|
|||
Last stop before new highs?Louis Paquette September was a terrific month for gold and gold stocks, very much in line with the seasonal tendency for it to be the strongest monthly move in the calendar. From early September to early-October, the HUI jumped roughly 20%. As we go to print, several high-flying commodities have suddenly turned volatile on fears of a slow down in Chinese demand for commodities. The main message for this issue would be not to sweat this expected correction in gold. Looking back at the seasonal chart again, (new subscribers visit Timeless Charts or the previous August/Sept. Issue for this) we clearly see that October has a tendency to give back more than 50% of September's gains. Both gold and the gold stock Indexes hit resistance just as the short term seasonal strength peaks in early October. And the commitment of futures traders shows both gold and silver spec longs more than 5 to 1 over the shorts, signalling a setback is due any time. So a pause is perfectly natural here. Upon reaching the tops of their respective trading channels, both Gold and the HUI charts appear to be bouncing off the top lines of their respective trading channels back down toward the low ends of the channels. After that comes the big seasonal move into the New Year. If the correction this month is muted, if we sail through this seasonal dip with little downside, this would be a sign of relative strength, indicating more strength ahead than we might have otherwise expected. HUI hesitates
at 240 resistance. I'm not a big fan of "trading" the current setback because it's a relatively small move in the grand scheme of things, lasting but a few weeks (to very early November) and between commissions, trading spreads, and the chance of getting whipsawed, I don't see the point of attempting to trade this. Instead, I like to target the highs that normally form in the first quarter of the year. The final push of seasonal strength for gold combined with the small cap rally that almost always occurs from late in the year to the next quarter or two are ideal times to take money off the table. There's another reason why I'm more confident than ever that we are well served by being "positioned" into gold and silver stocks - given a recent forecast by Donald Coxe, Chairman & Chief Strategist, Harris Investment Management Inc., in Chicago. Rewind back to February of this year at the World Outlook Financial Conference in Vancouver where Don was a headline speaker. I distinctly recall he was a screaming bull on commodities in general. I also distinctly recall his main focus being specifically on the oils and the base metals. Not gold. Of course I couldn't have agreed more about the long term secular bull market in commodities. But I left a bit puzzled about why he had totally ignored gold. Most other analysts speakers at the conferences then were bullish on gold. And if he liked commodities so much, why was he seemingly ignoring the gold sector? I attempted to quiz him about this after his speech, but the line was so long I left thinking he was being badgered enough. I should have been more patient. Fast forward to today, and just look at the results: the TSX Energy Index is up 35% from the same month last year, the Base Metals are up 33%. Meanwhile, gold stocks spent the better part of the first half of the year falling. Don cherry-picked the two winning groups exactly when most everyone else was fixated on gold at the wrong time (to our credit, this letter did strongly warn against buying gold stocks November through to early 2004 just as the sector was topping - but, we did not zero in on these other two groups as Mr. Coxe did). I finally got to hear from the horse's mouth why he was positioned the way he was in February and what he likes now in a recent radio interview (October 9th, CKNW). He begins by explaining that he sees commodities in three distinct groups: 1. Oils, 2. Base Metals, and 3. Golds. He goes further to say these subgroups can be overweighted at different times to obtain greater returns. In early 2004, he was attracted to the two former-listed groups because "there was too much money to be made" in them, chalking this up to the 20-year depression in commodities creating a great value situation at a time of unprecedented global demand for basic materials such as oil, copper, etc., out of places such as China - pretty common themes, but he timed it beautifully. He was ignoring gold at the same time, because there was too much enthusiasm, it was appearing on too many front pages. It violated the "Rule of Page 16" which states that the serious gains are neither made or lost with asset classes appearing on Page 1. They are made with asset classes currently appearing on Page 16, on their way to appearing on Page 1. It's all about positioning in advance of the thundering herd. Considering he got it so right on for the first half of the year, you can imagine my delight when just this past week he went on to say things have changed now and it's time to shift the focus away from oil and base metals to what he considers to be the other important commodity group - Gold! He says he's not necessarily selling his oil and base metal stocks as they are still "cheap" and the commodity bull market is in "year two of a 15 to 20-year bull market." But now, for instance, if oil prices remain high enough, this will eventually do damage to base metal prices. Also, Oil and Base Metals have been violating the rule of Page 16 by appearing on Page One. Gold on the other hand, as been relegated back to Page 16 - but is about to move back to One again. Why? Because the second big down leg of the major bear market in the US Dollar is close to getting under way, pushed over the edge by an additional US$200M a DAY being spent on higher oil prices. And when this happens (maybe not next week, but soon enough) the price of gold will break $430 and soar.
Anticipating second big down leg in US Dollar As stated before, sure, there's lots of people saying that. But Nobody got the swing trade right like Coxe did and we ought to pay attention to what he's saying now and his reasoning for doing so. I urge readers do just that at the CKNW "Audio Vault" by requesting the 8:00am and 9:00am segments, Saturday, October 9. (Don's interview starts at roughly 8:40 in the first segment and 9:06 in the second). I will also include a link for the Audio Vault" in our Timeless Articles page for future reference.
Please note the author is not
a registered securities advisor.
Copyright ©2004
EGS |
Louis Paquette Publisher