GOLD FINDS COSMIC FAVOR
Henry Weingarten Last Updated:
GOLD IS AS GOOD AS GOLD
Our BIG play for 2005 is that gold will break out to $480 to $500 by
this summer. 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 is a currency. Today, it is widely recognized
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
gold is still very
out of favor.
For contrarian investors,
this also adds to the risk/reward profile of owning gold.
IS AN INFLATION METAL
While gold acts much like a currency, it should not be ignored that it
remains the traditional safe haven inflation hedge. Remember when just
few years back the financial press feared $400 gold as a
mine” barometer of inflation. Yet for how long has it been
while US government statistics until recently failed to measure signs
of real inflation? Today the signs of inflation are loud and clear to
anyone who eats, drives, visits their doctor, buys a home, pays for
college, etc. The CPI has been significantly understating inflation for
years. Bill Gross of Pimco is quite correct in pointing out the CPI
job. It understates inflation
(the cost of living as well this year
last year). That perception will soon change, as I see it no later than
the summer of 2005. These days I am not alone in considering gold the
cheapest long term protection against both inflation and/or an eventual
US Dollar decline. Thus I believe
virtually EVERY investing portfolio
should have 10% gold or similar hard asset allocation in 2005.
often mentioned reason to buy
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
our forthcoming view of a 2006
half of the year, is also likely to
fundamentally positive for
are extraordinary times, where geopolitical risk and outlook
continue to outweigh normal stock market considerations. Remember: Life
jackets, Deadbolts, Smoke and Fire Alarms etc. do NOT provide you with
Financial security. Liquidity, Global Diversification and hard assets
such as gold DO offer some protection.
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. Higher
mining costs are
also helping to drive up the price of gold. Additionally,
producer hedging continues to be unwound at a strong pace.
The biggest risk intermediate
term is the potential of further
central bank selling.
believe this will continue to be restrained by current European
Central Banks agreements at least until mid 2006, as well as partially
some Asian Central Bank buying.
Bottom line: By the summer of 2005,
investor will want some exposure to the gold market, just as they
had to the energy market in 2004/2005.
The fundamental reasons for owning gold today are
1) US Monetary Policy of easy money, which has also resulted in a Real
2) US Fiscal Policy: While investors cheered income tax reductions and
believed it to be a stock market positive, longer term there is no such
thing as a free lunch.
3) US Government Spending is Out of Control.
4) US Foreign Policy: Imperialistic, unilateral wars are inflationary.
Summary: all of the above is GOOD FOR GOLD.
Process of Elimination: A Speculation on Gold and the
" Capital flows into gold
under one scenario only: when the lack of investment returns elsewhere,
desire for safety, and the ascendance of a risk-averse psychology at
converge. In other words, investors come to gold through a process
of elimination. It is an odyssey of discovery and realization that
vehicles thought to be potentially rewarding are in fact filled with
Strength lies ahead: Jewelers are the biggest users of gold, accounting
for 68 percent of world demand in 2004. The
is the strongest quarter due to Diwali, Christmas and other end of year
festivals when jewellery gifts are common.
Intermediate term, this often results in a golden Christmas Rally.
Shorter term, the gold
sector typically stages a rally in late
summer and early fall
according to a Merrill Lynch
- in 14 of the past 16 years, gold has climbed an average 9.7 percent
from July 16 to August 12.
investing advice calls for a
modest 10% gold/commodity hedge with a
monthly accumulation April, May and June. As of July 2005,
we recommend buying gold as a Summer 2005 trade [First Buy
Our Current Fair Value for gold is $450
as a currency. As an inflation
metal, we calculate gold’s Fair Value to be $500.
April 1, 2005 gold
closed at $425. You do the math.
Gold has been in a secular bull market since making its 22-year low
four years ago on April 2, just under $257. Short term,
technical action in 2005 to date has been neutral to bearish. We
believe this picture will change dramatically before the summer.
Gold has broad support in the 420-425 area; it has overhead resistance
450-460. Assuming it is broken on the upside, then $480 to $500 is the
next natural gold target.
NOTE: In June Gold begun trading above its 200 Day Moving
See below for more good technical news:
“buy” signal pops up
the dollar gold spot price to the
Philadelphia gold & silver index or XAU rose above 5.0 in May
signal has historically returned an average of 38.4% for stocks in the
index after one year."
