2006: DAYS OF SILVER AND GOLD

© Henry Weingarten Last Updated:
     

Note: I recommend first reading our previous gold posts:
Summer Gold Find Cosmic Favor and Silver Bells and Christmas Gold if you have not already.
WSNW Subscribers should periodically review our premium S: Gold 2006 post.
NEW 2006 FIRST TRADING TARGETS:
 GOLD $552  SILVER 10.50
2006 GOLD TRADING TARGET #2 IS $580 & Silver $10.50
Note: As we reached our $545 target in December (Feb gold 544.50), we raised our 2006 P1 target from $545 to $552.
For 2006 portfolios, we recommend from 10-15% gold and 2-5% silver.
From January 9th WSNW: "I am giddily anticipating the increasing probability of reaching our $552 gold and $10.50 silver targets close to our February 1, 2006 Triple Gold Conference.
If you imagine $400 gold to be like $40 oil, and the $500 gold price level acting much like oil when reaching $50, then our first or P1 2006 gold target of $550-552 might act like $55 oil.  At one point in time not very long ago, it seemed almost unimaginable [to non-believers, of course, not for gold bugs]. Then some time after $55 oil first manifested on the physical plane, it became the trading floor and the not the ceiling.  So too for $552 gold sometime in 2006?"
After reaching our P1 target of $552 in January, we issued our second trading target of $580. Additional material released to our platinum and institutional subscribers to be posted here AFTER our February 1, 2006 Triple Gold conference.
Market Professionals please note February 1, 2006 we are holding our first  Triple Gold Conference at the Princeton Club in NYC to celebrate the new Ben's Fed reign and Gold's $500 price win. I recommend reviewing ALL the presenting triple gold commodity companies for possible purchase.

HYDE PARK SOAPBOX
If $400 gold indicates the presence of inflation, how can there be $500 gold and virtually none?  Must it be $550, $600 or $800 before the talking TV heads acknowledge what every living and breathing American knows: THE DAYS OF CHEAP FOOD AND ENERGY ARE LONG GONE!

[12/21] We have started our second trading gold buy (physical) and first (gold/silver stocks). Our ideal second gold/silver stock number is 115-116. Xau 118 could hold, but I would prefer lower obviously. Remember Markets can do ANYTHING end of the year, so have cash and be ready to buy on weakness- i.e. before LONG before January 1, 2006 for a wonderful golden January.

[12/15/2005]
We will be doing (have done) the first of three gold buys today to hold into the new year. This will be in physical gold (gold) or futures.$500 cash was tested last night, it may not be the end of the correction but it should be the beginning of the H2 December 2005 accumulation!  I would like to see the XAU below 116. If so, we may do a token accumulate in gold shares today and then buy tomorrow DEPENDING ON PRICE.

[12/14/2005]
Now that gold has retreated to below $525 (currently 510), it is once again UNDERVALUED. Hence, we will resume trading the long side. Depending on how, when and if markets tests $500 or even $485 SOMETIME BETWEEN NOW AND THE END OF THE YEAR, WE WILL BE BIG BUYERS OF GOLD AND SILVER FOR A STRONG JANUARY UP MOVE!  Remember $800 is coming well ahead of both 2009 and Godot's imminent arrival!

[12/12/2005]
Friday’s gold markets made it very clear that we are in phase two of the gold bull market that began earlier this century. Will we enter phase 3 with $600 or $800 gold?  At this point in time, I am uncertain as we analyze the market activity of the key “new players”: Hedge funds diversifying from black gold into yellow gold, Asian and Middle Eastern buyers, and buying from second and third tier [and stealth first tier?] central bankers. While phase one was very easy for me to trade and forecast, [few hedge fund games, prominent astrology and a greatly undervalued commodity], phase two will not be as easy.  However, there is always phase 3 to look forward to when the NASDAQ Internuts became gold bugs and mine lovers. Truly it will then be believed that ONLY GOLD IS AS GOOD AS GOLD.

[11/28/2005]  2006 GOLD FORECAST: PART I
As Gold reached an 18-year high last week, we recommended taking TRADING profits. In fact with gold above $487, we suggested trading the short side intraday more than the long side, but NEVER overnight.  Please remember, I don’t advise selling any investing and hedging gold positions, which we plan to hold at least until February.
OUR FORECAST: GOLD WILL BE $500 BEFORE THE NEW YEAR.
The only question is whether it will be the American (12/31), Chinese (1/29) or Islamic (1/31) New Year!
ONLY GOLD IS AS GOOD AS GOLD

"Gold is loved so much by everybody at the moment, it is hard to say anything bad about it."
David Holmes, vice-president commodities, RBC Capital market

THE MAJOR NEW REASONS TO OWN PRECIOUS METALS IN 2006 ARE:

Our BIG play for 2005 has been gold. We believe it will continue to reward investors and out perform in 2006.  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. Unlike 2005, Gold is no longer out of favor.  In 2006 and even more so in 2008, gold and silver will become a "speculation of choice" of not only momentum traders, but for both greedy and the fearful investors.  How how is up? Gold natural resistance will the 87 crash aftermath resistance of $497 and $500 rounding. Then  the early February 1983 peak of $509. Thereafter, there is $525, $550, $600 and $610 Resistance target.  To complete the rally, at far higher numbers would be its third natural resistance zone circa its 30+ year high of $800.

