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Gold/Mining/Energy : Physical Gold and Silver Investing -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (206)	3/15/2003 4:56:01 PM
From: Secret_Agent_Man	Read Replies (1) \| Respond to of 266

Many of the heavyweight gold shares have fallen below key support as identified previously and we are getting lots of questions what to do. The answer depends a lot upon your risk management strategy and whether you are convinced that the gold bull has turned to a bear. It also depends whether you have cash to buy the dip we are in. Is the medium and long term gold bull intact? Yes. The US is fighting for its financial life and for the future of the US$. Are the US economy and the US$ and the Asian and European economies healthier than a month ago? No. Have US debt and trade deficits become more manageable? No. Are earnings prospects for Wall Street companies brighter? No. Have US banks and insurers shown that risks of a debt failure or run on the banking system are less? Is the US at greater risk of isolation as far as their plans to stabilise the Middle East are concerned? Yes. Is this good for the ability of the US to maintain global financial stability? No. Has the geopolitical and macro economic picture changed i.e. is the US and the global economy on the fringe of a massive new growth phase? No. As discussed in Market Strategy on 6 March, it is not realistic to expect a massive recovery of the global economy after the US or Saddam back off or after the US invades. The base is already weak - and the costs of reconstruction and fighting an accelerating war on terrorism - far outweigh the benefits to the global economy of a lower oil price if a lower oil price comes. There are also so many contingencies that are impossible to forecast -- e.g. the effect of nasty gadgets thrown on other Middle Eastern countries, on the U.S. mainland or on the UK. Any nasty gadgets causing widespread destruction could make the Gold price run. I'll only be convinced that Gold may lose its attractiveness when the geopolitical and macro- economic picture suggests that the worst is over for the US$, for the US economy and for the global economy and that global growth is on the mend and that the risks of massive destabilisation of the Middle East and on the Korean peninsula have reduced. I also want a strong Elliott wave count and momentum swings to suggest that a medium term [more than six months] reversal to stronger for the US$ is underway e.g. sustained evidence for a week or so in favour of a reversal for the $Gold price to below $328. None of these tests indicate that the gold bull is now a gold bear. On the contrary, we hear that massive financial institutions like Fannie Mae are in trouble, we see the US$ in accelerating downtrend to weaker yet a $Gold price falling in both US$ and real terms. As far as the $Gold price is concerned, to the trader it looks like classic intervention and massive institutional manipulation. Please find one investor who can explain why the Gold price in US$ and Euro terms falls -- at a time that the US$ is under selling pressure relative to other big currencies. But then one remembers that old adage "don't fight the Fed". If the US Fed and/or the US Treasury are intervening, with the co-operation of the G-7 countries, or bullion banks are managing to knock the $Gold price lower in an attempt to maintain the US$ as the world's reserve currency and protect short positions -- the next question becomes -- how long can they carry on doing this successfully? The crunch comes when confidence fails -- and in the current environment -- all it needs to fail is another serious terrorist attack -- or perhaps even more likely, a failure of a major mortgage lending institution, insurer or bank. Fannie Mae is already under scrutiny in the US, with many competent analysts warning that without Fed assistance, it can fail. It is not alone. I believe the rocket beneath the Gold price will be lit when the realisation spreads that the Fed cannot print trustworthy money whenever it needs to, whether in the form of bailouts or uncontrolled government spending. The consumers that have been refinancing their debt are in for a shock when they do not have the income to maintain payments. Unemployment is increasing. And I notice that for at least the last two years advertisements have been saying -- "poor credit record -- no problem -- we will give you a better refinancing deal by consolidating your debt" -- including credit card debt in many instances. I get at least 4 e-mails a day offering pre-approved mortgage bond, credit card and debt consolidation facilities. Already several refinancing institutions in the US have defaulted. When defaults escalate, the Fed won't be able to credibly print more money. That will be when the real demand for Gold will increase in other major currencies, not just the US$. The shift out of US based investments will accelerate. And that will be when gold shares start their next run. Just the way I say that the Dow is still in an adolescent or young adult phase of the bear -- the gold market is still in an adolescent or young adult phase of the bull. Traders are also encouraged that the $Gold price