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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$1000 Gold: Our Ceiling, Asia's Floor

25 September 2009

Sometimes you just have to call it as it is.

The West is passing the flame of progress to Asia at this time in history. For reasons too numerous to detail in a short note, we in the West have become bound up in a tangle of bureaucratic baggage, internecine contest, small mindedness, second thought, political correctness, self neglect and financial manipulation.

Asia is simply moving ahead.

This is nowhere more evident than in the views of our respective cultures towards the price of gold.

To our minds, $1000 gold is toppy, risky, uncertain, overbought, and exhausted.

To 4 billion Asian savers, $1000 gold is simply another step along the way towards a brighter and better future - a small price to pay for financial security and nights of soothing and untroubled sleep.

Believe me, gold at $1000 today - or even less - is going to look like the last bargain of the decade in the very near future.

$1000 gold.

Think Asian. Stand on this floor for a better and more secure financial future.
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Seeking Alpha: My Comments

13 September 2009

Recently, I've begun to read "Seeking Alpha" for more timely coverage of news and opinion regarding the broad markets.

This site's strength seems to be in its ability to bring together in a single forum individuals with very diverse viewpoints on the investment markets. There are enough timely articles and sufficient intelligent commentary there to keep me interested. Therefore, I have been adding my comments as well.

If you'd like to keep up with some of my ongoing thoughts on market developments, click here.

And if you enjoy Seeking Alpha, you might wish to sign on yourself, as it's quite a simple and painless process.

Enjoy!

P.S. If you're wondering why I haven't had much to say (in detail) about the gold market recently - well, I think I've said all that I have to say. This is a bull market, and it's going up in the intermediate and the long term. October 2008 was rough, and the crash in precious metal miners and explorers was unexpected on my part. But I'm glad to be positioned where I am, long gold and silver explorers and miners, right here, right now.

Buying and holding has worked even in the ugliest downturn in this market in 3 decades!

If you'd like more detail, look at Adam Hamilton's recent piece on the gold miners. He is using the same words that I am: "Gold Stocks Still Cheap."

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What Happens When the US Loses Its Triple A Credit Rating?

9 September 2009

Here's one to think about.

Investment rating services generally mark down the quality of AAA rated debt once interest payments exceed 10% of revenue.

Well, it turns out that subprime borrowers are not the only ones painting themselves into this well-known corner. Uncle Sam could be in this predicament as soon as the year 2012. That is, in 3 years!

Here's the story: "Uncle Sam Could Risk Triple AAA Status As Early As 2012" 

Here's how the vicious cycle works.

Once you lose your AAA rating, you have to pay higher interest charges on debt - sometimes much higher. Then interest payments become an even larger component of your monthly expenses - and, of course, your credit rating drops further still. Then your interest payments rise again. Then your credit rating drops again.

You get the idea!

In its 19th century heyday, the US was a net creditor to the world. American savers funded international capital investment around the globe. This continued into the mid-20th century. 

Now that situation is exactly reversed. American borrowers are paying ever higher interest payments on trillions of dollars of escalating debt and capital investment is withering.

Note: It is capital investment derived from savings that builds economic strength. Spending and borrowing breed economic weakness.

This is the road to ruin.

Mr Obama. Mr. Bernanke. Don't do it!

Our children and our grandchildren will pay for our mistakes - with devalued (or possibly non-existent) dollars!

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$1300 Gold: Plan To Pay More (Soon)

7 & 8 September 2009

Perhaps I'm getting a little ahead of myself. But in the investment world, it is always necessary to think ahead. 

The gold analysts whom I respect are now almost universally suggesting that we will very soon be paying $1300 an ounce for gold, rather than the current $990 or so. 

Consider Clive Maund's recent analysis (click here):

Or have a look at Prieur du Plessis' recent article (click here):

As you know, the price of gold is volatile, so it may be possible for a while longer to keep buying it under $1000 per ounce. 

But it seems that it was only yesterday when our upside target was $400 per ounce. At that time, Richard Russell of beautiful La Jolla, California suggested that we would soon be viewing $400 gold as "dirt cheap."

How right Mr. Russell was! Production costs alone have now generally moved well beyond the $400 per ounce level (as inflation in the price of almost everything we need has been a persistent trend in the Greenspan and post-Greenspan eras, despite heavily massaged government statistics to the contrary).

I've been writing for a while that we will soon have to think of $1000 gold as "no longer available." So let's plan ahead - to get used to paying $1300 per ounce for gold, because that new price level is "coming soon."

Oh, and if you don't own gold at this time, you'd better buy some now - while it's still "cheap," at under $1000 per ounce!

8 September 2009:

Here are a couple of additional very informative articles on gold priced above $1000 per ounce:


Howard Katz: $1000 Gold

Thomas Tan: The Beginning of the Gold Era

$1300 gold - it's the new normal....

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$1000 Gold: No Longer Available (Coming Soon)

2 September 2009

OK. We're not there yet. Gold closed at $978.80 US today.

