..
Gold Stock
Alert:
Caution, Caution, Caution
Bob Moriarty
May 19, 2003
How many times
have you read prognostications where the analyst would say something
to the effect "If it goes up past 140 it will go up more
and if it goes down past 125, it will go down more."
I mean, aren't those the only alternatives? Everything either
goes up or down. Things rarely remain exactly the same. And after
the fact, you can count on the fact the person making the claim
will insist they called it correctly. "Well, I said it was
going up." Well, they almost always say it's going down
as well and one of them almost has to be true.
Basically,
people try to cover all the bases because no one has a crystal
ball, we are all just guessing. But some guess better than others.
In late March, I said, "Buy,
buy, buy"
in a Gold Stock Alert. I do not claim to have a crystal ball
but I am close to the market and try to get a feel for the overall
status of things. It felt like a good time to be buying gold
shares. At the time, the HUI was about 115, now it's 135 and
change. I've put in a chart of the XAU with an arrow showing
where I made the call.
So it's about
time I come up with a nice ambiguous call because I'm not liking
what I see in gold stocks. Bear with me and realize I could be
totally wrong. But follow along.
In December, starting about the 10th or so, gold began a long
rise from about $320 to just over $390 in early February. And
the gold stocks wouldn't wake up. That's not true of all of them,
I bought a bunch in early December, for a friend, which went
up about 50%. But a 20% move in gold should mean about a 120%
move in the small gold stocks and we saw barely half that. Gold
was moving but the gold stocks weren't. Sentiment towards gold
futures turned overly bullish in January and it should have been
clear that gold was getting dangerous.
Sure enough,
both physical gold and gold shares got clobbered in the January-March
period with many juniors down 50% from their yearly highs as
gold retraced all the way back to the low $320 range. We did
hit a bottom and have come up from there. As luck would have
it, my call in late March was not bad.
Chart
courtesy of Yahoo! Finance
But with another
$35 move higher in gold, the gold shares as measured by both
the HUI and XAU have barely budged higher. They are higher but
not by much. And that's with the dollar doing a swan dive and
Iraq waking up and not particularly liking the American definition
of freedom. Gold's up but don't get carried away thinking this
is all there is.
I think we
are a lot weaker than we ought to be. And if gold shares don't
want to move on a $35 move, the dollar falling out of bed, bonds
busting through the rafters and the Canadian peso acting like
it's on Viagra, you might want to show some caution.
The US dollar will rebound and when it does, both the Canadian
peso and gold will get hammered. The dollar is years from a bottom
but even in a brutal bear market, there are violent bull rallies.
I suspect we are in for 2-3 months of weak gold share prices.
So I am urging caution on the part of our readers.
Richard Russell
says about gold, "Buy and hold." And he's right; if
you have bought gold or gold shares in the past two years, you
probably haven't done badly and can count on doing far better
in the future. We are a lot closer to the bottom in gold than
to the top. I firmly believe the actions of the Bush administration
and the Federal Reserve have pretty much destroyed the future
of the dollar as an international reserve currency. When the
rest of the world realizes there is nothing supporting the dollar
but hot air, look for the dollar to go a lot lower and gold a
lot higher. For all purposes, the neo-cons have declared war
against both China and Saudi Arabia in public. By dumping their
dollar holdings, either country could turn the US into a 2nd
World nation in six months. And they might just bite the bullet
and do it.
Harry Schultz
on the other hand suggests you trade gold shares and gold. Actually,
he almost insists on it. So if you believe him and my warning
makes sense to you, you might want to lighten up on the gold
shares. But within the next 2-3 months, there will be an extraordinary
opportunity to buy gold shares cheap. So keep your powder dry.
If you don't agree with me, you need do nothing. But I am seeing
warning signs and I want to point it out. I could be dead wrong.
While I suspect gold shares are going down a bit, I also suspect
the Dow and S&P are on the verge of doing a nose dive. May
through October is traditionally the worst period of the year
for holding common shares. The VIX is screaming complacency and
the sheeple are about to get sheared again. October would make
a real good time for a stock market low before the market begins
a nice 150% advance.
Bob Moriarty
May 17, 2003
_______________
 321gold Inc Miami USA
|
