Weekly Gold Market Outlook
A Gold & Currency Digest
US$575-633 Gold Possible
January 4th, 2005: This is the most bullish recovery off a 10 percent correction in gold prices that I've seen to date, or at least since 2003, if you can't fully agree with that statement.
While the commodity sectors started building momentum through the holidays, recently released Fed dovish rhetoric (FOMC minutes) has re-ignited speculation about the approaching end of its rate hike campaign - sending the CRB to new record highs (on a broad rally in the metals, bullish reversal in Crude, bullish recovery in the grains, and continued hardening of the softs), underpinned Wall Street generally, and sent the USd tumbling Tuesday. The front month COMEX gold contract drove up US$13.60 to close at US$532.50 yesterday, and is rallying a further US$3 in after hours trade at the time of writing… accelerating the advance that started two days before Christmas. We are now back up through all resistance points except for the December 12th intraday high at US$544.50 - and just nine points away from making a new 25-year high - though the Aussie gold price has already made new record highs, followed by the BP price of gold at new 10-year highs… the CAD and USd gold prices are right behind them, but still a few points short of making new highs themselves. The gold stock averages, however, did not wait. The HUI rallied 22 points (8%) Tuesday, while the XAU rallied 8 points (6%) - both to new 10-year highs - which is equivalent to (and on top of) almost their full gains in December, following a similar 9% gain in November and a near 50 percent rally in the HUI during the entire second half of 2005 (i.e. excluding Tuesday). Not only was the New Year stock market celebration led by the gold and oil stocks on Tuesday (by a factor of four times the average percentage gain), but these sectors have led the market for the better part of the past year - the gold stock sector stepped out in front of the oil sector in September.
The gold sector has clearly been the right place to be. And since the pieces seem to be falling into place in my outlook, I am maintaining and reaffirming my intermediate (< six months from here) gold price and gold share targets as follows:
- US$575-633 between now and May (most near term upside in CAD gold price)
- HUI = 350-370 (XAU = 150-160) between now and May (i.e. a 15-20 percent gain from here)
- Gold Stocks in the BGI (targets): NEM = US$65-70; GG = US$25; GLG = US$35; EGO = US$6; GFI = US$22-25; HMY = US$18-20; MDG = US$30; IAG = US$10-12; AEM = US$25-30; GOLD (Randgold) = US$20-25
While Goldcorp and Glamis are relatively rich, the market loves them and they could simply get dearer yet.
All of the stocks in our index have performed satisfactorily to date except for IAMgold. I see the most upside (for the remainder of the current leg) in AEM, GOLD (Randgold), IAG and MDG - the rest should be able to match the performance of the averages.
Needless to say, this list of favorites can never be constant.
What do we DO?
As you all know, I shy away from buying or cheerleading the bullish momentum. But it is what it is, and it is looking higher.
So I'm not that shy about cheerleading today.
The short term is overbought, indeed; but I expect it to stay, or get more overbought for reasons that I've elucidated in my letters for months now. Also, it makes me feel cozy that the USd index is way up here! Still, while I don't like to buy overbought markets, the most bearish I'm prepared to get right now is for one more test of the US$514 level - since last time it didn't do so well around there on the pull back (which is not atypical anyway) - before breaking to new highs, and ultimately to my target.
I sense that we are in the midst of a buying panic, so I'm not actually looking for that kind of pullback here… it is only a fallback outlook if my short term antennae happen to fall out of the groove, if you will. Volatility is on the rise and I would expect the US metals exchanges to consider raising margins again on a move through US$600, in case you're not expecting it. My outlook is flexible; from here on in I am simply watching to see how this leg unfolds, but am generally bullish for a move as per the targets highlighted above - for realization sometime between now and May, and by the way we're trading now, maybe this month.
Corrections of more than 15 percent (in gold prices) aren't likely until our upside targets are met, in my current opinion.
We will look to raise SOME cash as gold passes the US$575 barrier and the HUI passes the 320 level, plus or minus… it's day by day now. I think it is always important to buy and sell the extremities of a primary sequence (that is, to buy the unexpected dips and to sell the advances that deviate too far from trend), even if one does this with a relatively small part of their accounts - if only to stay on one's proverbial feet, but also, to allow for other (trade) opportunities since gold sector corrections can be steep and long as everyone now knows. For provided that at a minimum our upside targets are achieved (and only under those conditions) the next correction against the primary trend will more than likely be the largest one to date. So be bullish, but alert.
CURRENCY COMMENT:
USd bulls are having trouble holding the 90 handle in the USd index on chart strength in the Yen, Swiss Franc, Euro and the marginal currencies like the SA Rand. For currency traders, the Yen and SF are a buy. A buy signal for the Euro consists in a break out through the 1.22-1.23 handle. I'm bearish on the USd index to at least last year's lows, and have been since it first started to flirt with the 90 handle in the summer time. A break down through 89 (especially on a Euro reversal) would constitute a failure of the bullish attempt to break out through 92 during November, but the market is technically supported above 86. It is interesting that gold rallied Tuesday on a wobbling in the USd index, since the two have been positively correlated for many months (a counterintuitive anomaly in most cases). In light of this I expect gold prices to peak BEFORE the USd index bottoms - so one might expect to see the USd index fall to about 86 on a gold rally to our target… then continue as gold peaks.
In any event, the chalk marks (lower bond yields, stock and commodity rally, weak USd) suggest that markets are doing far more than discounting the end of a rate hike campaign - they are front-running everything that Ben Bernanke is going to do to the USd in the foreseeable future. If our targets are correct, sometime soon we may (or should) even be hearing more about the offside shorts in gold that have postponed their day of reckoning thus far. If they're out there, Gold US$600 should start to hurt!
May your New Year be more prosperous than ever, and thank you for your continued support.
Ed Bugos
Editor - The GoldenBar Report
www.goldenbar.com
January 4, 2006
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