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« GOLD: A dent in the sentiment! | Main | YAMANA: BUY »

GOLD: Will she? Wont she?


Here at gold prices we constantly wrestle with gold, the latest data for gold, the Indian season for gold, central bank selling of gold and of course numerous gold metrics with a sprinkling of anecdotal gold flakes for good measure!

It’s quit often rather difficult to understand the opposition’s objectives and how they envisage the route to achieving those objectives. The Fed for instance gives us numerous statements about what they need to do and how they are going to achieve their mission. It then takes Wall Street a couple of days to make sense of it. This all assumes that the Fed wants us to know their intentions! And that’s a debate in itself.

A World Court judge once pulled me up for using the word assume. He said when you break that word down what have you got?

Assume makes an ASS out of U and ME.

So at the risk of being an Ass we attempt to filter out the white noise and take a broad stab at what the fed wants. Our conclusion runs along the lines that they want a managed devaluation of the dollar for the sake of the economy and in order to dilute the trillion-dollar pile that is held by others such as the Chinese. They do not want a crash and neither do the holders of these dollar notes. The holders also have a need for America to keep buoyant and consuming at a reasonable rate, after all that’s a big market to sell in to.

Now if we go back to 25 years or so when gold had its run to the $850 level and ask the question ‘was gold working inversely to the dollar we can see that both of them were quit capable of rising at the same time. So it’s not really gold that the Feds should be scared of, it’s a rapid diversification out of the dollar to any other asset that is the real problem. Gold will be a benefactor of such a diversification but not the only one and not the major one either. Major benefactors will be other currencies, not because they are strong but because they are ASSUMED to be safe.

We reckon that if the Fed can manage this balancing act of slowly diluting the dollar then gold is not their enemy, it plays only a bit part in the developing trend. Its such a small market anyway that’s its hard to understand the Feds paranoia about such a tiny competitor, if that is what it is. We think that the slow dollar dilution will continue and the rise of gold will also continue although it may not be meteoric as it can and will probably be dumped on if it looks like getting out of hand. But the dumping is King Canute like as a strategy as no one can stop this golden tide from coming in.

This brings us on to the chart.


Will gold wont gold make progress? Well gold is sitting more or less right on the 200 day moving average with the other indicators more or less neutral. You could say that gold is in the doldrums. The team here at gold prices have learned that gold is at its most dangerous just when we think that she is taking a nap.

Our conclusion after much rigorous argument, role play, statistical analysis, evaluation of metrics, etc, is to sit tight with the stocks that we have while continuing to search for new faces that have the potential to generate major profits. We believe that every stock we own will double from their current levels and they will do this in the next 12 to 18 months. It will however be volatile and very uncomfortable at times. Should our research in to new stocks prove to be unattractive then we will publish and say why we are not investors. If the new stocks don’t have the potential of a Yamana or a Bema then we will continue to accumulate those gold mining stocks at opportune moments.

We have no wish to own every stock on board or more stocks than we can cope with. The retention of sufficient knowledge of each stock is very important to us, if you cant remember why you invested into a particular company then you probably have too many. A particular news event comes along and you don’t know if it will affect your stock or not! It’s similar to bull fighting when you are blindfold.

Hold on and be patient the best is yet to come.

03 October 2006

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