© Henry Weingarten Last Updated:

Note: I recommend first reading our previous gold post: Summer Gold Find Cosmic Favor, if you have not already.
WSNW Subscribers should periodically review our premium S: Gold post.

Please note February 1, 2006 we are holding our first professional Triple Gold Conference in NYC to celebrate Ben's Fed reign and Gold's $500 price win.

August 30, 2005 Special WSNW Alert:
Just as yesterday’s market action, corrected today (we recommended doubling up on shorts yesterday MOC, Today’s action on gold at 434 and Silver at 674 suggest a reason to BUY as a trade or adding more investment that is likely to correct back soon.
8/30 closing Markers: Dec Gold 435.50, Dec Silver 676.50,  XAU  93.44, HUI 198.79 and NG $6.90.

DECEMBER GOLD 468 9/16/2005!  479 9/21.2005!!

“[7/1] Friday July 1 while gold was crashing down, we issued our second major institutional trading Buy MOC = $429. Summer trading targets re-iterated $467 to $500.   Note:  July 16, Saturn enters Leo which rules gold. We expect a slow change (remember Saturn acts slowly and can be "late") regarding investors' view of the value of gold as an asset class.”

Gold reached our P1 SUMMER 2005 target 9/16.  More important, EVERYONE IN THE KNOW KNOWS THAT GOLD WILL BE APPROACHING $500 Q4 2005 OR Q1 2006. Enough said.

Our BIG play for 2005 has been and remains gold. We initially believed it would break out to $480 to $500 by the end of the summer. It did reach 16 years highs as Oil went to all time records and the Chinese re-evaluated the Yuan in July. Hence, we hold the same target for Christmas gold in the buying we recommended on August 30.  Traditionally, geopolitical uncertainty, war and global economic sluggishness have been good for gold companies. Years ago, we were one of the first to suggest that Gold was more than just an inflation and safety metal (a status it lost after the first Gulf war), but also a currency.  Today, it is widely recognized that gold acts like a currency and that a weak US dollar is good for gold. It is also widely recognized that a further decline in the US dollar is inevitable. Gold remains very much out of favor.  For contrarian investors, this also adds to the risk/reward profile of owning gold. Finally, Christmas gold is seasonably positive, promising the potential for a MAJOR breakout to the upside. Gold's first natural resistance will the 87 crash aftermath resistance of $497 and $500 rounding. Quite a few gold aficionados have remarked that were the price of gold not being manipulated by the powers that be, its tracking of inflation might place it at far higher numbers- $600, $700 and even its second natural resistance zone circa its 30+ year high of $800.

Pump prices peaked at a nationwide average of $1.38 a gallon in 1981, according to the Energy Department. That's about $2.95 in today's dollars.
Put another way, the Iranian revolution of 1979 and the country's war against Iraq in the 1980s sent the cost of a barrel for U.S. refiners to $35.24 in 1981. According to the Energy Department that about $75 in today's dollars. So will gold just stop at $800?  Based on the Oil/gold ratio alone there is clearly good reason for gold bugs to hope for $1000 plus.  Looking at the range of commodities, gold is clearly the most undervalued. Additionally 
New gold price floor seen at around $425/oz.

Two reasons investors should own gold:
1) Gold has outperformed the S&P 500 for the past five years in a row. We expect that to be the case as well as in 2006 and 2008.
2) With the national debt approaching the magic 8 trillion number, gold has an upside potential that has not been seen since 1980, i.e., a once in a life time opportunity.
Happily, the XAU has broken out well above its 93.5 resistance, which gave a major technical buy and hold signal. Hopefully, it will be a more or less straight line from August gold to Christmas gold. If not, be prepared to BUY, BUY, BUY as if 2006 were coming!!


Until very recently, I have had little interest in Silver. Perhaps it is because I am a Leo, the sign that traditionally rules gold.  Perhaps it because in the US, Silver has been largely considered a second class citizen: “gold’s poor cousin” or  “poor man’s gold.”  Perhaps it is because until recently there have been very few pure silver plays and they have been even less profitable than gold companies.  But my views have been slowly changing.  I don’t know if it because Saturn has just left the Sign of Cancer (which rules Silver) or the after effects of attending a number of silver company presentations (SLW, SSSI, WTZ, SVM-TSX) and my resistance is just wearing down.

The Silver Market- Tips for the Prudent Investor
A classic precious metal like gold, silver was also used in coinage and utensils. These days, it is used more for jewelry and in the industrial sector, e.g. electronics and photography.  Many of the same arguments that are made for gold, can be made for silver. Demand is healthy and increasing. Additionally, Silver is consumed more than gold, which is mostly held for investment and jewelry. Also, unlike Gold, Silver is not a “political” metal. Plus most world government stockpiles are largely exhausted.

