Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (33522)	5/17/2000 6:08:00 PM
From: re3	Read Replies (1) \| Respond to of 42523

some material from kaplan, the first line is a new addition to the commentary today. ." E-mails from readers are almost uniformly gloomy, with numerous rationalizations for a lower gold price. Gold analysts are nearly unanimously bearish, and vocally so. On a price to net asset value (P/NAV) basis, the senior gold producers are trading at the lowest levels over the past six years. The senior producers are trading at 1.5 times, at the low end of the historical 1.5-3.0 times asset value range. On a market capitalization per ounce of mineable reserve basis, the senior gold producers are trading at the lowest level in eleven years. The senior producers are trading at $100 per ounce, at the low end of the historical range of $100 to $250 per ounce [source: Michael Jalonen, Merrill Lynch]. Virtually all speculators who went long COMEX gold futures in January or February have been liquidated as sell stops were triggered and margin calls combined with simple impatience squeezed out the rest. Producers are certain to accelerate their repurchasing of forward hedges, which will provide substantial price support. Media commentary on gold mining shares is as close to a bearish consensus as one is ever likely to witness: gold mining analyst Peter Ward of Lehman Brothers actually issued a bearish recommendation on both gold and gold mining shares the morning of Wednesday, May 3 after they made a technically powerful upside breakout on Tuesday, May 2; this is similar to a famous downgrade in early 1993 after the XAU had just completed a similar initial upward thrust, on the way to more than doubling. The Market Vane weekly consensus numbers released on Wednesday, May 3, 2000 showed only 20% of investors bullish on gold; the most recent weekly number indicated 26% gold bulls. Intraday trading patterns and gold mutual fund flows indicate that a substantial number of long-time holders of gold mining shares have sold their shares just in the past few months, some of which had been held for several years; this is very similar to the unloading which occurred just before the XAU doubled in 1993, and before the strong 1977-1979 and 1985-1987 rallies. Call it the seven-year itch--people are itching to dump their gold mining shares every seven years, just before they double or triple (or quadruple). Increasingly strong physical buying has emerged. Unhedged shares had strongly underperformed hedged shares during gold's late April slide, which is also typical of a bottom. Crude oil and copper have retreated substantially and now both have bullish traders' commitments, removing a significant part of the danger of a potential decline spilling over into gold. Silver also appears to be forming an important base. There is increasing evidence of a gradual but perceptible rise in inflation in the U.S.; year-over-year employment costs have risen 4.3%, their greatest annual increase in 9 years. The Federal Reserve's own "beige book," released Wednesday, May 3, 2000, clearly states that "there were more frequent reports of intensifying wage pressures as shortages of workers persisted in all Districts. Increasing input prices were noted in nearly every region." The XAU has potentially completed a long-term reverse head-and-shoulders pattern which saw this index make a left shoulder at 61.23 on January 12, 1998, collapse to its upside-down head of 48.67 on August 31, 1998, and then make a double-tested right shoulder at 56.44/57.80 on March 30/July 19, 1999 and a confirming double-tested right shoulder at 59.05/54.24 on January 28/April 13, 2000. Spot gold touched a nadir of $272.40 spot in the morning on Monday, May 1, 2000, its lowest point since September 24, 1999. With gold mining shares currently strongly undervalued relative to the gold price and to the profits of many gold mining companies, as well as the unusually fragmented nature of the industry compared to most with a similar total market capitalization, takeovers are likely to increase in both frequency and magnitude. When purchasing gold mining shares, avoid buying on margin and never purchase call options, so that the magnitude of the eventual gain is the only important issue, rather than the vagaries of precise timing or interim volatility. Always stick with companies that have strong, growing earnings; avoid companies with losses. Occasionally a money-losing company will suddenly turn around and become profitable but that is the rare exception, in gold mining as elsewhere.