Hello, hello old friend, it will not be the first time I am right for the wrong reasons and wrong while maintaining the "real rational" point of view (VBG). I held that we would be bound in the DOW 5000 to 10,000 up to about 2005, well, the top of this range was pierced. The reasoning (extremely rich valuations of future earnings) might still be valid, but go and tell that to the market (G).
As for Gold, I still hold the "faulty" thesis that gold's currency role is dead, or at least is rapidly dying. Similarly, I hold the view that the CB's have been planning the dethroning of gold as a reserve asset for a long time, doing otherwise will bring with it dangers of worldwide inflation. This, for the same reasons you state, for gold to become again an important reserve assets, the above ground value of gold that is used as "reserve assets" by CB's should be at least something of the order of 5% of the world gross product or ten times its current value, if that were to happen, major economic dislocations would ensue, and furthermore, this "one time" readjustment would not solve the problem of creeping prices, since even at $2,500 you will need to find about 1000 tonnes or more of gold per year (on top of gold used for industrial and jewelry applications, which is what, about 2000 tonnes per year and growing itself with economic growth?) to support world economic activity growth, a permanent "sodom bed".
As for some good gold and Pt stocks, while gold has finally reached that $250/ounce we discussed many many months ago, if you treat it as purely a commodity, you must admit that the above ground supply ready to come on the market every time gold gets close to $300 is still overwhelming, and thus should only concentrate on those companies that can make good money even at $250 (like Barrick?). A good signal of a bull market in gold would be a breach of $300, but I am not optimistic that we are close to that any time soon. I am sure that some more refined models will have an earlier "warning" signal if a breach of the recent support just under $280 would occur, but IMHO, such a breach, unless confirmed with a breakout above $300, might just be one more of many disappointing breakouts we have had in the last few years.
Zeev
PS, one of the better indicators that we may be far from a bottom is indeed Tom's citing of close to 1000 entities still looking feverishingly at mining gold, should we not see contraction of gold mines near a bottom rather than such huge proliferation? |
