My Targets for the Gold Market for May 2010

3 October 2009

I have just submitted the following post to my friends by e-mail. Included are my predictions for gold and gold stock prices for the next 8 month period, along with many caveats (be forewarned!).

I've just charted out my targets for the next few months. I'm now expecting the next peak in the gold market in May 2010, which would imply a pattern more like September 05 – May 06, that is, more volatile than September 07 - March 08, but also possibly stronger.

This is based on (1) seasonal strength in the gold market, and (2) cyclical strength in the gold market. I view both seasonal and cyclical factors as presently aligned for a strong move in gold over the next 6-8 months.

Gold: Could reach $1300 as soon as March 2010, and possibly spike up to $1400 by May 2010. A retreat to the $1200 range or lower would then be likely, including possibly a (probably brief and sharp) retest of $1000 at some point.

SPTGD (Toronto gold stock index): This is an ugly chart, though impacted by the rising Canadian dollar. However, the present uptrend is sharp and well-supported. This fell off its multi-year uptrend in July 08 and is still performing below the former uptrend line. I'm predicting we break through the present overhead resistance around 375 in late 2009 or early 2010, and my target is 485 or so for May 2010, with a retreat to follow at some point. I don't rule out a strong and perhaps sustained surge above trend during or after March-May 2010, but that will be temporary, no matter how long it lasts.

HUI (US Gold Bugs Index of unhedged gold miners): Much stronger chart than SPTGD, though obviously due to the weak US dollar. I'm expecting the HUI to break through resistance at 450 toward the end of the year, and move to 600 or higher by May 2010.

Note that the Canadian dollar has continued strong over the past 4 years, despite the severe downturn in 2008:

Also note that the small capitalization sector remains very weak, as reflected by the CDNX (Canadian Venture Exchange) Index. If gold and gold stocks do well, this sector should recover more than the larger capitalization stocks, if only to recapture prior losses. It's not hard to imagine that many of the better stocks on this exchange will double or more in the foreseeable future.

My modest prediction, with good stock picking and some leverage in warrants, royalties, well-chosen juniors, etc., is that a gold stock portfolio could gain 50% (match the indices) or as much as double (outperform the indices) from present levels during this period. In the best case scenario, Susan and I will be semi-retired by the middle of next year. So, that would be nice, but as you know, there are never any guarantees in the investment markets!

Caveat #1: October is a very weak month seasonally for gold stocks, so we may be waiting a few weeks for this particular train to leave the station. Everything can go down at any time, including now, or any other time it wants to, but down will be temporary.

Caveat #2: Only long-term trends are predictable.

Caveat #3: We’re not sure what another broad stock market crash would do to (1) gold stock values, or (2) the timing of the anticipated move.

Caveat #4: I have no ability to predict the future, though I think I have a good eye for intermediate to long-term trends. My record so far: (1) I caught the September 05 – May 06 uptrend and correctly sold at the top, gaining 200%. (2) I also caught the September 07 – March 08 uptrend gaining about 100% from the August 07 lows (which I didn't predict, but held through basically unscathed). I then held after March 08, because I thought that the rise in gold wasn’t done. That was a disastrous decision, as we then had the worst crash of the past 3 decades in gold stocks in July – October 08 (influenced by what was happening on Wall Street, which I thought would affect gold stocks only indirectly – wrong!). I held to the bottom, losing 65% - or, back to square one, if you will. (3) I correctly held and accumulated gold stocks from October 08 through to the present, resulting in a 150% gain since October 08. I am now saying that gold stocks generally can still go up 50% from here, and that the good (and undervalued) ones can still double or better, through May 2010. In summary, our portfolio has performed in harmony with the SPTGD gold stock index since 2003. It has crossed my mind that if we play this one right, we might outperform the SPTGD index this time, though that is strictly speculation on my part!

Caveat #5: It doesn't take much study of bull markets to realize that they rise in brief, short, strong bursts, and then track sideways to down for seemingly interminable periods. It is the basebuilding and retrenchment that drives most investors out of bull markets. Believe me, it takes an iron stomach at times, and at minimum an ability to disregard seemingly disconfirming information, in order to remain invested in a bull market. Just because the primary trend is in your favour, don't expect it to be "fun" on a daily basis. It won't be fun at all on many occasions!

Now - you get to decide if I know anything! The markets make some of us look like idiots all of the time, and all of us look like idiots some of the time. It's not easy being "right" in the long term, but "wrong" in the short term - but it's unavoidable, as there is simply no magical formula for making correct short-term calls.

On a positive note, gold seems to be ignoring most other markets and doing its own thing here, which is what I prefer gold to do. Also, we are at a point cyclically where gold is likely to outperform the broad indices significantly, such as the Dow or SPX. That is, gold can easily delink from the broad stock market during this cyclical stage (near support on multi-year uptrend lines).

In the interest of full disclosure, here are our largest positions in order of size (some are in warrants, not specified): Franco Nevada, Goldcorp, Pengrowth Fund, ATAC Resources, Alexco Resource Corp., Yamana Gold, Minefinders, Northgate Minerals, Kinross Gold, New Gold, European Goldfields, Premier Gold Mines, Agnico-Eagle Mines, Golden Queen Mining, Claude Resources, Pan American Silver, Paramount Energy Trust, Benton Resources, Canadian Oil Sands Trust, Brookfield Renewable Power, Northwest Company Fund, Nevsun Resources, Mines Management, Finning, Rubicon Minerals, and Guyana Goldfields. We have about 15 other positions, but they are relatively small. Please note that these positions tend to shift gradually over time for various reasons.

Any questions???

8 March 2011: Well, I guess I was a little early here. My prediction came to pass in October-December 2010, not in March-May. On the upside. $1400 gold was sustainable by the end of 2010, so no real spike here. It was just the next level. And now I'm thinking in terms of $1600 gold this year (2011) and $2000 or higher for 2012. Given that I was off by only a few months, I guess that is a decent record overall, particularly as most investors seem to think the top has been reached every time gold pulls back $10-$20! Hey! $1400 is not a top, nor is $1500, $1600 etc. It's a bull market, and it's just going to climb that wall of worry for years to come!
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