With gold closing the week at $1,582 after the abysmal US jobs report that caught the shorts out, a difficult period could be over for precious metal investors. As ArabianMoney has pointed out the real issue for precious metals last week was a Fed-directed bear raid on the price of gold to offset Japanese QE, and that is now over (click here).
The jobs report – with just 88,000 jobs created last month and 496,000 citizens conveniently leaving the register – was a shocking reminder of the state of the US economy and its utter dependence on money printing. QE is not likely to vanish anytime soon in this environment and the Bank of Japan’s action confirmed that with a vengeance with an even bigger program.
Raining money
It’s a battle to see who can print the most money to support their currency in competitive devaluations. No society has ever printed its way to economic prosperity but for the time being that just looks better than the alternative of an instant recession.
US stocks fell on the jobs data but hardly crashed. Well it has been QE that has supported the markets this far and there is more of it coming, so the smart money buys on every dip as the momentum is still up. But for how much longer?
The first quarter earnings season starts next week with Alcoa. Can the stock market keep going up if Q1 profits are falling among the majors? That is going to test the bulls for sure.
It is also a problem for investors in gold, silver and mining stocks. If the stock market does plunge then we saw how gold and silver follows downwards in 2008-9. Indeed, that is one reason why many hedge funds have been selling short, and that got them into trouble last week.
However, junior mining stocks have certainly felt in capitulation range over the past few days. How many reached for the sell button only to find brokers had put in some kind of stop limit? In the event that may have saved investors from unnecessary losses as the bounce back has been quite sharp.
Bull and bear play?
That said mining stocks now look attractive to both bulls and bears. For stock market bulls they are the cheapest way into equities left. The biggest global gold miner sells on a price-to-earnings ratio of six, is that not a better buy than Apple right now?
For stock market bears there is the hope that the bottom of the gold cycle has just past and now the only way is up. You get out of stocks except for precious metals. Juniors and the GDXJ exchange traded fund have just bounced off horrible price levels. Spot the value proposition.
Betting on a win-win position usually works!
-- Posted Sunday, 7 April 2013 | Digg This Article | Source: GoldSeek.com
comments powered by DisqusPrevious Articles by Peter Cooper About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
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