Saturday, January 26, 2008

Gold Bull Market

Gold/XAU Ratio 4.91 Munk sees even higher gold prices

Jan 26, 2008 04:30 AM
DAVOS, Switzerland–Record gold prices, which scaled a new peak yesterday, could easily go higher, says the chair of the world's largest gold producer, Barrick Gold Corp.

Peter Munk said he was no "gold bug" but told Reuters the outlook was more positive today than at any time in the past decade.

"With increased demand and constrained supply, I'm more convinced (the price) is not only sustainable but may even reach the highs in the 1980s," he said at the World Economic Forum.

Gold hit a high of $924.30 (U.S.) an ounce yesterday after a power crisis shut South African mines. The price is the highest ever in nominal terms but is still not equivalent in real terms to the peak of $850 reached in 1980.

"Today's adjusted price would be in the $2,000 bracket," he said.

My HUI Gold Bugs Index setup is giving a second renewed bullish call, based on the "dumb money" small traders sharply cutting their net long position as a percentage of the total open interest. In silver, the large speculators (also the dumb money) are building up their net long position to somewhat excessively bullish levels, but so far so good; they haven't reached the historic extremes I'm looking for in order to flip me to bearish silver. Alex Roslin

A new bull market for the Japanese Yen

Wednesday, January 23, 2008

Gold P&F Buy signal

Gold buy confirmed by P&F chart. Short term bearish FCX chart. Remeber MER as leading indicator? Will we see a short term rally before bear market resumes?

Tuesday, January 22, 2008

New Buy signal for gold stocks

Today a new buy signal was given for precious metal stocks.

Gold futures rise 1% as dollar falls after Fed cut

The central bank cut its key rate by an aggressive 75 basis points to 3.5% Tuesday, citing a "weakening economic outlook and increasing downside risks to growth." This was the largest cut in the Fed's key rate in 25 years.

Monday, January 21, 2008

Global Stock Market Selloff Monday

Well the Black Swan swooned and the global markets tanked today. I was wrong--gold and gold stocks are also down severely. I look for fear and panic on Wall Street tomorrow.

Canadian stocks closed down 4.75 percent, and a key market index in Brazil was off 6.6 percent.

And trading Monday in stock index futures pointed to a substantial decline when markets reopen on Wall Street tomorrow. Futures in the Dow Jones industrial average were down 520 points, or more than 4 percent.

Sunday, January 20, 2008


Given the markets response to Bush and to Bernacke I look for gold to rally and the broad markets to tank.

Will VIX spikes call the interim bottom?

Today's Commitments of Traders report suggests the woes for equity markets aren't over yet. My COTs U.S. Composite Equity Index is giving its fifth straight bearish signal, after flipping to the bearish column with the Dec. 18 COTs report. The index has increased ever so slightly to -1 from last week's horrible -1.23. But that's little consolation. A -1 reading or worse means all four equity trading setups that make up this index just gave a bearish signal, on average, for execution on next week's open of trading. Alex Roslin SEE HIS LINK COT

Thursday, January 17, 2008

Black Swan Looming?

MER DOWN 10% TODAY See Bill Gross' remarks at pimco site.

Wednesday, January 16, 2008


Sector allocation P&F bearish for oil and for oil service stocks. I will sell my few remaining stocks into any rally and continue to hold my basket of junior gold stocks. I have sold my major gold producers. The broad stock market selloff is starting to get very ugly.

New sell signal gold stocks

A new sell signal for $HUI was issued 1/15/08.

Tuesday, January 15, 2008

Gold stocks sell off with broad market plunge

When the sheriff raids the whore house even the good girls and the piano player go to jail--so the gold stocks sold off with the broad stock market today.

Well so much for MER signal for a short term rally.

Monday, January 14, 2008

New highs for gold and for major gold miners

Remember our leading indicators? MER and FCX? Is MER signaling a short term rally? FCX confirms precious metal stock rally.

Why have junior miners failed to rally?
The buy signal remains bullish for gold stocks and oil service stocks.The broad market remains in correction mode.