Signs of a Gold Bottom
"1) The divergence between the XAU gold stock index and Gold reached an
2) Commercial futures traders are covering short positions
3) Major support levels have held"
Euro Gold 350!
is a far greater boon
for gold than even $500 in dollar terms."
Reasons Gold Stocks are about to rise
1) Gold is Going up Now Against All Currencies
2) Long-term XAU Chart Spells Breakout
3) Gold Stocks Are Outperforming Gold
4) A Breakout for the XAU Appears Imminent
While there are some positive indicators in the US Dollar horoscope in
Q2 2003, both the XAU and COMEX horoscopes are very positively
configured for the summer of 2005. Looking further out, in 2006 we are
forecasting that Gold will also outperform, while for 2008 we project
it could be somewhat of a home run. Enough said.
What is our long term track record for precious metals? As a sun sign
Leo, I have a natural affinity for gold. Perhaps for this
our Gold forecasting record has often been nothing less than stellar.
For example, The Astrologers Fund had warned clients a month before the
Bre-X disaster. Years ago, when the gold commodity pit was
and “sitting dead in the water”, we
forecast a major
under $300 to the DAY it would break $400! We forecast that
would reach $450 by December 2004, and then retreat. We have loudly and
proclaimed our $480-$500 August Gold break out rally for 2005!
TO MAKE MONEY IF OUR FORECASTS ARE
Historical cycles show that a strong gold rally ignites the major
producers first. Soaring microcap gold exploration plays then follows
this. Just as IBM and GE are the Dow bellweathers, Newmont (NEM) is the
key proxy for gold. Given gold’s small market capitalization,
be the first big money portfolio play. Along with the gold
(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
will move into midcaps such as Glamis Gold (GLG), Meridian
(MDG), and Nova Gold
(NG). Should any
of this be allocated to small caps? The answer obviously
according to individual portfolio risk/reward parameters.
If I am right about August gold (Futures) break, 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 at
$440 before a strong commitment to gold microcaps.
If you prefer the adventure of finding buried treasure, then there are
nearly 1000 mining exploration or development stage companies on the
TSX alone. Note: In general, I prefer Gold stocks with mines located in
countries having minimal, or no, political and currency risk.
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 small cap companies, all together totaling no
more than 5%-10% of an overall aggressive portfolio. If you
sporting a large portfolio, then a 10 small cap gold basket would
reduce risk. Note: You may wish to choose a mixture
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
· Gold was last above $500 in
1987 and we project it to test $480-500 as early as July 2005. If so,
this time small cap junior gold companies will shine as the Majors and
Midcaps have already done.
· As a portfolio hedge, we
recommend at least
10% gold. [This was increased to 15% in June 2005 for many of our model
portfolios.] This would be done conservatively with a mixture of
gold (GLD)* and gold majors ABX and NEM. If you have more tolerance for
risk, look to midcaps such NG.
· We recommended that gold be accumulated
on weakness over
and June [XAU 84-78, $425 to $418]. As of July 2005, we recommended
Summer gold additionally as a trading buy under $425.
· 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. For a current list of small
that we are watching, please visit my seasonedspeculator.com
Our long term recommendations remains the same: just continue to
GOLD as time goes by. Gold is cheap insurance against both
AND a future declining US Dollar!
It is also likely to resume its traditional "safe haven" status
as well by 2006.
the president of Newmont Mining (NEM), the world's largest gold mining
expects gold prices to hit $525 an ounce by the beginning of 2006.
noted that he thinks the U.S. dollar will lose another 15 percent of
in June 2005 versus other currencies.
"Based on historic ratios between gold and oil, gold should now be over
an ounce. Or the price of oil needs to come down to $40 to $42 a
barrel." Frank Holmes, chief investment officer, U.S. Global Funds
HW: This makes a bet on yellow gold a better one from a risk/reward
perspective than black gold.
understand how you can expect gold to explode with Saturn moving into
Saturn can also equal 1)
scarcity and 2) reality. Acting as a commodity, Gold will rise as it
responds to the same scarcity issues as have other commodities, such as
industrial metals and petroleum.
WSNW Subcribers should
frequently review our premium S:
* US citizens please note that the IRS considers gold a "collectible"
like art, gems or wine collections. Therefore, unlike stock
investments, on which most pay 15% long-term capital gains after
holding for one year or more, capital gains on collectibles (and on
GLD) are 28%.