Der Invest Informant
www.dinl.net
Randolph Buss, © copyright 2007
Berlin, Germany
Global Macro Roundtable
the following is an excerpt from our GMR #7 of 07 August
Randolph Buss
Gold Observations
Currently I have a schizophrenic view on gold - it can be summed up into two scenarios of which both I find highly plausible given the charts and the current market psychology. Each scenario has its merit.
- Scenario 1 : Gold Stocks Dither & Wilt
In this scenario, the consolidation that has taken place in the gold stocks since March 2006 continues where the stocks were last at their strongest. Since then the red downward trending line has meant that the bullion price remains stronger, relatively, than gold equities. With the broader world markets in a subprime scare and the markets falling, this brings a SERIOUS downdraft as resource / materials related equities are much more volatile than Blue Chips or whatever ŕ DOW down 5%, HUI down 9% these last few weeks ! (recently HUI @ 372 x .91 = 338 : Friday closing)
Likewise, with the "steam" running out of a long run in the commodity sector at this cyclical moment, it would seem gold and silver equities are struggling even as base metal equities have been doing better.
To compound this scenario, as has been talked about in previous letters, with the opening up of new commodity ETF and bullion-proxy products, these vehicles present the investor with diverse methods for investing in gold and silver. As the investments inflows into this sector are by definition finite, they are distributed over more instruments - pure equity plays combined with a) consolidation (M&A activity) in the gold/silver sector ; b) a large percentage increase in the sector over the last 5 years is resulting in fewer and fewer "bargains". Thus the previous leverage in owning paper gold seems to be diminishing. Likewise, with some investors wanting real gold and not paper, plenty of investment inflows are certainly to have taken place in the straight bullion or bullion-proxy products. The red line continues its downtrend looking for a bottom (red circle would, in my opinion, be a good area to buy into). On this longer term weekly chart, this area of -80 has been a winner these last 3 years - see blue rise.
Again, as stated above, if consumers / investors are confronted with the thunderclouds of losses on existing paper investments + home value losses + higher mortgage payments + higher food and energy prices + markets re-pricing risk forcing the broader markets to slow or go lower THEN I see little chance of "poor old gold equities" making a strong counter-offensive ; much to the contrary, they would likely suffer more.
BUT, we still have scenario 2.
- Scenario 2 : Gold Stocks Rocket Higher
What if everything (world stock markets) just starts to crumble, albeit slowly, AND the energy market has an "event" (geopolitical or weather) of some sort AND the US Fed starts to soften its interest rate stance in the wake of plausible US economic slowdown … AND God help us all, the Fed decides to cut interest rates AND Trichet at the ECB keeps his promise of a rate hike upcoming in September. All of these things are very REAL and partly in the pipeline. There will be hell to pay somewhere - likely the US Dollar. The Euro may start to gather strength along with other currencies and the world will see Bernanke as "just another Greenspan" - crank up the USD printing press. The 80 level on the USD Index would break immediately, I conjecture. Confidence will be lost and, as outlined above, the commodity producers will need to re-adjust their pricing levels across the board.
Panic stricken, gold may once again be an option of favour to the world investment community. Please note, I'm just "thinking out loud" - to find a plausible case for gold in the immediate context. Bonds would falter as well. What else ? Gold often performs much better in a restricted liquidity environment - which is happening now - because risk is reduced and owning gold has little risk. With Yen Carry Trade possibly drying up and risk premiums going higher, investment managers might feel a bit more safe owning some gold bullion than junk bonds.
Where the hell are we right now in these scenarios? I believe we are straddling both - sorry for the pat answer, but that's how I see it and that is exactly how the markets are reacting. Gold is edging higher but not rocketing and nobody knows where the junk debt floor is so gold equities are "hanging on" right now with the broad markets… waiting for some sort of daylight and news.
In looking at the chart below, previous action has been interesting in the longer term weekly chart. Previous rebounds up from -50 level were than hammered back down to -80 levels setting up excellent BUY signals. BUT that was during an interest rate period which is different than is now unfolding going forward, i.e. slower rate rises. Rates have been heading higher and inflation increasing - both gold positive. I cannot say whether the last blue box can be reached or not, only to say that within this scenario it seems unlikely. If anything, under this backdrop gold should be rebounding off the -50 level and last week that started with a rise of $12 for the week.
Until we hit a ratio on the HUI/GOLD of 0.54 and break above the red downtrending resistance line and/or a strong price breakout above $685 (latest high) or better yet, above the May $690 level, (see below) I will remain unconvinced of imminent gold strength right at this moment.
To note, I have recently read multiple gold forecasts of year end prices around $740/oz. from various market "gurus" who are NOT from the gold-cheerleading crowd. From the gold-cheerleading crowd we continue to get the forecasts - since 2003 - of $850, $1000 and $1300 and it is going to happen NOW, is their call. That may very well happen - but right now I'm more concerned as to what happens between now and then.
Come join us ! If you wish to stay abreast of events and investment opportunities, please sign up at the site. We have an excellent track record of calling the markets - private and institutional investors in 40+ countries.
Randolph Buss
editor@dinl.net
www.dinl.net
Berlin, Germany
For more detail and more charts on this and other articles please visit the homepage www.dinl.net in the Latest Letter / Weekly Outlook section.
More on this in upcoming issues - if you would like to know more, please sign up for a free subscription to Der Invest Informant. As well, please visit the site daily and read the latest information and inputs.
About: The Der Invest Informant is a website www.dinl.net and accompanying newsletter. It deals with international issues of : The Markets o Macro Economic Outlook o Finance o TA & Charts o Politics o Life, Culture & Technology o Geopolitics o Security o Freedom o Fundamental Market Research o Portfolio Investments
Weekly Outlook & Latest Letter & Portfolio: Our goal is to inform readers and investors about the markets and events which may affect their investment activity. We provide information AS IS as it becomes available to us from worldwide resources and provide a dedicated and professional analysis / synopsis. Our goal is to be profitable both in the long and short terms with respect to our portfolio. We examine both technical and fundamental aspects along with related geopolitical background or risks. Our portfolio may or may not contain every recommendation and we take no responsibility for trading losses that may be incurred.
© Copyright 2004-2007, Der Invest Informant: All material at our website is copyrighted and may not be copied, distributed or further disseminated, in full or part, without the written consent of Der Invest Informant and/or its representatives. Please be advised that posting extracts or articles taken from Der Invest Informant for distribution at other web sites or blogs or similar, is prohibited. If you would like to do so, please contact Der Invest Informant for explicit permission at editor@dinl.net - we are reasonable individuals.
Disclosure and Disclaimer Statement: This document is intended for informational purposes only. Not advice or intended as advice. The author has not received any third party payment or reimbursement of any nature for writing this article. The author's objective in writing this article is to raise awareness within the reader and to further their understanding of international and/or monetary issues and to encourage their own further due diligence / research. The editor, employees or its associates may have positions in equities or investment vehicles mentioned herein and may make purchases or sales in such equities. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any equity, currency or commodity. Individuals are recommended to obtain the advice of a qualified investment advisor before entering into any financially binding transactions.
Sources: Prior to the time of publication, information gathered for research and contained herein has been obtained from various national and international sources deemed to be both reliable and accurate but may not necessarily be complete.
Subscribe: If you would like to be on our MAILING LIST, please visit the Der Invest Informant homepage www.dinl.net and click on the Subscribe Free tab. Thank you.
Printer Friendly Version
Email this Article
