Sunday, January 11, 2009
Rough road map for gold stocks
Along the same lines as my comments below for general stocks, this is what I think will happen with gold stocks over the next few months:
The exact day to day movements are quite uncertain, but I think a correction to the 26-27 level would be reasonable and I think the maximum correction downside would be 24. After that a move to 40 seems like a no-brainer and would give an easy 50% gain in 2-3 months. Once the spring top hits, a correction in gold stocks will occur that will be a significant correction.
However, remember this: gold stocks are in a new cyclical bull market that began 10-24-08. They will NOT be making new lows after the spring top. General stocks, on the other hand (i.e. Dow/S&P 500), will peak in the spring and then will DEFINITELY make new lows below the October, 2008 lows that will make widows, orphans, bureaucrats, retirees and anyone else who falls for this bear market bounce cry.
Also, remember that everyone and their cousin on TV and in mainstream financial sources will be praising Obama, Bernanke, and the wisdom of the markets right before the next plunge, drawing in as many suckers as possible before Mr. Market takes all their money. The recovery is not here, has not started, and is still a ways off.
Gold stocks can thrive in a countercyclical environment, though they are still subject to being pulled by major market moves. Because gold mining fundamentals are rapidly improving as just about every other sector in the economy has deteriorating fundamentals, gold stocks will become the go to sector for those insisting on being bullish in something. Not only will their profit margins explode and stock prices go bananas, but if you buy early in this cycle (like in a few weeks, for example), gold miners will provide you with a handsome dividend yield on your initial investment as early as the end of this year.