On a personal note I celebrated my 65th birthday Friday Jan 11. I feel like I am 35 thanks to my wife's loving care and a new exercise program 6 times a week with a talented Pilates Trainer. Even my golf game is better.

I am missing Horseshoe Bay Texas but look forward to visiting this spring. When I retire in another 18 months I plan to spend half time in Texas but also maintain our Arkansas home. We interview another ENT surgeon for our multispecialty group this weekend. I still take call every other night during the week and every third weekend.

Tuesday, January 8, 2008


My propriatary gold stock model has given a second buy signal today. Even though the outlook for the broad market is very bearish the precious metal stocks have decoupled from the broad market. Hang on tight and get ready for the bull market ride of your life.


Remember MER as a leading indicator?


"It is my read that a primary trend change occurred on November 21, 2007 and I have spoken with Richard Russell in regard to this matter and he too agrees with this assessment. In my December newsletter I examined every primary bearish primary trend change since 1896. I cannot share all of these details here, but I will tell you that of the 30 previous bearish primary trend changes only 3 were “false.” When I say false, I mean that nothing material develop following the trend change. However, the remaining 27 primary bearish tend changes were meaningful. Thus, history has proven that 90% of the primary bearish trend changes since 1896 were indeed worth respecting. I for one will not bet against 90% odds." Marty Chenard

Monday, January 7, 2008

Nasdaq drops lower--broad markets fail to rally

Remember FCX and MER as leading indicators? Both P&F charts are bearish but the sector P&F chart for Precious metals remains bullish. Will the giant sucking sound be the sell off of gold and silver stocks as investors scramble to raise cash?

I have sold most of my broad market positions except for SWN and a few other oil service stocks. One signal is troublesome for the $HUI --I rate this as "Neutral"--but no sell signal yet for precious metal stocks.

So far support has held for $INDU but overall point and figure charts are bearish except for precious metals and oil and oil service sectors.
Today's Gold/XAU Ratio is 4.72

Sunday, January 6, 2008

History of gold stock market performance during broad market corrections and crashes

While the Dow 30 shed 45% in 1973 and 1974, an enormous and devastating loss, did gold plunge in sympathy like it did is past April and August in the latest precious metals panic? "No!" Gold soared in a majestic and powerful bull market and more than tripled while the general stocks swooned. The curious popular belief today that precious metals will suffer during a general-stock bear is a total myth, pure fabrication. Adam Hamilton, CPA

So--Is this time different?

Saturday, January 5, 2008


an inverted yield curve usually means the economy is headed for a recession, as it did before the recessions of 2000, 1991, and 1981. So far the curve has not inverted.


Jan. 4 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund, said the Federal Reserve may not be able to avoid a recession even if central bank policy makers lower borrowing costs by at least another percentage point.

``I'm not sure if the Fed can do that by reducing rates to 3.5 percent or 3 percent or even lower,'' Gross, the founder and chief investment officer of Pacific Investment Management Co., said in a Bloomberg Television interview. ``The Fed has been behind the curve for a long time.''

US Treasury Bonds Maturity Yield

Yesterday Last Week Last Month
3 Month 3.09 3.11 3.01 2.96
6 Month 3.09 3.15 3.29 3.13
2 Year 2.72 2.81 3.09 2.93
3 Year 2.66 2.73 3.04 2.91
5 Year 3.18 3.25 3.49 3.32
10 Year 3.87 3.89 4.07 3.95
30 Year 4.38 4.37 4.49 4.43

Amid Friday's flight toward bonds, the 10-year yield slipped to about 3.85%, down from nearly 5.29% seven months ago

Are we at a rare and unusal period in time?
1) The rate of inflation has been higher than 6 months earlier, 2) Treasury bond yields have been lower than 6 months earlier, 3) the NAPM Purchasing Managers Index has been below 50, and 4) the Gold/XAU ratio has been above 4.0, the XAU has soared at an astounding rate of 123.63% annualized. In contrast, when none of these have been true, the XAU has plunged at -53.21% annualized.

