Wednesday, July 29, 2009
Gold stocks - where are we?
Just got back from the land of Oz and still getting re-oriented. Looks like senior Gold stocks are still correcting and a good buying opportunity should be here soon. Further patience is needed. To a 21 month chart of the GDX ETF:
No need to rush - lower prices are coming in senior Gold miners. A 2 month correction is normal in senior Gold miners, as I have previously covered. One also has to be cognizant that another devastating leg down in the general stock markets is still dead ahead, and may well indicate that the coming intermediate-term low in senior Gold stocks is not the final low for 2009 in the senior Gold mining sector. I was too early in my call for the stock market top for the year in June as we have made new highs for 2009, but if you think one final short squeeze is enough to turn me bullish, you haven't been agreeing with my macro views. We are setting up nicely for another fall disaster in my opinion.
The U.S. Dollar is taking its sweet time in finding a solid bottom, but a strong turn up in the dollar is coming soon and will be a disaster for stocks and commodities/commodity stocks. I don't consider Gold a commodity and think it will remain strong in the face of a rising US Dollar, as it has done at times in the past. Here is a 21 month daily chart of the US Dollar:
You can bet against the US Dollar right now if you want to, but I think it's a lousy bet. It may take a few more weeks for the US Dollar to get going, but I still expect it to rise from the dead in another deflationary wave of terror that destroys all asset values except cash (including Gold, which is money) and the yield on short-term federal government debt. This doesn't mean the US Dollar is strong, it means that people need cash to pay their debts and margin calls and those doing the calling still prefer US Dollars to Euros or Yen. This is a relative, not absolute, US Dollar strength. Me, I'll stick with Gold for the bulk of my cash holdings.
Gold will strongly re-assert itself as money this fall and will likely rise to new highs as people scramble to safety and seek true protection that requires no paper documents or counterparty risk. The current correction in the nominal price of Gold continues, building a strong base for a launch to new all-time highs. The current base/correction in the Gold price is now 1.5 years old, meaning the coming rise will be spectacular in time and price, though this correction is not yet over. However, senior Gold stocks are not immune to stock market meltdowns and may well underperform the price of Gold until the general stock market finds a new lower low that will be far below the March 2009 lows.
The chart of the physical Gold price is solid, healthy, and in a strong bull market. A dip down to the 200 day moving average in the $880-$885 range is possible, but is the worst case scenario in my opinion, and would be simply a final fake out before a new bull market thrust higher in the nominal price of Gold. All fiat currencies are sinking relative to Gold, the oldest and truest form of cash. Stocks, commodities, real estate and corporate bonds are all sinking in true value (short-term fluctuations aside) relative to the price of Gold and will continue to do so until the Dow to Gold ratio is 2 or less.