Gold Comments: 1st Half of 2008

[drbubb]

(This report suggests it is a good time to buy Gold stocks):

 

Alex Hamilton: HUI/Gold Ratio Trends 2

 

Everything else being equal, based on this bull so far we should expect gold stocks to not be radically outperforming gold almost 2/3rds of the time. In reality gold-stock traders are far less patient. If gold rises in a single trading day, but gold stocks don’t dutifully leverage this gain instantly, traders get worried and start spinning bearish theories. This is very irrational from a long-term perspective though.

 

The 1/3rd of the time when gold stocks radically outperform gold is cyclical in nature and readily apparent in the HUI/Gold Ratio. This ratio tends to surge up to major interim highs on gold-stock outperformance. This happens when the HUI is powering higher in massive uplegs. (For reference, the raw HUI is charted above in red off the left axis.) But after these huge HUI uplegs, the HGR drifts sideways for a season. These drifts are just as important as the surges.

 

Whenever gold stocks rocket to new bull highs, traders get uncomfortable. They wonder if the bull is over and if such lofty prices are sustainable. So gold stocks enter high consolidations after massive HUI uplegs. This trading sideways not only bleeds off the excess greed rampant at the preceding upleg top, but it gives traders time to acclimate to new high prices. Drifts build the technical base off of which the next surge eventually launches.

 

 

As this chart shows, over time this surge-drift pattern has created a secular uptrend in the HUI/Gold Ratio. With the exception of an impressive surge above this uptrend in late 2003/early 2004, the HGR has been very comfortable within this secular support and resistance channel for six years now. This rock-solid uptrend has huge implications for gold-stock investors and speculators today.

 

/more: http://www.kitco.com/ind/Hamilton/dec212007.html

[Steve Netwriter]

PROFITING FROM CARTEL INTERVENTION

In Gold, Silver, Crude Oil and Other Tangible Assets Markets

by DeepCaster LLC

deepcaster.com

December 21, 2007

 

http://www.financialsense.com/fsu/editoria.../2007/1221.html

 

eg

 

# To the extent one is able, buy near interim bottoms of Cartel Takedowns. Typically, these opportunities have come two or three times a year.

 

# Do NOT buy Precious Metals or Strategic Commodities on margin. Positions bought on margin are very vulnerable to forced sales.

 

# Deepcaster’s strong preference is for purchase of actual physical metal in the form of Gold and Silver coins purchased near the bottoms of Takedowns. If one does not intend to hold physical coins oneself, it is important that they be held in a segregated account. The fact is that even though the market price may be temporarily taken down, buying physical means that you own and have physical. The more physical that you and other investors have, the less physical that The Cartel can have or acquire.

 

# Be very wary before buying the shares of Precious Metals Exchange-Traded Funds. The bullion ostensibly held in certain widely held Exchange-Traded Funds is not being adequately audited, in Deepcaster’s view. For example, certain Funds allow their ostensible bullion holdings to be held by un-audited sub-custodians. Even though one may think that one owns shares in actual bullion via an Exchange-Traded Fund, for some funds it is not clear that one could adequately audit one’s holdings, much less actually take possession of them. Those funds, which appear to Deepcaster to have adequate audit mechanisms, are also listed in the Latest Alert in the “Alerts Cache” at www.deepcaster.com.

[Steve Netwriter]

A fascinating read about gold/property investment from a New Zealand perspective.

 

Gold bricks mortaring ahead

http://stuff.co.nz/4311761a1864.html

 

The price of gold has skyrocketed in the last 14 months, rising from $US500 ($NZ646.87) an ounce to $US815 ($1071) this month, with some pundits tipping it to break through the $US1000 mark in coming months.

 

A number of factors are behind the significant increase, including high oil prices. Gold is often considered an anti- flationary investment. As oil prices go higher, corporate profits are invariably affected and so stocks can become a little less attractive – driving would- be investors into other opportunities.

 

Also pushing prices higher is the industry's inability to meet demand, a shortcoming which dates back two decades.

 

In the 1980s gold prices were at a low, around $US200 an ounce, and it cost about $US350 an ounce to mine – the end result being that little exploration work was done and supply is short 20 years later, Sutton says.

 

"And with the world getting greener it's now harder to get the mines open."

 

While we may have been slow to embrace gold for its investment qualities, New Zealanders are discovering all that glitters can be gold.

 

Sutton says it is difficult to measure exactly how many Kiwis are investing in gold but, while loath to reveal commercially sensitive figures, he says the number of inquiries from potential investors fielded by New Zealand Mint increases by between 200 per cent and 300 per cent a month.

 

He attributes this increased curiosity to a number of factors, including a slowing in the property market and the collapse of second-tier finance companies.

.

.

Rebecca Simcock, co-owner of Youngs Jewellers in Christchurch, says the business has seen an exponential increase in people interested in investing in gold in the last year, and fields at least a couple of calls every day from people wanting the spot price.

...

When gold hit its most recent peak one investor purchased $30,000 of the precious metal, which Youngs sell in one, two, five and 10-ounce bars.

 

Isn't that fascinating. Kiwis used to invest almost entirely in the stock market. Then that crashed, so they changed over to housing, and we all know what's happened there. Now there is a lot of interest in gold.

Given that houses will probably go down in value, and gold up till ~2011, you can see the attraction.

[HollandPark]

Given that houses will probably go down in value, and gold up till ~2011, you can see the attraction.

 

I agree that we may see dollar strength,

But no straight lines moves, I reckon.

 

= =

 

Funnily enough, some see Sovereign Funds as HELPING the dollar:

 

"Dec. 27 (Bloomberg) -- The dollar is poised to end a two- year slide against the euro in 2008 as government-backed funds in Asia and the Middle East purchase U.S. assets, currency strategists say."

 

/ bloomberg

 

This doesnt make sense to me, since much of the assets of these funds are already sitting in dollars.

Many SVF's were set up to diversify away from fixed income dollar assets, so they simply see dollar-quoted

equities as a better investment than dollar-quoted fixed income assets. At least with the equities they have

a CHANCE of keeping up with future inflation.

 

Gold may be a safer bet than these equities, and I look for some of the SVF money to move into Gold

and/or Gold shares.