To 321gold home page

Home   Links   Editorials

Spring has sprung, the grass has riz,
We wonder where bullishness is

Contributed by Olaf Sztaba
NA-Marketletter
www.na-marketletter.com

April 20, 2006

Extracted from the April 19, 2006 issue of Market Comment.

GOLD & GOLD STOCKS
(Daily chart with the 50- and 200-day moving averages)

LONGER TERM: Despite Gold's powerful bull market of the last five years, the sentiment toward the metal remains tepid at best. The majority of investors are still being "educated" by the media that the volatile gold stocks have no place in their portfolios. Very few remember, the late 60s and early 70s, the last time Gold made major moves. It was then viewed as a must-have position: usually 10% of portfolios were invested in this precious metal as a protection against inflation and negative market forces.

Today, despite Gold's orderly rise above $600 mark, numerous voices still suggest that "it has gone too far too soon" and advocate that it is likely to be short-lived. History, however, suggests otherwise.

Since 1896, that is, for the last 110 years, the Dow/Gold ratio has varied wildly but on average it took nine ounces of gold to buy the Dow. Through the past 110 years, using this ratio and taking the Dow at its recent level (11,300) the price of gold should be trading at $1252 per ounce (11,269/9). Today, with gold at about $614.75 and the Dow Jones Industrial Average at 11,269, it takes over eighteen ounces of gold to buy the Dow, well below the historical average. Thus from the long-term perspective the price of gold is still considerably suppressed.

SHORTER TERM: Gold and gold stocks have been showing tremendous strength lately despite the usually weak seasonal factors and scepticism among market participants. Investors who missed the latest run in Golds are in the "waiting room" looking for an opportunity to enter the market. Such a situation usually causes corrections to be well contained.

One of the strongest arguments for the continuation of the advance in Golds is the behaviour of individual stocks. Important breakouts have occurred since the beginning of the recent cyclical advance (May 2005), most of them from long, multi-year bases. Some examples are Agnico-Eagle with a powerful breakout from its three-year base (recommended by the NA-Marketletter at CAD$15.00); Yamana Gold (added to the portfolio at CAD$4.20) or the recent breakouts; Vista Gold - a move out of the four-year base (recommended at CAD$3.59). The above stocks, along with many others, still offer significant upside potential and should be accumulated when an opportunity occurs.

We expect this cyclical bull market in Golds to accelerate, so use any opportunity to add a few golden eggs to your Easter basket.

For individual gold stocks recommendations sign in for a free trial at www.na-marketletter.com.

April 19, 2006
Contributed by Olaf Sztaba
Email:
osztaba@na-marketletter.com
Website:
www.na-marketletter.com

About NA-Marketletter

321gold Inc