GOLD INVESTING 101:
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 ABOVE 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!
 In Q1 2006, you should buy and hold gold as if 2008 were coming!!
Special Silver Report

The three major positives intermediate term are:
1) Saturn having left Cancer.
2) Increasingly strong Jewelry Demand
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 vs. GOLD
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! Until 2005, I have had little interest in Silver, but my views have changed.
Bottom line: It is as true for Silver as it is for Gold. There is little fundamental justification for its current low price.
I would suggest 25% of your precious metal portfolio be allocated to silver and silver stocks. Silver Instruments should be more traded and when it out performs by 16% of more, Sell or Stop it. Conversely, when it under performs by 16% or more, begin (re) Accumulation.
Additionally, Silver, like diamonds, tends to outperform during the "good times" and under perform during the "bad times."  Hence, we are more likely to trade Gold when the stock market is bearish and Silver when it is bullish..

GOLD FUNDAMENTALS
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. 

Higher mining costs are helping to drive up the price of gold. G old 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. Global agenda: Japanese gold rush: Now that we can see the Japanese joining the Chinese, Indians and Middle, who is next? Why the Americans. And just when will the Yanks be coming?  In 2006 of course!. 
Bottom line in 2006: EVERY investor will want more exposure to the gold market, just as they wished they had to the energy market in 2004/2005.
We recommend a 12%-20% long commodity/hedge allocation into 2006 depending on one's global portfolio risk/reward parameters.
Our 2006 Fair Value for gold is $545. 

TECHNICAL
Last year Gold was projected to traded within a $450 to $552 price band.  Next, we foresee a trading range of $475 to $625. Barring a major catastrophe, there will be significant intermediate and long term selling between the $600 and $625 price zone.  In 2006, $510 is the primary pivot and $552 first key resistance [P1 530 P2 545 P3 550] and $500 now key support.  The first 2006 XAU target is 140 with key pivot/support at 115.
Having been reached, XAU now has 155 as resistance and gold is a trading range of 540 to 580.

ASTROLOGY
Gold and Silver will become more mainstream investments and speculations of choice in 2006.


HOW TO MAKE MONEY IF OUR FORECASTS ARE CORRECT
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) and Barrick Gold (ABX), 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 $550. Hence is still more short term upside in the metal itself. However, once gold moves to $525, 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), Agnico-Eagle (AEM), and most favorite single gold stock Nova Gold (NG).  Likewise four Silver Stocks Pan American Silver (PAAS), Silver Standard (SSRI), Silver Wheaton (SLW) and Western Silver (WTX) are likely to similarly benefit. 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 comfortably above $500 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  to new multi-year highs, small cap gold stocks (as a group) are likely to perform much better than either the big cap XAU or HUI 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 10 small cap companies, all together totaling no more than 5%-10% of an overall aggressive portfolio allocation.
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 previously 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.

SUMMARY
·    Gold is currently at 25 year highs. We project it higher longer term into 2008.
·    As a portfolio hedge, we recommend from 12%-20% gold and silver 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, AEM and MDG.  For even more speculative risk/reward, consider the larger silver companies like SLW and SSRI.   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 (Exchange Traded Fund) is trading. Also consider the XGD iGold Exchange (ETF) which gives you the beneficial ownership of the 17 component gold stocks in the S&P/TSX Capped Gold Index. Also we look forward to the future listing of the GDM Amex Gold Miners Index (currently 36 gold and silver companies).
·    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 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 seasonedspeculator.com 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.
QUOTES IN THE NEWS

"There is a scramble for assets now. The real test will be if it goes through $520-$525, in which case it probably runs up to $650. We’re in a bull market for commodities, about one quarter the way through a 20-year cycle. Frank Holmes, chairman, US Global Investors

HW: While I agree with your price target potential,  I would think it would pause well before given strong overhead resistance at $550, $600 and $610.

“The momentum players now see that buying (gold) on dips seems to be the best possible trading strategy. So you have higher moving averages, higher volume and higher open interest. You have all of the elements for momentum players to move into the market."
George Gero, vice president with RBC Capital Markets Global Futures

"There doesn't seem to be an end to the reasons why people want to keep moving into the gold."
George Gero, vice president, RBC Capital Markets Global Futures
HW: I agree 100% with you about Middle East tensions and strong crude oil prices. Clearly a number of traders who closed long positions prior to the end of 2005 are now looking to re-establish them.

"Gold is more and more becoming an insurance policy against any type of disruptive risk and most portfolio managers believe that gold is an asset which should not be missed in their portfolios.”
Frederic Panizzutti, senior vice-president, MKS


WSNW subscribers are invited to review our periodically updated premium post: S: Gold 2006.

ON THE WEB

The real story behind the bullion bull

Newmont Says Gold to Rise Above $1,000 as Asian Demand Outpaces Production

 
Q&A

READER: If Spot GOLD closes three days in a row above US $ 501 pto, the charts indicate, that it will zoom to US $ 550+ pto in a matter of 6/9 weeks. Bears are seriously trapped in Asia. I advise investors should not book profits at this levels in GOLD. We advise to book partial profits at US 600 pto which we can easily see around Dec'06.
HW: Yes it can happen as you say, but we will be booking/protecting some profits ahead of $550.

READER: You say gold will be around 545 in February. With 545 you mean: February future or GLD? This is rather confusing. Why don't you use the real gold price or GLD?
HW: As the difference between cash and Feb futures is only $4-$5, there is really not much difference.  I primarily trade gold futures and invest in gold stocks and recommend short term hedging against the Philadelphia Stock Exchange’s XAU and the AMEX’s Gold BUGS Index (HUI) or the future ETF based on the Amex Gold miners Index (GDM). Some days I confess I do feel a little dyslectic. Take Friday with the XAU in retreat from 126 to close below 123 as the longer term holders cash in some 2005 profits, yet the futures were running up closing up more than $7.


GOLD WEB LINKS

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

Summer Gold Find Cosmic Favor
Silver Bells and Christmas Gold
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