GOLD and The AMEX GOLD BUGS INDEX (HUI):
A Golden Opportunity to Buy Gold Shares revisited!
Peter ZihlmannOn March 10, 2003, we wrote:
"We are currently passing through another correction in the up-trend which we believe will end
somewhere around 120 points.", and presented the chart below:
Our prediction was just about bang on, as the correction ended at 113.87 points on March 12,
two days after we wrote about "The Golden Opportunity to Buy Gold shares!"
It is now appropriate to ask whether the "Golden Opportunity" still prevails. So let us examine
where we are on the bull market road in gold with a look at the gold chart:
The gold price
As the proverb goes: "There's no fool like an old fool." - In 1967, Alan Greenspan wrote in Gold and Economic Freedom: "National debt is simply a mechanism of hidden expropriation of financial means, and gold impedes this insidious process."
The Chairman of the Federal Reserve may have forgotten what he wrote as the National Debt of the U.S. has now reached unprecedented levels as a percentage of the US-GNP.
While for the majority of investors, gold is still no place to put their financial assets, those who want to see cannot ignore that the gold price has been in an up-trend since March 2001, and that this up-trend offers little indications of a prompt ending.
The question is rather how long it will take until the $400 price level is broken. In our opinion, it will take less than six months - possibly we shall reach this level before this year concludes.
But let us examine what influence the rising gold price has had, and will likely have, on the gold stocks as represented by the Amex Gold Bugs Index (HUI):
The long-term picture
While the gold price has increased a bit more than 40% since reaching the bear-market low, the HUI-Index has gone up more than 300% during the same period. This is, of course, a staggering out-performance and gives an indication as to where gold shares may go in the case gold reaches levels of $600 and more.
Gold shares are certainly much more volatile than the gold price and many an investor suffers more while watching his gold shares gyrate. Sentiments of euphoria quickly turn into despondency.
Long-term investors who at the tops (1 and 2) later regret not being short-term investors, lament having not sold in order to buy back at lower levels. Now they say: "Next time, I shall definitely sell!" But this may also prove to be a tragic mistake.
We know from past experience that share prices can remain overbought for a long time.
Nevertheless, it was on March 13, that we wrote, when the Index stood at 120 points, that we were being offered a "golden buying opportunity" and now, with the Index standing almost 50% higher, the opportunity to buy really cheap has gone.
The question, naturally, is when to lighten up?
We think that it is too early, considering that the gold price itself is far from being "overbought".
The medium-term picture
"Medium-term, we believe that the consolidation within the up-trend is slowly drawing to its end!", we wrote on March 10, and as we now know, we reached the reaction low the following week.
Since those days, the Index has been steadily climbing through the resistance level to 177 points.
We also wrote: "The big risk at present, in our opinion, is rather to miss the next important
While a pull-back into the up-trend channel is certainly possible and may even be welcome by those who missed out on buying, we would advise those who still have funds available to select the shares which have been lagging behind the general trend.
While the Newmont Mining Corporation made a strong move and Glamis Gold Ltd. has practically reached the previous all-time high, some smaller companies have not yet followed the general trend.
Those who want to know our favorites, may register at our web site www.pzim.com to receive our Follow-ups.
The short-term picture
Nice, solid up-trend where a little pull-back would do no harm.
Fundamentally, none of the arguments in favor of gold have lost their "raison d'Ítre". Consider:
When government spends money for social programs, economic stimulus programs, or to fight wars, it must either tax, borrow, or print the money!
Your paper money will continue to lose its purchasing power. This is why you should put your savings into real money: GOLD!
Those who hope that the new bull-market has already started, should consider that no bull-market started at a PE of 15 or more during the last fifty years.
The PE for the S&P 500 still exceeds 30!
The following recommendations were valid at the time of writing, viz. at
and may no longer be pertinent when you read them.
To receive the follow-ups and up-dates on our recommended gold stocks, register at
www.pzim.com, or email to firstname.lastname@example.org
August 13, 2003
Disclosure: The author has not been paid to write this article, nor has he
received any other inducement to do so. The author is a shareholder in the
company and will benefit from any increase in the company's share price.
Disclaimer: The author's objective in writing this article is to invoke an
interest on the part of potential investors in this stock to the point where
they are encouraged to conduct their own further diligent research. Neither
the information, nor the opinions expressed should be construed as a
solicitation to buy or sell this stock. Investors are recommended to obtain
the advice of a qualified investment advisor before entering into any transactions
in the stock.
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