Grandich Letter Special Alert
Gold and Mining Shares
Sep 27, 2005
Gold $463- My opinion remains basically the same
as it was in my alert of 9/21/05 http://www.grandich.com/docs/alertGL_09-21-05.pdf
I noted both in written commentaries and in media interviews
that gold was very overbought and the $450-$455 area could be
tested to see if former key resistance is now strong support.
From a technical standpoint, this would be considered a normal
occurrence and healthy.
The chart above paints a good
picture of what has been taking place since April. After bottoming
early in the New Year around $408, gold rallied back above $450
by March, only to make a double bottom in the $410 area by June.
Once again it rallied back to just above $440 later that month,
only to decline once again-but this time just to around $420.
I was commenting back then that gold was building a foundation
that would allow it not only to challenge and surpass the old
highs around $450 (we did, indeed, do so most recently), but
eventually the $500 area. I was especially encouraged back then
in my comments that the pullbacks were actually making for a
better future. For some, it was hard to imagine how this was
possible. This chart can show you some of what I was seeing at
Please look up to the RSI (Relative
Strength Index) at the top of the chart. You will see a line
noted by the #30 and one by the #70. In technical analysis, the
underlying market, stock or commodity is considered overbought
and vulnerable to at least some profit-taking when it hits the
70 level. When it hits 30, it's considered oversold and likely
to rebound. As you can see, gold was overbought as it approached
July and indeed declined. But a "positive divergence"
occurred in its low in the $420 area. Notice the RSI didn't fall
as far as it did as we approached the June timeframe. This strongly
suggested an internal building of strength that, at the time,
I wrote about and mentioned in media interviews. I also spoke
about a triple bottoming being formed that was building a tremendous
foundation for the future rise of gold prices.
We touched $450 in August,
only to reach the overbought area on the RSI. We pulled back
only to around $430, and then proceeded to break out above overhead
resistance and make new highs around $475. But we then recorded
one of the most overbought readings in some time (noticed how
much we went over the 70 level on the RSI this time). So, the
profit-taking that took place towards the end of last week came
as no surprise. As much as those who seek "immediate"
gratification would like us to hit $500, it would actually be
better for us long-term bulls to spend time building a base between
$450 and the recent high of $475 for a period of time. This should
allow the overbought status to work itself off and set us up
for a move to $500.
While some players get caught
up in thinking every waking moment in the gold market is a battle
between manipulators and "plain folk," the fact is
the "they" argument has been around during most of
history when a person or group wants to give reason for why something
happened or didn't. Yes, I do believe there are people who have
used the short side of gold to prosper and even hope to accomplish
some personal agenda. But, its not being objective to blame each
down day squarely on their backs and each up day to more than
one bullish factor. There's a segment of the gold market that
isn't interested in social, political or economic agendas but
merely price- it's called the jewelry market. Here, price sensitivity
plays a key role- just ask anyone in that business. We happened
to have just entered the best seasonal buying time for gold as
more gold is bought for jewelry purposes between now and early
December than at any other time. However, these buyers do step
back for a period if prices rise sharply in the very short term.
Sometimes they're forced in if no meaningful pullback occurs
but more times than not they do wait, and they've grown accustomed
to this. Personally, I don't think they're going to get much
of a window here as forces around the world have come together
to offer gold its best fundamentals in over 25 years (and the
technicals aren't bad either).
Mining Shares - One would think with a gold price
of $463 (remember how just a few years ago the only way this
price seem possible was when it hit $230 they reverse split it
2 for 1?) and copper near $1.80, happy days would be here again
among the major and mid-tier metals producers. While their share
prices have risen from the depths of despair a few years back,
the overall fundamentals haven't come close to matching the improvement.
In fact, it's all but certainly tougher today than in any recent
period of history. If much higher operational costs aren't killing
you (energy, machinery and other items), then shortages of skilled
labor, abilities to get permits thanks to environmental and/or
political opposition are (not to mention hostile areas of the
world against mining in general). And to top all this off, the
ability to find substantial new deposits to keep up with demand
continues to fall short.
Meanwhile on the junior resource
front, high operating costs, lack of drills and qualified labor
and many scenarios that impact the majors are hitting home. But,
unlike the majors for the most part, the investment world has
not beaten a path to their door. It's still very hard to raise
capital for pure exploration. And non-broker financings leave
many of those who do them "outside looking in" when
it comes to developing a following for their stock among the
So, while the underlying metal
prices have given great cause for optimism, those of us who try
to profit from buying shares in companies who explore, develop
and produce the underlying metals, still haven't seen it spill
over in any great way. What will it take to see widespread investment
interest and optimism? A gold price that stays above $500 for
more than a day, week or month. This would bring widespread and
constant media coverage (we just had a taste in the past week
or so) on gold, which will force the "Don't Worry, Be Happy"
crowd to play. Imagine someone like the General of "Be Happy"
campers, Larry Kudlow, or their "nutty" lieutenant,
Jim Cramer, not panning gold verbally, but suggesting you pan
it in some river because gold prices are going higher-LOL!
When will you know gold is
topping out? When Tout-TV (CNBC-TV) switches their NASDAQ babe
to standing outside the Comex on a daily basis. Until then, all
systems are a go.
Sep 26, 2005
P.O. Box 243
Perrineville, NJ 08535
Inc. provides research, analysis, and investor relation services
for certain of the companies featured in the articles appearing
in its publications (each a "Featured Company"). Featured
Companies may pay fees to Grandich Publications, Inc. that may
include securities-based compensation that would appreciate if
the company's stock price rises. Accordingly, there is an inherent
conflict of interest involved that may influence our perspective
and provide an incentive for publishing favorable information
with regard to a Featured Company.
has been given the right to exercise stock options. A complete
list of options and share price (in Canadian dollars) is listed
on the right. Furthermore, most companies have entered into agreements
to pay Grandich Publications a monthly fee. The fee is listed
on the right in U.S. dollars.
herein is for informational purposes only and is not intended
to, and does not constitute the rendering of investment advice
or the solicitation or an offer to buy securities.
discussion contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (the "Act").
In particular, when used in the preceding discussion, the words
"plan," "confident that," "believe,"
"scheduled," "expect," or "intend to,"
and similar conditional expressions are intended to identify forward-looking
statements subject to the safe harbor created by the Act. Such
statements are subject to certain risks and uncertainties and
actual results could differ materially from those expressed in
any of the forward-looking statements. Such risks and uncertainties
include, but are not limited to, future events and the financial
performance of the Company which are inherently uncertain and
actual events and/or results may differ materially.
statements contained herein and information contained in any source
cited herein are not endorsed by or adopted by Grandich Publications,
LLC, nor has their accuracy been verified by Grandich Publications,