THOM CALANDRA'S STOCKWATCH
Leading stock indexes near meltdown
Dollar's drop, commodity rally start to sway investors
By Thom Calandra, CBS.MarketWatch.com
Last Update: 11:09 AM ET Feb. 10, 2003
SAN FRANCISCO (CBS.MW) -- After a 10th consecutive week of rising gold prices, and an almost
simultaneous streak in the benchmark Commodity Research Bureau's index of hard assets
(XX:1864498: news, chart, profile), Main Street is beginning to lose its appetite for the stock market's
paper chase.
Investors are expressing their
frustration with the financial media's
kid-gloves treatment of this, the fourth
losing year for the U.S. stock market.
"Wall Street is very fond of pointing to
simplistic causes for the deep
fundamental weakness of the markets
and the economy," says Larry Mason,
an individual investor. "The mainstream
U.S. financial media is generally way
too supportive of the bullish camp."
Fewer and fewer individual stocks on
the New York Stock Exchange are
posting gains on increased volume,
say some highly regarded market
strategists. So-called buying demand
for stocks is flirting with a six-year low.
See: "Party's over, says noted
technician."
"It does not take a lot of selling to drive
the market lower if there is such little
buying interest," says Leigh Stevens, a
former Cantor Fitzgerald technician and
author of the 2002 book "Essential
Trading Analysis," published by John
Wiley & Sons. "Investors are more
attuned to their local real-estate pages
than they are to the stock section."
Higher oil, heating fuel and natural-gas
prices -- and the creeping gains of
other hard assets, such as gold,
platinum and some agricultural
commodities -- are rattling consumers
and luring investors.
"The heaviest trading action is in the
oil-patch commodities, where natural
gas and heating oil hit two-year highs
on cold weather and tightening
supplies," says Stevens, whose advice
can be found at the online service
Essential Technical Analysis. Last
week, heating oil rose nearly to its 1981
all-time high of $1.11. Crude-oil futures
made a three-week high, near $35.
The overall stock market, as measured
by the Wilshire 5000 Equity Index, is
down 6 percent since the start of the
year. Ordinary folks, in the United
States anyway, are shuttling money
away from equities and toward other
alternatives, including
foreign-denominated cash and bonds.
Funds investing in U.S. equities lost
$1.3 billion of investors' cash during the
week ending Jan. 30. The researcher
Trim Tabs estimates a January exit of
about $5 billion from stock-market
mutual funds. Bond funds gathered
$1.9 billion of new money in the last
week of January.
The gold
price is
benefiting.
Alas, even
after 10
weeks of
gains and
a
12-month
rise of
about 30
percent, gold as an investment still has fallen short of making it to the front page of The New York
Times. Such popular exposure could come when the metal, at $370 an ounce, surpasses $400, an
event likely later this month. Calandra: "Why gold will rise 20 percent in February."
Brien Lundin, editor of 30-year-old Gold Newsletter, says most ordinary folks are sitting on their hands.
Main Street links the gold rally to jangled nerves in the war of words among the United States and its
allies, the United Nations and Iraq. Yet the real support for the metal comes from the falling dollar, says
Lundin.
"Until investors realize that this gold bull market is being primarily driven by a long-term dollar bear
market, fear will remain the hot button for gold," says Lundin. "Once the war premium is removed and
the up trend emerges intact, investors will appreciate the monetary foundation of this bull market, and
the gold stocks
will surge into the lead."
The foundation, or support, for bullion comes from the declining dollar. A
dollar exodus almost always benefits gold, which is seen as a monetary
alternative.
Investors have punished the U.S. currency in the past 12 months, sending
its value down more than 20 percent against the Australian dollar and the
euro and about 10 percent against a basket of American trading partners'
currencies.
James Turk at Freemarket Gold & Money Report says a dollar chart from July 1993 through today shows
the U.S. dollar piercing all so-called technical support levels. He expects a "breakdown" in the dollar,
triggered in part by record government spending and a total federal debt of $6.4 trillion.
"The greenback is in a downward spiral that will take it much lower," says Turk. "It is clear that the
demand for the dollar is declining. This trend will accelerate. Demand for dollars will continue to decline
and then eventually begin to evaporate at an accelerating rate, much as it has for the Argentine peso.
See: Freemarket Gold and Money Report.
And the gold-mining stocks? The largest of the U.S.-traded gold-mining stocks (XAU: news, chart,
profile), while holding most of what have been 100 percent and 200 percent gains of the past 18
months, are trailing the gains in bullion (38099902: news, chart, profile) by 10 percentage points since
Jan. 2. Lundin at Gold Newsletter expects gold-mining stocks to resume their rally in coming weeks.
Lundin's top picks in the exploration sector include Candente Resources
(CA:DNT: news, chart, profile), a Canadian company whose chief
executive, Joanne Freeze, and top geologist, Fredy Huanqui, are poring
over potential deposits in Peru and Newfoundland. Candente just received
a $1 million (Canadian) investment from successful gold producer
Goldcorp (GG: news, chart, profile).
Lundin says the flagging gold-mining shares have also made a bargain
out of Southwestern Resources (CA:SWG: news, chart, profile), another
Canadian company that is expected later this month to unveil more
findings from a potential 10 million-ounce to 40-million-ounce discovery of
gold in China's Yunnan Province.
For his part, Turk measures the value of the gold-mining stocks by calculating how many gold grams it
takes to buy the nominal value of the Philadelphia Gold and Silver Index (XAU: news, chart, profile).
There are 31.1034 grams in a troy ounce of gold. It takes 6.2 grams right now to buy the XAU index, and
that's dirt cheap in Turk's view of the world.
One of Turk's favorites among the small gold miners is Claude Resources
(CA:CRJ: news, chart, profile), which is exploring in Canada's bountiful
Red Lake region.
The spot gold price Monday morning was up $1 to $370.50. Gold-mining
shares were down 0.5 percent. See: "Gold futures advance." |
