by Steven Jon Kaplan
Updated @ 5:15 p.m. EDT, Friday, September 4, 1998.
THE INSIDERS KNOW BEST--Gold mining is the market sector group with the heaviest concentration of insider buying and the highest ratio of insider buying to insider selling over the past month, by far.
GOLD IS A SEA LAMPREY, THE STOCK MARKET, ITS HOST--A sea lamprey is a parasitic eel-like fish that attaches itself to a big, strong, healthy fish. The healthy fish at first tries to fight off the lamprey, but realizing that it cannot, it gives up and acquiesces to having the lamprey along for the ride. The lamprey does not want the big fish to die, since it relies on the fish for nourishment and direction. Therefore, the fish gradually weakens over a very long period of time, but goes through many periods of strengthening. During the times of the fish's strengthening the lamprey draws its nourishment. The sea lamprey is gold, and the fish is the stock market. Gold, starving and desperately weak, has just succesfully grabbed the stock market during a period of the market's complete inattention due to its hypereuphoria. The stock market is thus doomed to gradually weaken, but not gradually and in a straight line. Some days the market will be up; others it will be down. Even on down days there will often be intraday rallies. On days when the stock market weakens, especially on days when it falls sharply, gold also weakens, since it depends on the flow of funds from the stock market for its sustenance; as this flow dries up, gold mining shares decline along with the market. When the market is moving up, gold is able to draw money away from other investments and rally in tandem. Gold will rally more sharply than the stock market during these upward moves, since the market overall is clearly weakening. Investors who want to unload gradually are likely to put sell orders on the stock market just above current levels; as prices rise, they obtain new cash, some of which is used to buy gold or gold mining shares. As other investors see that gold funds are outperforming other funds, they too put in sell orders just above the market, so the next move upward gives them cash, some of which will go into gold mining shares. When the market has a sharp down day, investors become too worried or impatient to get out gradually, and just dump everything, including the gold mining shares. This is an attempt to explain the apparent historical paradox that gold mining shares and the general market usually go up and down together, especially on extended intraday charts, even when the long-term trend over the same number of months (or years) is for stocks to decline and gold to rise.
GOVERNMENT GOVERNS BEST WHEN IT GOVERNS LEAST, ARE YOU LISTENING, KUALA LUMPUR?--Though it received little media attention, with financial analysts tripping over themselves to explain minute by minute fluctuations in the Dow, Malaysia's recent economic program is causing worldwide effects. The government of Malaysia has declared that all ringgits, the local currency, must be repatriated within one month or become worthless. During this period, they will be exchangeable for dollars at a rate of 3.8 Ringgits per dollar. The Malaysian government also banned offshore trading of ringgit-denominated securities (so there, George Soros, or so they think) and stopped any Malaysian institutions from offering domestic credit facilities to non-resident banks and stockbroking companies, according to Futures World News. The big question is: what is going to happen to all of the dollars in Malaysia if the country has currency controls? According to Leonard Kaplan (no relation), chief bullion dealer with LFG Bullion Services, most of the populace, already distrustful of government intentions, are not going to deposit their dollars in the bank. They're going to buy gold (and other hard assets). In my own opinion, more important than just Malaysia, is what will happen to people in Indonesia, Thailand, Korea, Singapore, and elsewhere (did someone say China!!!), where the governments are not completely democratic and prone to make copycat decisions in a foolish game of follow the leader. These citizens are going to see what happened in Malaysia and figure that there is no point holding on to their own currencies, which could be devalued, declared invalid, or otherwise manipulated at will. A critical mass of these people, also, will buy gold.
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