a democracy can afford or will accept the deflation way out. We will inflate not to find a way out but rather to keep the politicians in power. Inflation does not mean good business. Increasingly, poor business conditions plus extreme expansion of money creation = Currency
Inflation = Economic Stagflation = Gold's price at $887.50 in early 1980 = Gold's price at orders of magnitude higher in the new millennium experience of STAGFLATION.
Is that trillion dollar deficit report the event that caused the gold shares to outperform gold bullion on Friday? My answer is YES! Was Friday, May 30th 2003 the beginning of an entire new chapter in the long term bull market in gold shares? MY answer is "MAYBE."
Therefore, we need to watch the gold/gold share relationship very closely because it is going to reveal to us if gold shares are taking leadership back from physical gold.
If it does, then the present valuation of gold shares at gold $310, when gold closed in the high $360s, will totally reverse itself. Gold shares with the same closing price will go to valuation models at $408 without any
need for the price of gold to change. That would mean that every good gold share might double for no apparent reason.
The mechanism to affect that change is already in place in the gold shares. The ratio traders, who have been long paper gold and short gold shares, are the ones that caused the severe undervaluation of gold shares. Now they may have placed their heads on a hair trigger guillotine. They will be forced to cover their gold share shorts (major new buying) and sell their paper gold.
This may well be what I am reading in the technicals where gold bullion looks tired but the better gold shares (the unhedged or financial golds) are not showing the same fatigue. This could explain a small reaction in gold with a minor downside because firm gold shares will pull up gold even in the face of ratio traders offloading (selling) the long gold side of their ratio spread or ratio spread derivative positions which is gold bullion or paper gold because the other side of the ratio spread, the gold shares, have gone out of whack, spoiling the profit motive. (That was even a mouthful for me).
Gosh, is trading anything other than complex today. However, if you think the transaction through you will see that I am correct. A ratio spread is a complex transaction where the trader sells one form of the same asset and buys another of the same asset for a profit between the differential appreciation and depreciation of different forms of the same asset. This
is possible in today's total casino world of trading vehicles.
Therefore, do not liquidate any gold share whose power uptrend or simple uptrend is still holding firm. This advice is for investors and traders. Traders should reposition any good gold share that reverses its
downtrend with oversold %R indicators reversing.
I will do everything possible to get a free video on the use of trend lines, support and resistance on www. JSMineset.com in the next few weeks (or sooner) so please be patient.