Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Do Not Feed The Bears - Until 2018
By: Avi Gilburt

Exclusive Interview (Part II): Alex Green on the Biggest Threat We Face
By: Frank Holmes

Gold Market Morning: August-23-2017: Gold and silver prices still marking time!
By: Julian D.W. Phillips

Global Financial Crisis 10 Years On: Gold rises 100% from $650 to $1,300
By: Jan Skoyles

Gold Seeker Closing Report: Gold Chops Lower While Stocks Rebound
By: Chris Mullen

Camino Intersects 96.5 Meters Grading 0.93% Copper At Adriana Zone And Expands Katty Oxide Zone
By: Camino Minerals Corporation

Ira Epstein's Metals Video 8 22 2017
By: Ira Epstein

Gold Stocks: Good Times Are Near
By: Stewart Thomson

GoldSeek Radio Nugget: Bob Hoye and Chris Waltzek
By: GoldSeek.com Radio

How Planned Fed Rate Increases Impact The National Debt And Deficits
By: Daniel R. Amerman, CFA

 
Search

GoldSeek Web

 
It's Rational to Expect the Irrational During This Gold Bull



-- Posted Sunday, 4 April 2010 | | Source: GoldSeek.com

By: Adam Brochert

I can promise you that the hard Gold bull crowd had to sit thru YEARS of irrational market behavior in the general stock market leading up to the 2000 peak in general stocks. While Gold stocks languished in the late 1990s, the NASDAQ bubble rose higher and higher. We are going to have the same thing during this secular Gold bull market. You should expect the price of Gold and Gold stocks to rise higher than justified by the fundamentals in the Gold market. We are a long way from this period but it will happen at some point. In fact, I think the party in the Gold patch is going to get started this year.

When thinking about what is to come in the Gold patch, it is important to understand the irrationality of herd behavior. We have seen it before (Japan in 1980s, NASDAQ in 1990s, oil and housing in 2000s, etc.) and we will see it again. The more things change, the more they stay the same. During a secular credit contraction in the private sector (i.e. a Kondratieff Winter or economic depression), Gold becomes the "go to" asset. Fear and greed are different sides of the same coin and the scramble to protect what one has earned and make up for what one has lost are powerful motivators.

If you think last fall was "frothy" in the Gold market, you ain't seen nuthin' yet. I think Gold stocks are going to outperform the Gold price over the next year because Gold stocks are historically undervalued relative to the Gold price, whether the nominal or "real" price of Gold is considered. Mr. Market will correct this imbalance. I believe this process is on the threshold of starting, which is why I have been so bullish throughout this early 2010 correction and during what I suspect is an early uptrend since early February in Gold and Gold stocks that will soon lead to new highs in both.

Since history rhymes (rather than repeats exactly), I continue to look to the secular bull market so far for clues to the future. We are set for the sweet spot of the current cyclical Gold stock bull market that exists within the context of an ongoing secular Gold bull market. The point of recognition is upon the unsuspecting public and most don't even know it yet. The institutional investors are slowly starting to nibble and many are about to start taking large bullish bites in the Gold patch. This is a small market sector, folks. Big money moving in is hard to hide when it comes to the Gold mining sector.

My favorite secular road map when it comes to Gold stocks and their valuation relative to Gold is to simply divide the "price" of a Gold mining index by the price of Gold and plot it over the long term. This isn't a perfect method to value Gold stocks as a sector, by any means, but it at least shows what's been reasonable over the course of the past decade. I prefer to use the unhedged Gold Bugs' Mining Index ($HUI), but let's take a look at the stodgier blue chip Philadelphia Gold & Silver Mining Index ($XAU) divided by the price of Gold (i.e. $XAU:$GOLD ratio chart) using a weekly plot over the past 11 years:



Now, this is obviously bullish for Gold stocks in the intermediate term, but one has to think bigger when thinking of a secular bull market. For perspective, here's a 20 year chart of the $XAU:$GOLD ratio:



Now I personally have bigger goals and see things even more bullishly in the Gold patch, but my comments in the chart above are the worst case scenario for buy and hold blue chip Gold stock investors from current levels. This of course ignores dividends, which should start to grow significantly for blue chip miners over the next few years. Gold is safer, to be sure, but a basket of blue chip Gold miners at this stage of the economic cycle is pretty safe relative to the potential reward now that we have made it to the other side of the Great Fall Panic of 2008. By this comment, I don't mean to say that the general stock market can't or won't make new lows. I mean to say that Gold and Gold stocks are set to disconnect from the general stock market when taking an intermediate-to-long term view. Don't believe it can happen? Then you haven't studied your market history.

Thursday's move in the Gold mining sector was quite bullish and may be the beginning of the big move I have been (not so) patiently waiting for. If so, April should be a fun month for Gold investors. Everything is lined up perfectly, but only Mr. Market knows for sure if Gold stocks are going to deliver. I remain wildly bullish on all things precious and metal and I think Gold stocks are going to be star performers over the intermediate term.

Adam Brochert

http://goldversuspaper.blogspot.com/


-- Posted Sunday, 4 April 2010 | Digg This Article | Source: GoldSeek.com




 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.