The three major positives intermediate term are:
1) Saturn having left Cancer.
2) The remaining barriers on gold and silver imports in India is being removed for individuals and small jewelers and
3) Barclays Global Investors is planning on marketing the iShares Silver Trust, the first ETF fund that tracks the price of silver.

Three negatives for Silver investing are:
1) Under current US tax law; long-term capital gains on silver are taxed at the maximum rate of 28% because silver is considered a collectible.
2) Most Silver production is a by-product of other metal mining- hence most supply is less demand price sensitive.
3) Silver Prices are notoriously volatile.

Silver is to Gold much like NASDAQ is to the SPX.  It is smaller capitalized market, so if you crave volatility, Silver’s for you!  Silver is more an Indian story than a Chinese one (Gold). Currently the Gold-Silver ratio is about 60-1, well below its long term historic ratio of 16-1.The China investment story is better known than the Indian one. 

Bottom line: It may be as true for Silver as it is for Gold. There is no real justification for its current low price.
I would suggest in a 1-16 ratio of gold holdings, i.e. ~1% of your portfolio vs. 16% for gold.
Note: Warren Buffet’s purchase of 130 Million Silver ounces in 1997 for Berkshire Hathaway was just a little less than 1% of the portfolio of his holding company at the time.  For more, visit the Silver Institute.

The most often mentioned reason to buy gold is further dollar weakness. Equally important is that fact that new participants are entering the market, e.g. the recent launch of several exchange-traded gold funds. Longer term, our forthcoming view of a 2006 Bear market, especially the second half of the year, is also likely to be fundamentally positive for gold. These are extraordinary times, where geopolitical risk and outlook continue to outweigh normal stock market considerations. 

Gold demand continues to grow faster than its global mined supply. It is strongly rising in emerging economies, especially India and China, which are becoming two of the largest gold consuming nations as well as continuing strong demand from the Middle East. Higher mining costs are also helping to drive up the price of gold. Additionally, forward gold producer hedging continues to be unwound at a strong pace.  The biggest risk intermediate term is the potential of further central bank selling.  We believe this will continue to be restrained by current European Central Banks agreements at least until mid 2006, as well as partially offset by some Asian Central Bank buying. 
Bottom line in 2006: EVERY investor will want some exposure to the gold market, just as they wished they had to the energy market in 2004/2005.

We recommend a 10%-20% gold/commodity hedge allocation into 2006 depending on one's global portfolio risk/reward parameters.
Our Current Fair Value for gold is $487 as a currency. As an inflation metal, we calculate gold’s Fair Value to be well over  $500. Hence we plan to use any temporary US$ strength primarily due to 2005 tax code provisions in Q4 2004 to accumulate more gold and gold instruments.

Gold has been in a secular bull market since making its 22-year low four years ago on April 2, just under $257.
Gold has broad support in the 420-425 area; it has overhead resistance 450-460. Once it breaks out to the upside, then $480 to $500 is the next natural gold target.  Thereafter, we expect it to trade within a $450 to $550 price band.

Gold will be approaching $500 BEFORE Christmas or SHORTLY THEREAFTER? Do you care? I don’t! We expect Silver to also Christmas shine.
Looking further out to 2006, we are forecasting that Gold will shine brightly; by 2008 we project it could be somewhat of a home run. Enough said.
Saturn in Leo, which began on July 16, 2005, could well signify a future shortage of gold.

Historical cycles show that a strong gold rally ignites the major producers first. Soaring microcap gold exploration plays then follow this. Just as IBM and GE are the Dow bellwethers, Newmont (NEM) is the key proxy for gold. Given gold’s small market capitalization, NEM would be the first big money portfolio play.  Along with the gold ETF (GLD), Barrick Gold (ABX) and Placer Dome (PDG), it is where much of the BIG Wall Street money will go. Currently the stock price of the bigger gold companies have already factored in a gold price of $450. Hence there may be more short term upside in the metal itself. However, once gold moves into the $480-$500 range, the reverse will be true and the gold company stocks will outperform.  A lot of more aggressive hedge fund money will move into midcaps such as Meridian Gold (MDG) and Nova Gold (NG).  Should any of this be allocated to small caps?  The answer obviously varies according to individual portfolio risk/reward parameters. If I am right about gold, this time microcaps will fly as the public will enter the market.  However, as the first quarter is often a seasonal high for many gold microcaps, we recommend some caution here.  I would wait until Gold is above 450 before a strong commitment to gold microcaps.

