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« What If Deflation Wins | Main | Hyperinflation to come – Peter Schiff and Marc Faber »
Wednesday
Jun032009

The Precious Metals Month of May

Metals Chart 03 jun 09.JPG

Chart courtesy of Stockcharts

That was the month that was for the precious metals sector whereby the precious metals stocks led the charge just pipping an outstanding performance by silver which beat gold and the DOW leaving the US Dollar to collect the wooden spoon.

It is still early days for the stocks but it is good to see them demonstrating some leverage when compared to gold and silver prices. The reason for taking on the risk of exposure to the mining stocks is to gain leverage in this bull market, otherwise it would be a straight forward play of buying the physical metal and sitting on it. Ownership of a small amount of the gold and silver is highly recommended but the less risk averse among us look to the stocks to provide greater returns. From the beginning of this bull run in 2001 this was the case until the 2008 De-leveraging sell off decimated this tiny sector as illustrated below:


HUI seven year chart 03 jun 09





There is no doubt in our minds that this metallic bull will continue to run albeit with volatile oscillations and pullbacks punctuating its ascent. However, if the chart above is indicative of what is to come then the mining sector is set to surpass previous highs by a large margin. And it is about time too! The media in general still don't give the barbarous relic anywhere near enough attention and Joe public remains in the dark about precious metals as an investment. However, the Chinese Dragon has expressed its displeasure at the dismal performance of the dollar despite Tim Geitners attempts at pacification and will accelerate its programme of diversification out of the dollar.

As and when these things become apparent gold will appear by popular demand on the front pages of the press, investors will allocate more of their funds to this sector and finally the the public will stampede into gold and its associated stocks regardless of price. When people in your place of work who have never expressed any interest in gold go out and buy a coin or two in their lunch time and show it off to you and your colleagues start work on your exit plan, until then enjoy the ride.











Have a sparkling day.

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Reader Comments (5)

Bob,

Forgot your average price on Yamana. Mind telling me again?

Guess you'll alert us if you buy more. Gold stocks may resume uptrend in mid June??? Keep watching.

Also, watching GFI and NGD closely. Are you? Don't mind more junior stocks during this third wave.

June 3, 2009 | Unregistered CommenterEP

Yamana Gold Incorporated (AUY: NYSE) we paid $9.37 on 27 September 2006, and we bought again at $12.89 on the 7th December 2007 and so our average price moved up to $11.13. On 31st January 2008 we reduced our exposure to this stock and sold about 50% of our holding for an average price of $16.50 locking in a profit of about 49.41%. Then on the 3rd April 2008 we bought our Yamana position back at $14.43 in expectation of a bounce, which arrived on The 23rd May 2008, and we sold for $16.00. On the 11th July 2008 we bought again at a price of $14.95 taking our average purchase price up to $13.04. This stock closed at $10.95 yesterday, having traded as low $3.99 not so long ago.

June 3, 2009 | Unregistered CommenterGold Prices

Comment/question:

Not long ago, read an article promoting the concept of watching the S/P, for correlated moves in PM's. P/M shares will follow the S/P-seems to be the case right now-at least in rough outline.

So, if, as predicted, the S/P even this year as many predict, turns drastically south, so will P/M shares. Quite a dilemma.

What is your thought?

June 3, 2009 | Unregistered CommenterD

Has anyone read this http://www.kitco.com/ind/Summers/jun012009.html?

"...... Overall, the median stock to gold ratio for the last 106 years is 5.4. In other words, throughout the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA.

Today, gold trades at $980. The DJIA trades at 8,500. This puts the ratio of gold to stocks at 8.6. Thus, the DJIA needs to fall to 5,292 (a 37% drop from today’s level), gold needs to rally to $1,574 (a 60% rally from today’s level), or some combination of the two, in order for gold to be appropriately priced relative to stocks again......

If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one......they’ll either pull out their money pushing the DJIA lower OR they’ll shift their money into alternate investment classes like gold. When they do, the DJIA will fall further and gold will erupt higher."

Any comments?

June 4, 2009 | Unregistered CommenterEP

That last line or two , yea, I remember, I was much younger and the older guys were all buying those gold tooth charms and gold chains and even the odd gold coin, that was about 1979 or 80! Will it happen again? Oh, Junior golds, will they ever come to life?

June 4, 2009 | Unregistered CommenterJ

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