Saturday, January 29, 2011

Today's Thoughts on Gold

29 January 2011

These comments were in response to an article on seeking alpha, to which I responded today.

If gold does peak out here, it will be the first time it has done so in the past decade without a spike preceding the correction. The gold move has been very moderate relative to the 200-day moving average.

(Chart courtesy of Adam Hamilton at Zeal Research)

Also, the major gold stocks are trading as though the gold price hasn't moved yet. Apart from 2008, that is also unusual. That is, gold stocks (the HUI) are somewhat below their early 2008 peak (now 3 years ago), but gold is $300-400 higher than it was then. So if $1000 gold warrants a 500 HUI, then what about $1400, 1300, even 1200 gold? I'm not saying gold can't go lower or trend sideways. It's the elephant in the room and can do whatever it wants. But this is an unusually weak top for gold if that's what it is, and the gold stocks are showing typical bottoming behaviour, not topping behaviour.

(Chart courtesy of Adam Hamilton at Zeal Research)

I have always maintained that gold will do what it wants, regardless of what you, I or anyone else believes. It has both punished and rewarded me by doing its own thing. The only fact I know with certainty is that just holding on to gold has led to better days for the patient investor since 2001.

So why trade it when you can just hold it?

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