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-- Posted Friday, 17 February 2006 | Digg This Article
Grandich Letter Special Alert
February 16, 2006 * 6:00PM EST I ’ve treated the commentaries I publish in my newsletters with the utmost care knowing that my readers take my reports very seriously. That was evident a couple of weeks ago when I wrote about my anticipation of yet another correction in the gold market upcoming. The number of people who reached out to me was amazing. It’s not only gratifying to know you can be of assistance to so many, but I feel a serious need to assist them despite no obligation to do so. The numerous positive comments more than make up for a handful of really nasty ones. I say this with all my heart and soul- God loves you and so do I!
I believe it’s best to look at where we’ve been if we want a real clue on where we may be heading. With regard to gold, the following are important factors to me:
· Until we broke above $500 and stayed there, the vast majority of investors and professionals were not really bullish. Only when it reached $550 did those who didn’t think it could get above $400, let alone $500, started knocking each other over to issue a new, more bullish outlook. At the same time, a flock of new or long-missing speculators showed up. The recently concluded Vancouver Gold Show was a clear example of this. The combination of all this is not some scientific signal but gave me great cause to think we came too far, too fast.
· Many in the investment community and especially in the media continue to dismiss or take lightly what I believe is the single biggest factor behind the rise in gold and the people who know this reason best are www.gata.org. While I respectfully differ on the belief that it’s a daily or hourly event, I do believe the core of the GATA argument is the single best explanation-period! There’s no smoking gun-yet, but the circumstantial evidence is very strong. You also see and feel it when you’re living it each day as I do. As important as my charts are and what’s happening in the jewelry business is to me, so is what Bill Murphy and GATA are saying.
· There’s a “Don’t Worry, Be Happy” crowd that dominates mainstream Wall Street, the financial media in general and especially on Tout-TV (CNBC-TV). No matter what the case, the cup is always half-full. It’s true that within the hard asset community there’s a much smaller crowd who always sees the cup half-empty. I don’t consider myself as one of them (you should read some of the emails I received right after calling for gold to fall to know I’m not a member of that crowd). But, it’s inconceivable to me that any honest, sincere, financial advisor could not even offer some cautionary assessment if they truly looked at what’s taking place socially, economically, politically and religiously here in the United States and around the world. America is already well on its way down a slippery slope but you wouldn’t know it by most accounts. From my studies, the last time America was so indifferent to the realities of life was the late 1920s.
· Gold had been one of the most underperforming asset classes and has simply been making up for lost time.
While that’s a fair assessment of what led me to my recent commentaries, I know that what’s on some minds is, what have you done for me lately?
Gold - I believe the secular bull market in gold remains intact. Hard as it would be to take it, gold could fall to the high 400’s and still not have violated the bull run. But have no fear, I don’t think we’ll get even close to that. In fact, we just may have seen the bottom early this morning. I spoke about a test of $535-$540, a bounce, and then a re-test. That re-test came just before gold opened on the Comex earlier today and we held nicely. In fact, the rise was fairly powerful although we may still need some more testing.
So with that all in mind, I think I’ve come up with a strategy that most can find useful.
A close above $550 spot gold in New York would, in my mind, give an “all clear” signal and I would be back in full stride. If we don’t get it but instead come back to the $535 area again, one could consider putting half of what they took off the table back in and the other half if and when we close above $550 or go lower and test $510-$515. So either by $510-$515, $535 or above $550, one would find themselves fully back in. No matter what, by moving aside as I did, savings of 5% to 40% should have been achieved in gold and especially mining shares. Not bad for two weeks worth of work.
Silver – My eyes are fixated on the news wires regarding the proposed silver ETF. A successful introduction should be the best news in years and give silver as much support as the introduction of gold ETFs have.
Platinum and Palladium – I favor the latter and expect the spread between both should continue to shrink over time.
Base Metals – I’m neither bull nor bear, but believe the best days have been seen overall. I don’t suspect a crash but I don’t see the China bull goring me.
Uranium – Love it!
U.S. Dollar – The rise in interest rates has only forestalled the inevitable decline to the critical area of 80 basis the U.S. Dollar Index. Gold should benefit not just to the inverse historical relationship, but to the fact that no other one currency is a great replacement and therefore gold is a good alternative currency.
Oil – Since turning bearish just two days before Hurricane Katrina, I’ve felt like I was on a one man island. But, my forecast back then that the $65-70 area should be the top to oil prices this cycle was as unpopular as a Herm Edwards/NY Jets bobblehead doll is now. Even as recently as my last oil comment with it nearing the summer highs, many wrote to express how wrong my oil take was. They may still be correct, but my belief we’ll see $50 before $75 looks better than ever.
-- Posted Friday, 17 February 2006 | Digg This Article
Peter Grandich is the Managing Member of Grandich Publications, LLC (www.grandich.com).
The company publishes The Grandich Letter (first published in 1984) which covers the metals and mining industry, follows world markets and economies, and covers the Canadian markets from an American prospective.
Grandich also provides a variety of corporate finance and development services to publicly-held companies.
Peter Grandich is also the Managing Member of Trinity Financial, Sports & Entertainment Management Company, LLC (www.trinityfsem.com), a Registered Investment Advisor in the State of New Jersey. Trinity provides investment advisory services to individuals, small to mid-size businesses, professional athletes and entertainers.
Peter is a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts.
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