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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Skywatcher who wrote (79470)	2/28/2007 2:57:13 PM
From: orkrious	Read Replies (3) of 110194

Heinz on gold stocks: forum.themarkettraders.com what are HUI/XAU discounting? Previous Message Next Message Batch View Forum List Message List New Topic Print View trotsky [ PM ] February 28, 2007 01:04PM [hide msgs from this user] Registered: 28 days ago Posts: 73 looking at the ratio of HUI or XAU vs. gold, these indices are in fact discounting much lower gold and silver prices. stockcharts.com the current XAU/Gold ratio depicted in the above chart, is at the low end of the historical range (the long term boundaries are 17 and 36); in fact , it is quite close to the lowest levels recorded in the normal course of business, as the all time low of 17 occurred at the end of a 20 year secular bear market for gold, when many gold stocks actually made 40 year (!) lows. this can mean: 1. gold will fall to bring the ratio back to a more average number, 2. the gold stocks will close the current discount by rallying regardless of near term gyrations in the gold price. what it does definitely mean in the here and now is: gold stocks are historically cheap. note in this context that recent earnings reports from the sector have been very good - and that was with input prices higher and average gold prices received lower than they are now (which is to say, the next set of earnings reports should look even better). i hasten to add that i don't really believe earnings reports are all that important for the sector's performance. however, good earnings often have the effect of cushioning the downside somewhat.

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