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Non-Tech : The Woodshed

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To: Square_Dealings who wrote (32001)	8/26/2005 4:23:28 PM
From: patron_anejo_por_favor	Read Replies (3) of 60929

Nice missive from Trotsky here (I agree with him on the performance of gold stocks until the Fed stops raising rates): Date: Fri Aug 26 2005 12:01 trotsky (@pm stocks) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved non-rally number umpteen. gold stocks continue to correlate more with the rest of the stock market than with the gold price - which is to say, the short to medium term positive correlation between these markets keeps overruling the long term negative one. this will imo continue until the Fed stops raising rates. it also means that should the broader market get mauled this autumn ( an increasingly likely prospect as it were ) , gold stocks are unlikely to be excepted. meanwhile, sentiment in the sector remains way too complacent. as of today, the combined sector-wide put/call open interest ratio of 0.40 is lower than 99.6% of all readings over the past year. it's less extreme in the XAU index options, where the ratio ( 0.85 ) is only lower than 46% of all readings over the past year. the Rydex pm fund has begun to see outflows after cash inflows hit exactly the upper end of the 2005 range. the fund is currently THE largest sector fund by assets ( followed by energy , biotech and energy services ) . unfortunately there is no inverse gold sector fund which would allow us to gauge a bull/bear ratio, but the fact that it's the biggest sector fund isn't exactly comforting anyway. the almost 2 year long cyclical bear market should have displaced more money from the fund than it has ( currently assets of about $200 million are well down from the late '03 spike high of $320m., but are still a far cry from the late '02 low of $50m. ) . the reason why this is important is that such sentiment gauges give us an idea about the amount of sidelines money not yet committed. currently, too much money is already committed.

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