"The mining sector should continue to be one of the top performing investment sectors in the coming 3-5 year period. The past actions of the Fed and other central banks mean they will surely do everything they can to avoid a credit and debt implosion that according to many experts could be in the trillions of dollars of potential defaults and bankruptcies. If this estimate is true then bailing out the institutions that are in danger will require the greatest expansion of paper money in history. The winner will be gold and other natural resources because the more money that is created the higher the prices of basic commodities and monetary substitutes (gold and silver) will go. Gold mining shares are the beneficiaries of the economic excesses of others.

It is important to be careful of exploration stocks and allocate only a small amount to this sector. The large mining stocks are now being bought by huge non gold savvy hedge funds and will create lots of volatility as we go forward. A stampede by these players either way can be profound. The developmental mining companies with solid resources in the ground and a 1-2 year horizon to production will be targets for buy outs by mid-tier and major mining companies.

Good luck - you are going to need it especially if gold goes to $1,200 and then back down to $700 and then to $2,000, which is very possible in the coming decade. So always keep a core portfolio as insurance (and long term appreciation) and a trading portfolio that rolls with the punches. Do not go on margin and do not spend much time or money on the exploration stocks as more than likely every share you buy is usually from an insider who is selling. Also if there ever is a major economic upheaval gold and silver mining companies with known and verified resources in the ground will go up dramatically but exploration companies with nothing but a geologist and promoter’s dreams will go no where because they have nothing in the ground. Remember that - they have nothing - so be careful."

Ken Gerbino
26 October 2007


Friday's losses confirm that the market's in a correction. Today's Market Pulse notes the change.

When stocks move into a correction, there's only one sure way to protect your capital: cutting losses and moving to cash. At a minimum, that means selling any stock that's fallen 7% to 8% from your initial purchase point.

This is exactly the sort of market situation that demands such discipline. All big losses begin as manageable declines, whether for the broad market or your portfolio.

Friday, January 4, 2008

gold:xau ratio and ISM review

Today's Gold/XAU Ratio is 4.63. The recent ISM purchasing managers number fell to 48

“To put some historical context on this measure, since 1974, the Gold/XAU ratio has been greater than 5.0 about 15% of the time. When the ratio has been this high, the XAU has followed with annualized gains of 89.6%, on average – a figure that remains high even if the data is split into multiple samples. When the ratio has been greater than 4.0, the XAU has followed with average annualized gains of 27.4% (though the finer profile of returns has been sensitive to other conditions such as interest rates, economic trends, and inflation). In contrast, when the ratio has been less than 3.0 (meaning that the gold stocks are very elevated relative to the actual metal), the XAU has declined at an annualized rate of -36.6%, on average.

“Importantly, the return/risk profile for precious metals shares is strengthened further if the economy is experiencing weakness. For example, when the Gold/XAU ratio has been greater than 5.0 and the ISM Purchasing Managers Index has been less than 50 (indicating a contracting U.S. manufacturing sector), gold shares have appreciated at an average annualized rate of 125.6%. In contrast, when the Gold/XAU ratio has been less than 3.0 and the Purchasing Managers Index has been greater than 50, precious metals shares have plunged at an average annualized rate of -49.9%.”

Such strong periods for gold are also generally associated with weakness in the U.S. dollars" John Hussman



Remember my Wed Dec 19th post? "I FORECAST A BROAD MARKET SELL OFF..."
Well, look what happened today. I sold my broad stock market positions with a nice $4800 pop from CSUN. So far minimal damage to precious metal securites but I watch carefully since my "whipsaw" experience this past August when PM stocks got stuck in the downdraft of the broad market sell off.

Wednesday, January 2, 2008

Gold and Oil breakout to new highs--broad market sells off

Just for fun I counted the P&F broad market chart patterns today:
11 of 17 were bearish. I also noticed that the NYSE Bull Percent--Bear confirmed on 12/18/07




In the oil & gas sector I like KWK.