could not be squeezed lower than the technically significant $340 or $330 areas in recent weeks. New multi-year lows on the Nikkei and European markets confirm that the no- growth problem is not limited to the US -- and no- growth and global deflation is not good for currency stability and inflation coming out of it -- and that is just the environment in which demand for gold can thrive. And it is interesting that the 19 to 21 year gold cycle I've talked about so often before, also persuasively corroborates long-term inflation cycles. And as far as the short term is concerned, as a colleague of mine Maureen Williams points out, since April 2001, the Gold price has been running roughly 25 weeks up and then consolidating for about 8 weeks. That cycle test suggests that the next two weeks are a candidate for the next pivot low. And what about risk? With these fundamentals, how big is the risk of turning bull to bear -- now really? Every $ that share prices of heavyweights Goldfields and Harmony and Rangold fall, are they becoming better sells or better buys in the current environment? The problems around stop losses have been written about extensively -- and common wisdom is -- wince and do it when a predetermined price is reached or exceeded in case it goes further down. However, there is just as much evidence that this is one of the silliest things one can do when macro- economic, fundamental, technical and long-term cycles show improving value on price falls in a bull market -- not a long-term reversal to down. Yet okay -- there is also plenty of technical evidence that says yes -- cut, sell , exit , you can always buy again when new buys confirm. I do not want to persuade investors out of reducing risk, but must emphasise that if they do so and exit, be ready to act on buy signals [which are already giving tentative corroboration on technical divergence and range and value factors] -- or they will most definitely miss the big boat we have all been waiting for since Gold share highs of May last year. Stops would have been more feasible up at say 15 percent below entry-level -- but if not acted on there, a way to determine an absolute exit point now is to place an arbitrary stop from current levels, remembering the evidence which says this and other dips are buying opportunities, not time to be running for cover Another reason I am sceptical about getting out of heavyweight unhedged golds such as Goldfields now -- is that several of the technical indicators suggest that it is near term oversold and that even if the major trend has turned down as indicated by the 100 day exponential moving average, at least look for exit opportunities in a bounce, which often takes the share price back to near or above the 100 day exponential average. Even if you think the fun is over for golds, at least look to find a decent rally to exit a portion of holdings in. Furthermore, the good old simple sine wave cycle on a daily scale, suggests scope for a decent rally any day now, perhaps already underway, through until about 3rd or 4th April. Many a woeful gold investor has sold out just before the Gold price or shares rebound higher. The reason for that is that it is most difficult to be a buyer when others are sellers and vice versa. The textbooks argue it is useful to allow the moving averages to flatten and turn upward to indicate a new established up trend, before buying. However the macro fundamentals and long-term cycles are all warning that quality golds are at excellent range and value buying areas -- so the more faithful may want to stick it out to avoid having to pay say 20 % more plus costs so that they can have the peace of mind of having moving averages in their favour. I believe a view on gold and the future of the US$ and macro fundamentals and geopolitics has to be taken and if you're satisfied that the a share is cheap and that we are in an adolescent gold bull -- you have to buy low and hold out in the dip. Of course this approach is also a function of how much risk you can take - because dips can become dumps - whatever the fundamentals say. We have also previously mentioned that quality gold shares may also be vulnerable to a dump with other world equities -- before the Gold price runs. Another good rough and ready buy/hold signal test is a break of a two-week high with volume and R/Gold price action corroborating. As we have said so often before - a key indicator for gold shares is the US$ - now in a rally phase according to the US$ Index. The June future DX03M shows scope on an Elliott count starting on 1st February, for a rally from the current 98 area to typically around 105, even 110 resistance in coming weeks - and that would delay the next run for golds. But the six month count highlights scope for a probe of various supports e.g. 81 - which is a lot weaker than current levels - the type of move which could be associated with a gold price above $400 - and that weakness can also accelerate at any time in current global uncertainties. For those who believe that the worst of global financial shocks are still to come - they will do well to stick with the "Buy the dips" strategy for golds we have suggested before. Best regards Victor Hugo hugocapital.com sagolds.com