The Golden Illusion Continues

People who have realized that this is a dream imagine that it is easy to wake up, and are angry with those who continue sleeping, not considering that the whole world that environs them does not permit them to wake. Life proceeds as a series of optical illusions, artificial needs and imaginary sensations

Alexander Herzen 1812-1870, Russian Journalist, Political Thinker

The above two charts are virtually identical and they should as they are the top performing currencies in the last few years. We personally think that the South African Rand has been the best performing currency in the last 3 years and were incredibly bullish on it in 2002.

One can clearly see that Gold is still not really in a true bull market and that it has done nothing but correct since 2003 when priced in Rands or Namibian dollars. If the dollar were to mount a significant technical rally in the next few months, these charts might actually start to look familiar.

Quite clearly you can see that Oil is in a nice long term up ward trend when priced in Rands; something gold has been unable to do. When Gold starts to behave this way we can finally state that we are in a true bull market; until then gold is doing nothing but treading water.

In the first place God made idiots. This was for practice. Then he made School Boards

Mark Twain 1835-1910, American Humorist, Writer

I'd like to write briefly on how we have been approaching gold. Gold is a very special metal in that it has a dual nature. It can act in accordance with one nature or both at the same time. Like the dual wave /particle nature of light, it depends on how you look at it to determine what you see.

Firstly, gold acts as a form of currency, and like any currency, it rises in relative value when funds flow from its competitors. Likewise it falls in value when its competitors are more attractive. This is what has happened recently, with the pumping of the $US to try and stem the rise in the oil price ('The Secret Rescue" www.trader007.com/The%20secret%20rescue.htm )

Secondly, Gold acts as a commodity, being subject to the vagaries of supply and demand. Here we have some interest developments. It has been reported that there are labour force cutbacks in the goldmining industry. Good news for us, but bad news for the many workers. Gold mining executives see that supply will outstrip demand (this was admitted in Anglo Gold's last annual report)

The first phase of the big gold bull has been the unwinding of the huge derivative backed hedging positions and the reduction of central bank stashes. These tasks in themselves are no mean feat.

Miners having cutback their workforces will not be in a rush to rehire. Thus we have a basis for a tightening of the physical supply. Note that the facts, as they stand, is that supply is greater than demand. Remember the certainty that our oil pundits told us regarding the oil situation before the present "oil panic". Sol and I were regarded as loopey when we predicted that oil would hit $48 www.trader007.com/oil_disaster.htm

Well so much for a theoretical structure for trying to build a gold analysis. How can we use this approach?

We suggest our traders take a dual view also with a deep line drawn between the 2 modes of investment. Have a trading portfolio of gold stocks that you buy and exit like any other stock. They have to compete with all the other sectors and their stocks to enter your portfolio. The other approach is to buy the large cap gold majors when they are oversold by systems traders and nervous nellies. Buy on each pull back for the big gold bull, for when the commodity and currency value of gold work together, gold will outshine all.