The good news is that, if the mining stocks are indeed about to head lower, it is unlikely we will see the kind of washout lows that occurred in May. Back then, many of the issues tracked in Rick's Picks exceeded what we had warranted would be worst-case lows. This time around, assuming a period of weakness does indeed lie just ahead, mining shares should not fall to their lowermost hidden-pivot targets, only to lesser pivots that lie precisely half-way along the current down-cycle's path. Moreover, some of these targets could provide us with excellent opportunities to get aboard or to augment existing long positions at fire-sale prices. For several of the issues listed above, including Royal Gold, Pacific Rim and Seabridge, I have provided "back-up-the-truck" numbers where we can contemplate buying aggressively, albeit with the protection of very tight stop-losses.

After chomping through yesterday's requests, I was somewhat taken aback by my own negativity. But the cumulative weight of eighteen unmistakably bearish charts is too great to rationalize. I should emphasize nonetheless that my long-term outlook for mining stocks and for the precious metals sector as a whole remains as bullish as ever. But no longer will I assert that bullion is the no-brainer investment of our lifetime; for very clearly, it has been giving quite a few savvy investors an extremely difficult time over the last seven months.

I have written at length as to why, pointing to the dollar's persistent and seemingly illogical strength as the reason we should be wary of loading up on precious-metal assets at this time. If gold ever was a no-brainer investment, it was because sooner or later, the revelation of a manifestly worthless dollar was going to send investors diving into hard assets, particularly precious metals. But as I have detailed here at great length, although the dollar may already be hollow to the core and intrinsically without value, that does not necessarily mean that anomalous imbalances of supply and demand cannot drive it temporarily higher relative to other currencies -- and to bullion. To illustrate this possibility, I have used equity shares as an example. Sometimes, as we have seen, even the shares of unprofitable, ineptly managed companies can be short-squeezed to the sky. And so might the dollar, were borrowers to be pressed to the point of desperation by some financial cataclysm.

But it must be admitted that the prospect of a dollar short-squeeze is a rather extreme scenario. That is not to say it couldn't happen - only that, like an invasion from Mars, it is something that few would regard as likely. But there is a more moderate scenario advanced by my colleague Bob Hoye of Institutional Advisors. He envisions, not a precipitous, squeeze-like spike in the dollar, but rather a steady accretion of strength. This, he avers, is a natural post-bubble reaction: "the unwinding of leverage, or in so many words, the dishoarding of debt."

In an essay published on July 20, Hoye further explained that "the next stage of contraction will be signaled by a firming dollar - nothing dramatic, just a steady rise would break the impressive spirits of speculation. Somewhat later, this would be confirmed, as in late 2000, by falling treasury bill rates, the yield curve steepening, and credit spreads widening which, in previous examples, has indicated a growing revulsion for debt and a growing regard for cash."

If Hoye is correct, the best evidence we will have to test and verify his prediction in the coming months is the dollar's performance at each hidden-pivot obstacle. While it is difficult to fathom the prospect of a dollar strengthening in the face of trade and budget deficits now growing at an annualized rate of $1.2 trillion, it is a possibility that all of us, especially gold bugs, must seriously consider.

Rick Ackerman

July 27, 2004

Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2004, Rick Ackerman. All Rights Reserved. www.rickackerman.com