sorry, deep into a bottle of cab sauv, and it's safer then yelling at the moon...

All in my opinion not intended as investment advice. Off topic but if I’m right, Aurelian will benefit from higher priced gold here as we await our next bid.

Those who know me will tell you that I've been bearish on gold and other commodities since early June. I wasn't overly vocal about it on message boards as I’ve maintained positions in a few companies that I thought were undervalued throughout even given this pessimistic view. I did however write the following to Wes back on June 25th which I'm sure he could look up if anyone doubts this-

"To be honest I don't like the sentiment on gold right now and I don’t think it makes for a favourable environment for jrs- only ones I own are aru, cpq and csi.”

That said I'm not looking for a pat on the back, but rather I'm trying to establish that I'm not always bullish on gold as some like GATA/Sinclair etc tend to be. I think that people with tunnel vision tend to get themselves trapped as they cheerlead against the tide of sentiment. But tonight, for the first time in months, even with spot gold heading down another $10 as I type, I see the light at the end of the tunnel.

What had put me off the commodity trade, gold included, was the change in attitude towards fighting inflation versus stimulating growth. As we all know, when the central banks see inflationary pressure it's there jobs to moderate it by increasing interest rates. I have an economics background and understand the importance of this vigilance.

The problem is that inflation has been mis-calculated in this “commodity boom” in my opinion. The price of copper went from 80cents to $4 a pound, nickel from $3 to $25 a pound, oil from the teens to $145, corn from under a buck to $7 a bushel, etc, etc, etc. As pure numbers go and without looking into them, these numbers indicate an incredibly high level of unsustainable inflation. So at first glance, the central banks would seem justified in raising interest rates in an all out attack on demand.

But the problem is that it’s not the US consumer driving these prices up, it’s not us Canadians and it’s not the Europeans, it’s not the Aussies or their Kiwi cousins. Yes, as anyone who hasn’t lived the last five years with their head buried in sand knows... it’s the emerging markets. Not just the BRIC (Brazil, Russia, India and China), but all of Eastern Europe, the rest of Asia, Latin America and even parts of Africa. 3 to 4 Billion people moving up a class. The demand of rebuilding the world after WWII times 100. A perfect storm in its own let alone the fact that it comes on the tail end of a commodity bear market which saw next to nothing spent on exploration or expansion of existing mines, wells and agriculture as there simply was no money to be made in these sectors. Meaning insatiable demand with no way to meaningfully increase supply. So prices ran, and many of us made enough to retire recognizing the trend early.

So as I said, a couple of months ago the central banks of the countries with developed economies started talking about fighting this perceived inflation. None of these countries were showing signs of GDP growth, but prices of materials, energy and food were on the rise within their boarders so they began to step up as if through collusion and began both talking about and in some cases actually raising rates. Next thing you know it’s a 1/4pt here a ¼ pt there, even Trichet bumped the Euro rates up a qtr a month ago when you could see US style weakness beginning to appear in large pockets throughout the union. Bernanke began jawboning with Paulson in toe about a strong dollar policy.

I couldn’t help but ask myself if these peoples goal was to put the world into a five year depression in order to back the emerging markets back into candle lit caves. How in gods name would that make any sense? Sure I know the evils of inflation but why not let a prolonged period of higher commodity prices run its course. No, not so that I could get richer but because if you keep the prices high more deposits will be discovered and alternatives will be invented through investment on the supply side. People will learn to consume less on the demand side. Supply will rise and demand will eventually level off. Prices may not go back to there historic lows but they will find an acceptable level eventually.

Which leads us to the following article posted tonight which sites minutes from an August 5th meeting of the Australian central bank. It reveals that they may be the first to recognize that their tightening policy may be on the verge of causing a major stunt to future growth. It goes as far as saying immediate cuts may be needed. Then I think about Trichet who about ten days ago came out with a much more dovish statement which has sent the Euro into a freefall and by default the $US higher. Sooner or later people are going to have to realize that ALL currencies are worth less. That gold, other materials and energy, things that you can actually touch are worth more. This article is the first of what I believe will be many similar marking a significant change to a rationale sentiment. Picture a moderately growing developed world couple with emerging markets growing at a 5-12% clip!

As such I’m going to be slowly putting the commodity trade back on. Probably no rush, but I’ve never been good at picking bottoms and we’re probably close enough here.

www.bloomberg.com/apps/news?pid=2060...

GLTA and best regards,

Buck