Tuesday, April 27, 2010

Clash of the Titans

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Gold will trump paper debt tickets this cycle. There is no point in fighting the trend. It was unwise to invest in Gold from 1980 thru 2000 and it was unwise to not invest in financial assets from 1980-2000 for the average investor. Similarly, it has been and will continue to be unwise over the longer 10-20 year period that began in 2000 to not be invested in Gold or to be invested in financial assets for the average investor. These are the truths the market has provided and the obvious trends in place.

Today was a great clash of the titans in the market. I am talking about King Dollar versus Gold. Like a death cage match with lots of twists and turns, today was only one day in the long battle for supremacy. To put it bluntly, Gold left the aging current paper champ in a daze today. Gold is re-asserting itself as the preferred currency among global market participants during a crisis.

In round one, which occurred during the Great Fall Panic of 2008, the U.S. Dollar came out swinging hard and fast and knocked Gold to the canvass shortly after the opening bell. But like a 12 round fight in a Rocky movie, Gold got back up as if nothing had happened and was back at $1000/oz by February of 2009. Today's "mini-crisis" is a preview of what's to come this round. Gold will win by decision (possibly a narrow one) with lots of jabs and counter punches, triumphing despite a valiant effort by the U.S. Dollar to score points and stay on its feet.

The point of recognition occurs this round. The people watching the match realize the aging paper champ is no match for an eternally youthful and always shiny Gold opponent. The bets on the outcome will shift to Gold as people realize the inevitable will occur in the late rounds. The U.S. Dollar has some fight left in it, however, at least relative to the other paper contenders out there.

But, alas, the final round will see the knockout blow that ends the paper champ's career. This clash of the titans is an important one. You can be sure that the handlers and promoters for Gold and the Dollar, who are one in the same, already know the outcome as well. The younger members of the promoters' staff, known as paperbugs, think the old champ will find a way to sneak through with a narrow victory, but the more experienced head promoters know that the only question related to the pending Gold victory is the timing.

On a slightly more serious note, Newmont Mining (ticker: NEM) blew away earnings estimates today. Barrick Gold (ticker: ABX) reports earnings before the market opens tomorrow (and Goldcorp [ticker: GG] after the market close tomorrow). The strength of Barrick and Goldcorp today on heavy volume, despite a big and panicky drop in general stock market indices around the world, suggests both of these blue chip miners are ready to blow away earnings estimates. This would light a fire under the Gold stock sector as people finally start to witness ACTUAL LEVERAGE to the price of Gold in the senior Gold miners. If Barrick's earnings are as good as Newmont's and the general stock market indices make even a weak bounce higher tomorrow, we could see a 5-10% upside day in the major Gold stock indices.

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