But gold has been pushing up against the $1000 level for 1-1/2 years now.

It's going to be looking at the other side of $1000 in the very near future.

Gold at $1000 per ounce is going to look like quite a bargain - and very soon.

Think about gold for less than $1000 per ounce - while you still can.
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$1000 Gold: Cheap...

25 August 2009, Updated 9 November 2009

Gold has gained almost 300% in US Dollars since 2001, moving up from $255 in early 2001 to as high as $1033.90 in March 2008.

All I can say is that $1000 gold is still cheap.

Think about it.

9 November 2009: Well, we're now starting to get used to $1100 gold. Is that cheap too?

If you're at all a long-term thinker, the answer is still... yes.
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Background Music

20 August 2009

I play background music all day when I'm at my office. I do so as well on the rarer occasions when I have a little time to relax at home in the evenings.

The secret of background music is that it has to be interesting and agreeable, but unobtrusive. Thus, heavily orchestrated arrangements don't work well.

Here are a few examples of CDs that I have found to constitute enjoyable background listening:

My present favourite is Sol Gabetta's Il Progetto Vivaldi, gorgeous, rich, complex, unobtrusive and in fact perfect cello. I am so entranced by Gabetta's graceful performances that I literally can't stop playing this particular CD.

Alexander Paley's refined and subtle interpretation of Bach's Goldberg Variations are a delight to the ear.

I am also enjoying the Ornette Coleman Trio, "At the 'Golden Circle' Stockholm."

Consider as well Newsound's two-disc Charlie Parker collection (image unavailable).

For those of you who have listened only to R. Carlos Nakai, try Kyle Councillor's "Livin the Good Life" for traditional North American Aboriginal flute music, one of my great favourites.

John Coltrane's Giant Steps is one of the greatest of all jazz classics, and unobtrusive enough to serve as auditory context for a mellow day.

And Blue Trane is also a great backgrounder.

On a classical note, try the Orford String Quartet's "Mozart String Quartets."

For classical Spanish guitar, "The Legendary Segovia" cannot be faulted.

Julian Bream's "Music of Spain" provides perfect melodies and rhythms when used to add context to almost any worthy activity.

From the classic jazz page, consider Brubeck's milestone recording, "Time Out" for some adventures in time - that is, adventures with variable time signatures.... "Take Five" was the first jazz instrumental to sell a million copies. ("Time Further Out" is also worth taking a look at.)

One of my perennial favourites, and one of the first albums I ever owned, is Miles Davis' Sketches of Spain. It's easy to listen to, and I particularly like this one late at night.

Now I'm going to get into some picks that may or may not work for you as background music, depending on the circumstances. But I consider all of these too interesting not to mention. Only this summer, we visited the Big Jonathan Centre of the Selkirk (Northern Tutchone) Nation in the Yukon, where Jerry Alfred is an elder. His recordings are featured at Big Jonathan House. I've been listening to Mr. Alfred's music for years - a combination of traditional and contemporary elements. It is haunting and hypnotic. Try Etsi Shon (Grandfather Songs) as an introduction.

While we're talking about old favourites, try Skeleton Woman, inspired by the writings of Clarissa Pinkola Estes.

Another of Susan's and my great favourites, usually played during the Christmas season, is James Galway's "Winter's Crossing," telling the tale in music of the men and women who crossed by sea from Northern Ireland to North America. Caution, these compositions are haunting, magical and spiritually dense.

And while we're talking dense, magical and complex, consider Oliver Schroer's brilliant, dissonant violin renderings recorded in Spanish cathedrals during the artist's pilgrimage through Spain.

And as we wander further afield, please direct your attention to Robert Johnson's original 1936 and 1937 recordings, completed shortly before his untimely death. Johnson is arguably the most important of all Delta blues musicians and composers. His music is raw, intricate, haunting, at times disturbing, and ultimately deeply engaging. Note that there were no "studios" at the time these classic compositions were committed to wax. This music works best for me after the sun has set.

My final pick will serve as background music only in certain circumstances. The disc features considerable variation in dynamic range, style, taste and genre. But combined, these selections are magical. Literally intended for Valentine celebrations, this two-disc set is from Deutsche Grammophon: "Be My Valentine: Music for Two."

Let me re-emphasize that the earlier picks are suitable for background listening in many situations. Obviously many more in this genre could have been selected.

The later picks are for various reasons more specialized or idiosyncratic. What all of the above have in common is that they have proven themselves to be enduring favourites in my music library.

And for those who need to know, I do not own an MP3 player. These are CDs!
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Me and My Money Interview

15 August 2009

Courtesy of Tony Martin, the Globe & Mail has now published my interview in the "Me and My Money" column .

To be honest, it's a pretty brief overview of my perspective on the markets, but Mr. Martin did a fine job of capturing the main ideas.

So for a quick introduction to my views - and positions - in the investment world, click here.

(This all started with my conversation with Larry McDonald of the Globe & Mail in May 2009.)
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