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« Agnico-Eagle Mines Limited: BUY, SELL or HOLD? | Main | Kinross Gold Corporation Update 26 October 2009 »
Wednesday
Oct282009

Gold, the DOW and the USD

Gold, DOW, USD Chart 29 Oct 09.JPG

A quick comparison between gold prices, the DOW Industrial Index and the US Dollar raises a few tricky questions as gold has slipped back below its previous resistance level of $1033/oz. We can all remember last year when the broader markets tanked and the gold and silver stocks were also dumped regardless of golds performance.

As we see it the DOW will correct at some point and that point appears to have arrived at the 10,000 level, although pierced, it has not been held, with the DOW closing at 9,762.69 today. This sell off has been accompanied by a small but significant rally in the dollar which in turn has put a cap on gold and silver prices as evidenced by the HUI which has dropped from 450 to 380.
The broader markets could well continue to head south as they have put in a terrific rally since March and should be due for a breather.

Also note that this rally would appear to based on stimulus and not economic activity as it has been described as a jobless recovery. A recovery without an increase in jobs lacks the foundation of a true recovery in our humble opinion. A stock market rally based on quantitative easing is one to be cautious of as a retraction could be upon us just as quickly as the rally. Assuming that the broader market sectors will head south we are left pondering the possibility of the mining sector being thrown out with the bath water.

Our opinion for what it is worth is that the DOW will endure some retraction but not on the scale that we had last year. The mining sector is suffering right now but we expect it to be short lived as their 'worth' will be seen as dependent on the performance of gold and silver and not connected to the industrials. Again the performance of the precious metals producers is still inversely linked to the dollar and the dollars rally will also be short lived before it resumes its trek south.

In conclusion hold fast to your core position and ride this one out, its not the first time and it wont be the last time that we get buffeted and pressured to part with our holdings. Our tiny sector has suffered this sort of thing all the way up to this record level in gold prices and has recovered to trade higher each time.

Also note that a number of stocks are now considerably cheaper and the next few days and maybe weeks could present us with some bargain prices so make use of this 'dip' to acquire a few more of your favourite stocks in an orderly manner.

Have a good one and stay calm.

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Reader Comments (11)

We've seen this gold and silver dip before when COMEX options were due to expire and the BIG BANKS & THE FED knocked the price down....blatant price manipulation...but hark..PM prices are roaring back already (and so will those PM stock prices)...and all's good...quite fascinating really...

Rock on gentlemen!

Snakeman

October 29, 2009 | Unregistered CommenterSnakeman

HOLD YOUR GOLD BULLION , AND SILVER ...watch nobamma-nation squirm , and lie ...! ALWAYS A GOOD COMMENTARY HERE !

October 29, 2009 | Unregistered CommenterBONNIE

Snakeman,

You are bang on, over the years we have have seen the strangest things happen just prior to option expiry time, those that are about to pay out can sometimes deploy extraordinary financial muscle to hold a price down just long enough for the contracts to expire, so all you readers be warned, this is not a level playing field.

October 29, 2009 | Unregistered CommenterGold Prices

Bonnie,

Without doubt holding physical gold and silver in your own hands is the best way to protect yourself in this environment and we believe that it will be for years to come.

October 29, 2009 | Unregistered CommenterGold Prices

I think you are deluding yourselves about the shorrtterm...even the wildly manically always bullish Casey folks correctly note that real inflation is a couple years away, if it happens. Gold is likely to be finished for awhile. You advised us all to buy into what was a terrible disaster summer 08  (I remember one comment that, buying below the 200 day MA is suicide, in a bear market...which it was at the time, and buying back into the xau around 150 was a disaster...). Just about everyone knowledgeble now  is expecting a MAJOR retraction here. I think you should be a bit more open to what is really happening. 3-4 years from now I agree it is likely gold will be much higher, but I am persuaded the weight of evidence is pointing to a sharp downturn and a prolonged period in the doldrums again as the world works out of the huge american deflationary pressure...so it becomes an issue of protecting the recovery we have had the past 12 months, or watching much of it dissipate again..

October 29, 2009 | Unregistered CommenterS

No delusions here ...I leave that to to snakes in DC..WALLSTREET !...I think we as a NATION , are being fed a bunch of COW PATTYS''..what ever is the ''avg. person , I think they are not Really informed as THEY should be , certainly not by the newspapers , (hopefully going out of business)..all so left , also aka" the cnbcmsmcbsnbcabc , et-al ...Do not laugh , but I think GLENN BECK IS DEAD ON !!...AND I AM A INDEPENDANT !...GLENN should be required watching for the unwashed masses in DC....LOL... yep , hold that GOLD-SILVER FOR NEXT FEW YEARS ...GLTA..

October 29, 2009 | Unregistered CommenterBONNIE

S,

Thanks for your comments they are very much appreciated whether our readers agree with us or not.

Yes we are positive about golds future and have been since long before we even started this site. Since we launched this site we have remained pro the precious metals and have stated many times it will be a white knuckle ride and it has been and it will continue to be volatile.

If you are correct that most knowledgeable people are predicting a retractment then we stand alone in that we will not be selling our core holdings but holding on rather firmly.

We do carry a lot of the Casey material but we do not always agree with them, however, by posting other peoples view points we think that it adds to the debate which is to everyones benefit.

You mention the XAU, I don't think we have ever suggested buying into it as our focus has always been on the HUI, the reason being is that the HUI is more representative of unhedged stocks and we wanted as much exposure to gold and silver as possible.

Still the debate will rage between the deflationary camp and the inflationary camp so time will tell.

October 29, 2009 | Unregistered CommenterGold Prices

Calling the folks in Washington "snakes" is an insult to snakes! Let it be known, snake dealing (that's right, the legless kind) have financed my gold and silver purchases! Big time!
Snakeman

October 29, 2009 | Unregistered CommenterSnakeman

SORRY , YOU ARE RIGHT . ....COWPATTY`S IN SUITS THEN . 3 WICKED WITCHES OF THE WEST..POLOSKI, BOXER, & FEINSTEIN ...AND THEIR FLYING MONKEYS ,..LOL..

October 30, 2009 | Unregistered CommenterBONNIE

Statistically, the last week of Oct. is the lowest point (in the stock market) of the year.

Maybe we get a lower entry point in November or not???

October 30, 2009 | Unregistered CommenterEP

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