No sector demonstrates the advantages of illiquidity better than the gold share market. In a rising gold market, small- and mid-cap gold stocks tend to produce a much bigger bang than simply buying gold itself. When gold breaks through $450 an ounce on route to new multi-year highs, small cap gold stocks (as a group) are likely to perform much better than either the big cap XAU stocks or the metal itself. However, investing in junior resource companies can be especially risky. To minimize some of this risk, don't overload your portfolio with junior mining companies. I recommend buying over time a diversified basket of 5 to 10 small cap companies, all together totaling no more than 5%-10% of an overall aggressive portfolio.
Note:  You may wish to choose a mixture of early state exploration companies (highest risk/reward) with a strong exploration upside ["bonanza"] potential with near production/early production (lower risk) ones. Again this depends on one’s personal risk/reward profile.

Finally, as more and more investors are coming to realize that 2006 will be a stellar year for gold, remember that markets do not move in a straight line.  One major reason is that North American Senior and Intermediate gold stocks today have already built in a gold price of $552, according to BMO Nesbitt Burns gold analyst Geoff Stanley. This calculation fits perfectly with our rough upcoming intermediate term gold trading range of $450 to $550.

·    Gold was last above $500 in mid-December 1987, and we project it to test $480-500 before the end of 2005. By then, or certainly by H1 2006, small cap junior gold companies will shine as the Majors and Midcaps have already done.
·    As a portfolio hedge, we recommend up to 15%-20% gold for many of our model portfolios. This would be done conservatively with a mixture of physical gold (GLD)* and gold majors ABX and NEM. If you have more tolerance for risk, look to midcaps such NG and MDG.  Another choice is the Central Fund of Canada (CEF) which is a good conservative way to play gold with the positive addition of some silver exposure, especially until the Silver EFT is trading.
·    We recommended that gold and silver be bought on weakness and temporary US$ strength.
·    If you love to gamble and desire Las Vegas style investing excitement, buy a group of 5-10 microcap stocks that are likely to soar should the public becomes as excited about gold as they have about energy. Please remember however, that In early stage drilling programs,  the management, sources of funding, share structure and promotional ability matter as much as finding gold. For a current list of small cap gold companies that we are watching, please visit my website.

Our long term recommendation remains the same: just continue to accumulate GOLD as time goes by.  Gold is cheap insurance against both inflation AND a future declining US Dollar!  It is also likely to resume its traditional "safe haven" status as well by 2006.

“Is gold beginning to unlink from the dollar based on the growing recognition of the coming lower gold mine supply and rising costs, or is a pullback looming after Comex gold positions hit a new peak?”
Steve Shepherd, gold analyst, JP Morgan
HW: Both, first the former, then the latter, then once again the former in a BIG way.

"Gold is really looking good now and seems to have a clear upside objective."
Mark Keenan, fund manager, MPC Commodity Fund.
HW: P2 480 P3 487.
Gold is already at 17 year highs.  That top should be taken out sometime before the ides of October.
WSNW subscribers are invited to review our periodically updated premium post: S: Gold 2005/2006.

Russia Doubles Its Gold Reserves
Noting that Russia presently has 5% of its national reserve portfolio invested in gold, Guegina said, “10% of gold in reserves would be appropriate”.
HW: I believe at least 10% allocation is an appropriate 2006 allocation for most investment portfolios as well.

Bernanke: Good for Gold?
“His appointment is the best one that we friends of gold could ask for,” says James Turk, who noted that gold started climbing right after the Bernanke announcement."
HW: This is why we are having our first Triple Gold Conference February 1, 2006
The Gold Parachute
Or, how to stop worrying and save yourself from the president's profligate spending and stubborn insistence on no new taxes.
HW: Sad, but true.

Dr. Murenbeeld's gold price forecast for the coming year 
“his probability weighted average gold price forecast for the next twelve months is $502 an ounce.”
HW: I would have guessed an average price somewhat closer to $499 medium term would be more accurate, given our rough 450 to 550 price range. 

COMMODITIES CORNER: Silver's Just As Good As Gold
HW: It is not really as good long term, but intermediate term it will be a very close second.

Why gold could hit $1,000 an ounce
HW: More of this type of talk will help gold get it to our 2005 price target of $487.

Runaway Spending Fueling Gold
”The dollar hasn't even started to drop yet and gold is going nuts! I think we're going to see the XAU and gold pause over the next few weeks to digest its gains and then breakout again as the US dollar tops out and starts a move towards its 80 resistance level into the end of 2005.
The move then in gold stocks will be incredible. You have no idea how good it can be. Gold stocks are going to end up trading like Internet stocks did in 1999.”

Why Junior Resource Stocks Are Ready to Soar
HW: Yes I agree but watch out for “microcap”. The key question here always to ask: is the company management more interested in discovering gold and building mines or are they more in the business of selling stock!

Bullish HUI Technicals

”While the easy bottom-picking may be behind us this time around, it is not too late to buy in for potentially fantastic gains if this up leg proceeds as expected…The bottom line is the HUI technicals, despite its strong run since May, still remain very bullish. The index is definitely not overbought yet in light of past bull-to-date precedent and indeed it remains nearly oversold still by some measures. Major bull-market up legs take some time to unfold and our current specimen continues to look technically young.”


