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« $1500 Gold according to Merrill Lynch! | Main | Yamana Gold Incorporated: Suffering! »
Tuesday
Oct142008

DOW Jones Industrial Average: Smoke and Mirrors!

Dow Chart 14oct08a


As the old adage goes ‘Buy the rumour and sell the news’ it would appear that the rumours have been bought as the global bail out packages add billions to the publics debt with every announcement.

The DOW Jones Industrial Average has bounced and put on an incredible 11.08% posting a record gain of 936 points. The equity markets across the globe all played their part by posting similar gains led by the London Stock Exchange. A co-ordinated effort by finance ministers has also been implemented to reduce interest rates for all the major currencies.

Taking a quick look at the above chart of the INDU we can see the 11% bounce, however we can also see that the preceding fall from the lofty heights of 14000 is also considerable as it equates to a 39% fall. Whether the markets can rally from here remains to be seen, no doubt the euphoria can propel the markets a little higher for here. The question is what sort of a rally is this? Is it a bear rally setting a trap to sucker investors into parting with hard earned cash? Have all the structural problems that dislocated the financial system in first place been resolved? As you know we are gold bugs and view this creation of money from nothing as inflationary rendering gold as the place to be. The next week or so will be very interesting and may well be indicative of just where the markets are heading in the long term.

Gold itself has remained fairly strong and is currently trading at $845/oz as we write and ominously appears to rise on every stock exchange in the world except the NYSE where with monotonous regularity it is sold off. Today the precious metals stocks managed to hold their own despite the sell off in gold during the New York trading session, which gave us a tad more confidence that they too can rally from here. We are not adding to our positions just yet as we would like to see the dust settle before we make a move, however we still anticipate an explosive year-end rally.

Have a good one!

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Reader Comments (1)

True, but how long before the smoke fades and others can see what is going on? That is the question. When the smoke fades, I look for Au and Ag to be seen as holders of value. For a great article (1 of 5) on this see: http://articles.moneycentral.msn.com/Investing/JubaksJournal/your-guide-to-the-next-12-months.aspx

This author is expecting the current rally fall apart around the end of the year. That sounds reasonable, perhaps anytime from Nov to March. The impact to me, is that if I buy any more options, I will go out to at least to 2nd quarter 2009.

October 14, 2008 | Unregistered CommenterBC

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