Wednesday, July 29, 2009


Technical Analysis – myths and urban legends continued…

Sometimes when we all know something to be true - the opportunity for profit is lost in the crowd - In other words if we all know - who is left as a bag holder?

To-day many intelligent and experienced money managers believe the U.S. dollar is in a long term decline vs. all the major currencies. They protect their portfolios with bullion ETFs and precious metal stocks such as Barrick, Goldcorp, Kinross and whatever.

The attraction for the gold stocks is the leverage because if bullion were to ever break firmly above $1000 - the gold stocks will fly

Then again - maybe not.

Our long term chart of gold stocks vs. bullion illustrates the three stages of the stock/bullion relationship. The first stage is the gold stock out-perform stage at (A) 2001-2003 when the gold stocks out performed bullion - this was the "recognition of survival" stage. The second stage at (B) 2004-2007 is the earnings stage when earnings kept pace with the rising bullion prices.

The third and final stage is at (C) 2008 to date when the gold stocks under- perform the price of bullion because of rising costs, political and environmental issues. Best just to own the bullion - by the way - the energy stocks have the same problem

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