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Gold Stock Market Quote says BUY!
By Greg Silberman
September 4, 2007 (blog.goldandoilstocks.com)
– Weak hands capitulated in a panic sell-off whilst the
fundamentals became even more bullish. So what’s next for Gold
Stocks?
Gold Stock investors have taken it on the chin lately. The
fact that market turmoil strengthened the bullish case for
Gold was of no consolation to investors as their Gold Stocks
got Smashed.
In fact, it was nothing short of a Gold slaughter as the
Gold Stocks were taken out back and systematically shot! Once
the HUI breached 320 we told subscribers that a test of the
old June 2006 lows at 280 was imminent. Never in our wildest
dreams did we expect that to happen in 1 DAY!
It was ugly but it did the job.
A LOT of weak hands panicked and sold out near the bottom
which is exactly what the Golden Bull needed before embarking
on its next upmove.
We try hard to formulate risk management techniques that
prevent us from selling into these fire sale panics. One
approach we have adopted is to remain focused on the long-term
by shutting out today’s gold price machinations. That’s why we
keep a copy of this chart close at hand:
Chart 1 - Gold Stock Price does well when Yield curve widens
It’s a bit of a complicated chart so let’s break it down:
The main chart shows the ratio of 5 year bond yields versus 30
year bond yields. This in effect is the yield curve which
shows how long-dated bonds perform versus short-dated bonds. A
rising chart means that the yield curve is widening which is a
monetary response to slowing economic growth. Short term rates
decline relative to long term rates in order to entice people
to borrow short and invest long, stimulating economic
activity.
The Green line represents the New York Composite Index, a
market value-weighted index that is made up of all of the NYSE
stocks.
The lower chart represents our friend the Amex Gold Bugs Index
(pink line).
Current Interpretation:
The main driver behind an extended move in Gold and Gold
Stocks is a marked increase in the money supply. This is
usually predicated by a widening yield curve. To that end, the
current situation looks remarkably similar to 2000 – 2002
(blue rectangle).
The yield curve has recently blasted above resistance and
broken out to the upside (as it did in 2000/02). As explained
in Prime interest rates and the market value of Gold, the
yield curve is destined to widen even further.
It’s not by coincidence that the New York Composite index
(green line) has turned down (as it did in 2000/02) in
response to growth fears.
Now for the exciting part:-
It was these exact conditions back in 2000 that kicked off the
exhilarating 2 year run in Gold Stocks. Most major Gold stocks
rose over 500% and some juniors even more. Much more!
Whilst it is still likely that we will probe the lows put in
place over the last few weeks (280ish), we are getting ever
closer to that time when the market will begin discounting the
above bullish fundamentals. Gold Stocks, unencumbered by weak
hands, will then take off higher.
Nobody said it was going to be easy!
This article is intended solely for information
purposes. The opinions are those of the author only. Please
conduct further research and consult your financial advisor
before making any investment/trading decision. No
responsibility can be accepted for losses that may result as a
consequence of trading on the basis of this analysis.
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