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« Gold Prices Surge Through Second Key Resistance | Main | Bank of America: Long Straddle Options Strategy »

The DOW, Gold and the HUI

The four just men 11 feb 09
The gang of four

The latest pronouncements on the financial bailout package went down like a lead balloon as the DOW fell 381 points, the US Dollar rose 1.05%, Gold rose to $915/oz but the Gold Bugs Index, the HUI, dropped 5 points, Rats!

We cant deduce much from one days data but we tend to expect that the gold producers would improve when gold has a good day, however, the broader market, the DOW was sold off dragging the precious metals sector down with it, effectively ignoring golds progress

Now, if the Obama academy of scholars take a look at todays response to their proposals they will not be too pleased. The next plan to boost the feel good factor will be on the drawing board right now and launched as soon as possible in an attempt to the reverse the stock markets weakness. And they could well succeed driving the market up and hopefully taking our portfolio along with it. However, investors will only be fooled for a short time and then the problems of a disintegrating economy will send them to the exit. At this point the precious metals sector could take another battering just as it did last year. If we cast our minds back to when gold was trading at $1000/oz, stocks such as Agnico-Eagle were trading at $80.00 per share. A 9% increase in the price of gold will see it back up there but Agnico-Eagle would need to improve by 80% to re-gain parity.

It appears to us that the next month or so could see us experience a small rally followed by a serious sell off across all the market sectors, leaving us with a feeling of trepidation at this point. However, many of our peers in this sector are GO, GO, GO, Gold Bugs with a strategy of BUY, BUY, BUY. We agree with a lot of what they say and remain long term gold bugs, however if we detect a bloody nose heading in our direction we will post our concerns immediately.

We are living through an unbelievable phase in economic history so stay awake and on your toes as volatility will be the order of the day.

Buying gold? You might want to watch this:

Video clip of the week:

Investing in physical gold on BNN, Demand for gold bullion is at an all time high. BNN interviews Zaman Monirez, president of the Bullion Mart, on the ins and outs of investing in physical gold.

Book of the week:

Den of Thieves by James B Stewart

The shenanigans that are going on today are not new, they just involve numbers so large that it is difficult to comprehend what is going on. In the 1980s financial irregularities were alive and well with insider trading, junk bonds et al. Some of the names will be familiar to you; Kidder Peabody, Ivan Boesky, Drexel Burnham, Goldman Sachs, Lazard Freres, Shearson Lehman Bros, Merrill Lynch and of course, Micheal Milken, the list goes on.

Stay tuned folks..

If you are new to investment in the precious metals sector then you may wish to subscribe of our FREE newsletters regarding gold stocks, silver stocks and uranium stocks, just click on the links.

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Reader Comments (3)

The astonishment that people pretend, is merely a form of denial in my opinion. Just look at the price index numbers.
The US of A is in monetary deflation.

Didn't you hear Obama furious speeches recently? Thats a vocal reckognition of fear for denial. He wants that stimulus bcause he thinks it will help the economy...
Sure it will keep some jobs and maybe create a few, but focus must be kept on the underlying problem of overspending during the last decade. Tighten your belts people, this is getting worse if you got loans.

Deflation is among us. General goods prices are slowly dropping. Just look at the layoff numbers. Obama hopes to create jobs, but he's is merely capable of saving 3 million jobs with this stimulus and he knows it.


February 11, 2009 | Unregistered Commenterde Graaf

By the way, to be accurate:

The astonishment that I filter from this article is a fase of denial, or just not knowing what really happens.
Spot Gold losing its inverse corelation with the dollar and gold stocks dropping is something familiar with deflation. Both the dollar and physical gold are wanted items in this situation.

The contrary is visible with Gold stocks. Golds stocks tend to drop when deflation is at present. Its nothing weird anymore. Get used to this development. Gold stocks and Physical gold aren't corelated in a deflationary situation in my view of things.

I said it in October and I say it again now. Deflation is coming and there isn't a stimulus dollar that can do something about that. It's only postponing the inevitable 'healthy' correction. Paper money loses...always.

Just my two (euro) cents

February 11, 2009 | Unregistered Commenterde Graaf

Those Republican Senators who helped massage the Stimulus give away, and voted for it, are going to be in for something that they don't expect.

The die are cast, and what started many years back is coming to a head, and nothing nor anyone will stop it, except one event - WAR! Roosevelt did it, and it is not beyond Obama's reach.

The big picture, and the bigger question will be, what happens when our money - the Stimulus money - runs out and the whole thing is an abysmal failure? Will all the Obama voters who don't get that new car, the new home, the new bathroom, or the new kitchen, at taxpayer expense, be disappointed? Interesting and frightening times lie ahead.

February 11, 2009 | Unregistered CommenterJohn Ell

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