By Neil Charnock October 19 , 2006

The current global growth phase is different to anything we have experienced in history.  Like it or not globalization has reached a point of no return, there are now many changes to digest for the investor and speculator alike.  The “modern”, first world lifestyle is now rapidly spreading to many countries simultaneously and this process is consuming commodities like never before… hence we now see a commodity super cycle (gold and silver included) that has caught most totally unaware. I wrote an article clearly stating this bull was not dead during the scare a few weeks back.  The CRB had broken through resistance to the down side… the beginning of the end of the bull was proclaimed… I did not and still do not agree.  Adam Hamilton has articulated the changes in the CRB index better than anybody to date and all investors should look at his excellent work. The CRB Index is a completely different index than it was in 2005 so looking at a 5 year chart and pointing to a horror chart pattern is a mistake.

The current changes to the world commodity consumption patterns have not been absorbed as yet, we ultimately need a bigger commodity supermarket (stock piles and storage) and production line (mining) to feed this consumption.  Stocks in warehouses should be growing to cater for this increased demand however dramatic and dynamic changes have created the picture below.

• Governments; economic “management” (spending / deficits / policy), re-election positioning, potential coinage, geopolitical posturing and destabilizing tactics, even international cooperation…
• Central Banks and other Banks; leasing, self management / policy, trading, derivatives.
• Mining companies; hedge book management and production / development / exploration, promotion or lack of promotion.
• Industry; development or replacement of uses in technology, stocking policies (JIT… Just In Time ordering policy, orderly stocking or panic stocking), derivatives.  
• Hedge funds; trading, derivatives, no interest in price, only price movement.
• EFT’s, bullion dealers, stocking and promotion.
• Personal / Retail: investors, speculators large and small, jewelry, products which contain precious metals, public demand… fashion 

All market participants come under the same “market forces” heading in my analysis, no matter what label is placed on the type of participation.  All participants have their own agenda and exert a force, either en masse or as large individual forces.  The end result of the sum of the market forces is chaos and the price gold and silver trade for in various fiat currencies at any given time reflects this. This is a purely analytical approach which purposely removes politics, scandal and emotion from the equation.  Perception is the key driver in all of the above because it dictates action by all parties.  Each market participant perceives a need to buy, sell, hedge, talk up, talk down, buy, consume, manage, produce, discover or whatever according to their own needs and perception of what will benefit their position in life.  Labels abound and perceptions of the meanings and interpretations of these labels distract from the real issues in my opinion. Perceptions vary so wildly from “market forces” to “manipulation” to “blissful ignorance”… three camps are split on this basis.  There is very little difference between the first two, only definitions which determine perception. As frustrating as it is to watch market forces go against your trade this is the reality we have to deal with.  It seems to me that most industries, miners, investors (not so much speculators) and the public would benefit from a cooperative approach to promote gold and silver in the general community.  We are better off doing just that as it will add to the market forces which will ultimately drive up PM prices. 

• Miners would like to see consistently higher prices to attract capital and run profitable businesses.  Wild fluctuations in currencies and commodity prices can cause havoc to their balance sheets and complicate planning.
• Share brokers would stand to make money from capital raisings and share turn over of this sector, much more if it was growing steadily. 
• Investors in mining companies and bullion want to make fair profits from honest analysis and taking a risk with their own capital. 
• Bullion dealers and EFT’s wish to see investment and growth to benefit their business.
• Jewelers need the public to perceive their beautiful gold and silver creations as valuable not as made from a barbarous relic; they want a good image for their product.
• Industry needs to operate in an environment where natural supply and demand forces determine price and ensure supply is viable and consistent which allows JIT stock control. 
• Exporters need to be paid in real money not in ever depreciating and unstable credits / they suffer in an unstable fiat based exchange rate environment.
• The public need an honest monetary system where their savings are not eroded, so they can save for retirement or a better life, to seek their goals.

Conclusions: The commodities bull is far from dead, global changes are yet to be fully understood in most circles.  More benefit to us who can exploit the situation.  Gold and silver are key elements in the commodities consumption picture, more so moving forward as purchasing power increases in the developing nations.  Silver… explosive, accident waiting to happen. The real issues are promotion and perception.  Get the messages out there about all of the above, educate and advertise is the answer.  Misinformation, division and chaos damage perception, ignorance is rampant in the mainstream population and industry (exclude mining from this generalization).  Participants, stakeholders in the precious metals industry need to unite and coordinate, infiltrate mainstream thinking to accelerate the balancing of market forces.  I would rather see a sustainable growth pattern, lower volatility on the way up to the correct value of these magnificent metals. Australian resource industry shares: Conditions are fantastic here, very strong modern resource sector and very low sovereign risk.  I have outlined for weeks that the behavior of these shares was good.  First I stated that the mid to small cap had little downside and massive upside, Opportunities Down Under.  The only bad call is now under takeover as the industry saw the value and pounced, price already recovered 20%.  I have other stocks up anything from 15-60% during this “corrective” phase and some have not moved as yet.  Bases continue to grow, down side limitation confirmed. I warned the large caps were over done and had enjoyed bigger rises so down side was possible and this came to pass.  My later thesis was that after the correction of 20-30% which was then in, we would see a gradual rise in prices of the big caps even if the commodities had topped.  If we see continued boom condition in commodity prices then this rally will only be bigger and faster.  Gold and Silver Poised… yes we saw a short term jump off the lows confirming the short-term accuracy of that heading last week, range likely to continue for a short while so expect more sideways for a brief time.  Probable reverse at down slope in current triangle formation as we work to the apex… and then we see which way gold breaks for the next short-term move.  At GoldOz we cater for smaller investors with education & resources.  We stand ready to support the mining industry with a promotion plan and vehicle.  We offer resources with an overview of PM stocks, a convenient brief on 280 ASX PM Companies for only AUD$20 which has been very well received.  A more sophisticated and detailed Microsoft Excel spread sheet product on the large miners is nearing completion.  This will be for sale shortly and a discount will apply in full for the purchase price of the AUD$20 mining research.  We can refer medium (AUD$100k +) and larger investors to resource savvy brokers over here and high net worth individuals may apply for specialized services with an internationally regarded Senior Private Client Advisor.  Our web site is ready for discussion with sponsors now and nearly ready for public release, planned for end October, Australian industry enquiry is now welcome. Lastly, the internet email systems can be more unreliable than you realize so if you do not receive product from us within 2 working days please contact us so we can rectify and resend it for you.  We aim to automate this in due course but for now it is manual, we still maintain the highest level of customer service that good attitude can deliver.