READER: Do you still see gold going down to 425 as in your 10/19/05 Christmas gold?
HW: No. The bottom of its range is now [11/4] higher: $445 to $450.

READER: Can you make any sense of the day to day moves in the Au market?  It goes down on days it should go up.  It breaks important trend lines below 430 and then bounces back.  It has no support where it should and goes straight down $7-$8 intraday when there should be some bargain buyers to hold it.  Uptrends reverse even without dollar strength.
HW:  See the Comex Horoscope for this month [September 1], which promised “unexpected” action.  As you know, we recommended our Christmas Gold and Silver buying on August 30th, at 434, 674 and XAU 93.44. We don’t expect to see those numbers again for a long time.  We could be wrong, but it is certainly the way and times to bet.
READER: Under "Four Reasons Gold Stocks Are About To Rise" there are two references to the XAU breaking out.  Also, further down the page Mr. Weingarten says that he has looked at the horoscope of XAU. The XAU is dominated in market-capitalization terms by mega-hedging companies.  As the climate for gold is more favorable now, many of these companies are unwinding their hedged positions.  They are selling their gold at current market prices rather than at lower hedged prices.  This fact is what will make the XAU increase.  May I respectfully suggest that a better measure would be the HUI index, which is comprised exclusively of unhedged gold stocks?  Any breakout in the HUI would reflect an increase in the price of gold rather than an increase due to previously hedged companies now selling the gold at higher market prices.
HW: First, I use the XAU because more institutional investors use it as a benchmark. Second,, their p/e tends to be slightly more down to earth. Thirdly, I like them more precisely for the reason you mention- they are continuing to unwind gold forward options and hence the XAU should move up over time for that reason alone.

READER:  RE: “[7/1] Friday July 1 while gold was crashing down, we issued our second major institutional trading Buy MOC = $429. Summer trading targets re-iterated $467 to $500. 07/12/2005 06:24:46 Our BIG play for 2005 is that gold will break out to $480 to $500 by this summer. “
With interest I reviewed your site.  I have a strong belief in gold, perhaps too strong.  I've read your work with interest but was not surprised to see that gold did not strike the $480 - $500 by July, or now August.  I believe gold will rise perhaps later this year and be well underway by August of 2006.  
HW: We had to choose whether to say that it would break out above 16 year highs in August or our target price of 480-500. It seemed easier for the latter, even though it had many obstacles.  It will therefore more likely come with Christmas gold.  Still the trading and investing goals while high, resulted in substantial profits to players. I don’t think it is so much belief in gold, but disbelief in other things perhaps.

READER: You have a strong bullish prognostication for summer gold, warn against stocks in 2006, and forecast gold to outperform the SP in2006. Where does that leave you on PM stocks? Given the current strength of gold and the forecasted 2006 out performance of gold, do you advocate holding PM stocks through 06? Or selling after the strong Summer run up and then rebuying either later in 05 before a Christmas bump or in early 06/after the Christmas slump.
HW: As long as the XAU is above 93.5 I would stay long.  That is from an investing viewpoint. From a trading viewpoint, if unhedged, and IF you can time it well, I suppose you could sell or rather stop loss some profits.  That would be very hard for me to do at this time however.
Note: On August 30, we did another buy at 93.44 and 434 December gold and Silver 674.  This could be either an investment hold or a trading play.

READER: I'm going to play devil's advocate on this one. Saturn in cancer hasn’t affected the housing market, why should it affect gold?
HW: Good question. First of all, it did at the end [Saturn often comes come late. In this case- it has begun "capping it", but largely has been far outweighed in the US by Alan Greenspan's easy money policies. But Saturn does effect more than US markets. For example, in Australia and the UK it did help stop it.
As for Gold and Saturn in Leo, our view is based on MANY factors, not just this single astrological one. I also have looked at the horoscopes of GLD, XAU and COMEX as well as fundamental, technical, seasonal and geopolitical indicators.
Of course the proof is in the pudding and time will tell if we will be eating crow or caviar by the time Saturn leaves Leo in 2007!

READER:: “According to CNBC, the $36 price of Oil reached in 1980 is the same as inflation adjusted price of $93 (or a factor of 2.5833x).  The high price for Gold in 1980 was $850.  Using their formula, that would equate to an inflation-adjusted price of $2195.  Using the same formula on a pro-rata basis, the current price of Oil at $65 equates to a Gold price of $1534.”
HW: Is it any wonder that most gold bugs consider gold under $500 a screaming bargain? By 2008, it will be a similar memory to $30 oil today.


WSNW Subscribers should frequently review our premium S: Gold post.

Summer Gold Find Cosmic Favor
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