HUI 1,000? Eventually
By David J. DesLauriers
10 May 2006 at 02:06 PM EDT
TORONTO (ResourceInvestor.com) -- With gold having just breached $700 an ounce, and with the HUI making new highs, the major debate centers around whether it is time to take some off the table, or trade around the core and wait to re-enter at less robust prices.
Gold bugs won’t hear of any argument suggesting that there may be a short-term correction, while many commentators are predicting a drop in gold prices only for the simple reason that they have had a big run.
The reality is that nobody can predict gold’s direction in the short-run, and it is foolish to do so. Whether gold goes to $750 before retracing, or immediately corrects to $600, or goes sideways and then tests its 200-day moving average, your humble correspondent has no idea. The important thing is that most right-thinking people believe that $1,000 gold and more will be taken out some time between now and the end of the decade.
$1,000 gold is a great bonus, but investors who have solid positions in quality companies can take comfort in the fact that even at present levels, or indeed at $550-$600 gold, multi-baggers will be made.
That being the case, it is an individual investor’s choice to try to slightly augment holdings by trading around the core and adding at lower levels. The only issue here is that because gold’s direction in the short term is essentially impossible to predict, most of the time this is a dangerous exercise. If you are on a winning wicket, why try to play games?
Valuation Context
While many do get the sense that the vertiginous rise in gold prices is unsustainable, if one looks at the underlying valuations of the gold producers and near-production developers, arguably they are trading at a discount to present gold prices. That would suggest that the market believes that gold is going to come off $100 or more.
In the context of the juniors, because it is more difficult to come up with valuation metrics which can be applied in an even-handed manner across the board, it proves salutary to consult with history.
The reality is that in the mid-90’s bear market rally for gold, which never got any higher than $417 an ounce, juniors were trading at valuations a multiple of those which investors are witnessing today. Maybe one can argue that speculators are smarter, Bre-x has turned a lot of people off of the Vancouver game, but at the end of the day all of those people will be back. Greed is a powerful force.
For that reason, and with gold actually in a secular bull market this time around, juniors will be 5-10 times where they are now – and in the blow off stage, maybe even more.
Conclusion
In light of the aforementioned, all of the discussion surrounding gold’s near-term direction seems sort of silly, and indeed, moot.
Be right and sit tight - have good positions, and stick with them. The only person that will be as happy as you will be the taxman when he takes his bite out of what will be substantial profits.
resourceinvestor.com
tanoose.......................if i recall reading somewhere that share prices usually lag POG by about 3 mths??........as for CMM, if your convictions in why you invested remain true, sit back and watch it play out??......................is going to be a beautiful thing??................just think if Jim Sinclairs targets of $1652.00 are hit, what kind of cash flow analysis could we apply to the Sigma-Lamaque complex alone??.....shakes the mind up a bit don't it??................. ) |
