$1000

by Zubin Driver
September 17, 2009

For the 3rd time in two years, the magic number has been reached. 1000 American dollars buys an ounce of gold. Unlike the last two times the gold price reached this big figure it has held at the $1k level for longer than a day; while the general public is excited about the move, a number of 'pro' market participants seem skeptical the price will remain above $1000.

Last week Barrick Gold announced that it would spend $5.6 billion to remove the hedges on its gold production, and came to the market to raise about $3 billion of the cost in a share issue that was easily sold. Some see Barrick's move as a signal that gold is toppy, others see a top global bullion producer making a bullish call that can't be ignored.

Timing markets is always difficult. From a contrarian standpoint, the current skepticism seems healthy for the bull case. Combine said skepticism with the way the gold price has been trading, holding the high $980 - $1005 range rather than spiking for just a day, and we may have the sustained breakout through $1000 over which gold bugs have been holding their breath for the last 2 years.

From geopolitical, historical, and economic perspectives, the case for gold remains compelling. Fundamentals of the world order are shifting, resulting in justified uncertainty. America's economic dominance is diluting as its debt grows and consumers weaken. New parts of the world are growing in economic strength, with demographic underpinnings that most western countries, with our aging populations, do not share. Further, in the current low-interest rate environment, inflation has become a legitimate concern if asset and other prices rise ahead of economic fundamentals. Simultaneously, a broad devaluation of currencies seems to be occurring, bolstering gold as an alternative store of value.

G-asinine Bounces!

Last week saw what was apparently the biggest one day move in natural gas prices in 5 years, from $2.70 / mcf (mcf = thousand cubic feet) to $3.25. On Thursday, the price spiked 20%, as the US Energy Information Administration reported a smaller-than-expected injection into storage. That's right, injection. Supply wasn't removed from storage, it was in fact added, yet because it was less than consensus, and all things economic are improving, the price shot up aggressively. The next day it opened higher, rising to $3.40 / mcf, before spending the rest of the day diving back down to $2.90, and Monday spiked right back up to $3.40, its peak from Friday. Random and violent, and not for those lacking steely nerves, but profitable for aggressive traders who can somehow master the timing of 'natty's' manic movements.

Best regards,
Zubin

Zubin Driver
Investment Advisor
(W) 604 643-7608 / (F) 604 643-7606
Email: zubin_driver@canaccord.com

Canaccord Capital Corporation
Attention: Zubin Driver
P.O. Box 10337 Pacific Centre
2200 - 609 Granville St.
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OFFICES IN MAJOR CENTRES ACROSS CANADA. MEMBER OF ALL CANADIAN STOCK EXCHANGES AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA. MEMBER CANADIAN INVESTOR PROTECTION FUND (CIPF).