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Grandich Letter Special Alert
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| Gold | $472 |
| Silver | $7.53 |
| Platinum | $924 |
| Palladium | $193 |
| Copper | $1.82 |
| Oil | $62.18 |
| US Dollar Index | 88.72 |
Gold- There's a Canadian-based money manager who has repeatly stated on ROB-TV that he wouldn't touch gold with a ten-foot pole and his children and grandchildren will never see $500 an ounce. Meanwhile, since returning to the gold bull camp in the summer of 2003, yours truly has repeatedly stated, "$500 gold was not a question of 'if,' but 'when?'"
During my last appearance on
ROB-TV...
http://www.grandich.com/robtv.09.30.05a.htm
http://www.grandich.com/robtv.09.30.05b.htm
... I offered to give a ten-foot pole to the money manager and also provide his grandchild with a gold coin when we go over $500. I suspect the party will begin to state that such a feat was a "fluke" and maintain his bearishness all the way to $600, $700 +. In fact, it could be the ultimate sell signal if and when he turns bullish.
I, by no means, am picking on this gentleman as I have many skeletons in my own closet. I bring this up so to make you fully aware that Wall Street is full of "thinkers" like him, and to support gold flies in the face of their always "Don't Worry, Be Happy" attitude towards the financial markets. Don't expect them to suddenly realize their misguided ways and to see the cup for what it really is: half empty.
$500: It's not just Psychological - Investors and the media gravitate towards big round numbers and many times they become psychological hurdles. In the case of gold, it's that and a whole lot more.
My good friend and truly one of the world's foremost gold authorities, Mr. James Turk, (www.goldmoney.com) kindly provided me with the above chart and the statistics that show gold only traded above $500 an ounce between December 26, 1979 to April 8, 1981 and February 10, 1983 to February 18, 1983. The $500 level is like the 1,000 level was for the Dow Jones Industrial Average for many decades. I remember when Robert Prechter predicted a 3000 DJIA when it was below 1,000. Most people thought it was mostly fantasy. I can assure you that outside of the handful of always bullish gold bugs, a gold price much above $500 or even a $1,000 an ounce is considered foolhardy or ludicrous. Just ask that Canadian money manager.
All Systems Are Go - I noted in my September 26, 2005 Special Alert that gold had hit one of its most overbought technical levels in quite some time. Please note how we have been working off that overbought condition on the latest chart.
We still can have some more backing and filling and even a shakeout to the $450-$455 area but one has to be impressed with how gold has more than held its own while in this overbought condition. If you're short (and I buy into much of what www.gata.org believes is happening in the gold bullion market), you have to be asking yourself what it's going to take to knock gold off its feet.
Gold has four very positive factors going for it at this time:
- Double-digit jewelry demand
growth
. - Abundant investment demand,
most notably outside of North America
. - Mine supply falling short
of demand again
. - A lessening negative effect of Central Bank sales or the talk of them.
The China Factor - The members of the "Don't Worry, Be Happy" crowd on Wall Street love to bring up the China factor demand when it comes to why you should own Pepsi or Dell shares, but give no consequence to the gold demand factor. If you're going to buy into the belief that the Chinese population is going to be an ever-increasing consuming giant, than you must also pay heed to the fact that right now the average Chinese owns only one-tenth of one gram of gold per capita. If Hong Kong is any indication of what China may look like down the road as a whole, then their 2.5 grams per capita suggest a dramatic increase in gold demand from China.
Bottomline - Gold is in a secular bull market, which in my mind is only in the second or third inning.
Silver - Has been, and seemingly should always be, the poor man's gold. That doesn't make it a poor choice but it does remind at least me that over time, gold is ultimately the engine and silver the caboose. Silver will undoubtedly lead gold at times, but we're not going to see silver rise dramatically while gold remains flat or down.
Platinum and Palladium -
Watching paint dry
is still a better choice until further notice.
Base Metals - If not for my fumble on copper, I would be
feeling pretty good about my 2005 assessments. I started the
year with a bullish tone, even suggesting $2 a pound on copper
was still a possibility. But as spring came, I began to foresee
a significant economic slowdown worldwide and felt base metals
should go from being in front of precious metals to behind (overweighed
to underweighted). Copper, meanwhile, has been on a runaway train
thanks to production bottlenecks, strikes and hurricanes. It
may indeed hit $2 now but the longer-term supply versus demand
scenario continues to move more into balance. We can see that
in the copper market itself with copper futures currently in
backwardation. I do believe we'll see $1.40 again within the
next 12-18 months but such a price is not cause to wholesale
sell anything and everything related to copper.
Uranium - It and gold have been the two metals I have stated should only work their way higher. It has even a more bullish argument than gold does. A doubling or even tripling in price from here in the next 2-5 years is not poppycock.
Oil - Back in early August, I wrote this update In all my commentaries over 20+ years, none of them caused so many people to universally pan me for uttering such "hogwash" (that's what one email called it- I can't repeat what it said about me personally). Hurricane Katrina and Rita followed, causing a spike in oil prices to $70. This only compounded the "you're a schmuck" calls and emails. When I noted my original commentary said $70 was still a possibility but such a rise should be to lower ones exposure to oil-related stocks, well, I might as well have stood up at an Oakland Raiders home game and said everyone who looks like they're from Star Wars is a loser (who said aren't they?). Death would be a better option than the beating one would receive (and I did) for making such an oil commentary.
But here we are today, after what could only be described in poor taste as a dream come true for oil bulls, and despite major havoc on several fronts, the oil price is just $ .18 higher than when I first spoke with forked tongue.
I continue to believe we're in the midst of an energy crisis and ultimately prices can go higher than $70 but I believe when seemingly everybody is on one side of the equation, I want to be on the other- no matter how foolish that may seem at the time.
U.S. Dollar - Its days as the world's reserve currency are numbered. Don't sweat a 2%-5% rise when it has all the makings of another 20%-50% lower.
Mining Shares - If you told a mining company executive back in 2001 that gold would be $470 and copper $1.80 in October 2005, they would have chanted, "We're going to be rich". While mining shares in general have come well off the mat since then, relative to the underlying metal prices, there's little doubt most mining executives are surprised, if not disappointed, in their share performance (but don't expect them to publicly state this). Trust me; most professional and private investors aren't jubilant either.
As noted in my September 26th Grandich Letter Special Alert there are several factors that have hindered the upside for both majors and juniors. And there's nothing on the horizon that should eliminate or greatly reduce these stumbling blocks. However, a gold price that stays north of $500 should give reason for mainstream Wall Street and the financial media to make this sector appear more worthy of attention. Then, the fact that the entire market capitalization of all major producers worldwide doesn't even equal Coke's market cap should lead to more premium P.E.'s and filter down to the exploration and development segment.
We may still see a significant tax-loss selling season in the juniors, especially in those stocks that traded at much higher levels on big volume. The mood among speculators at the recently concluded Toronto Gold Show and those I have spoken to and received emails from, strongly suggest they're looking for reasons to jettison stocks that have caused them economic and mental anguish. Only a break above $500 an ounce in gold could lessen or eliminate this likelihood.
Peter Grandich
Grandich
Publications
P.O. Box 243
Perrineville, NJ 08535
phone: 732-642-3992
email: Peter@Grandich.com
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