Up-date N° 25 / March 23,
2011
Gold/Ounces
in US$
|
Buy
Date
|
Amount
|
Buy
Price
|
Total
(USD)
|
Price
Today
|
Value
Today
|
November
7, 2002
|
100/oz.
|
318.90
|
100/oz.
|
|
|
Total
|
100/oz.
|
318.90
|
100/oz.
|
1435.00
|
143'500.00
|
Profit
|
111'610.00
|
|
|
|
|
Profit
(in %)
|
350.00%
|
|
|
|
|
OUR
LONG-TERM RECOMMENDATION
|
BUY
|
OUR
SHORT-TERM RECOMMENDATION
|
BUY
|
1980 to 2011: From bear to bull
In 1980, the price of one
ounce of GOLD reached $ 850. Today, the purchasing power of the US dollar is
substantially less than in 1980. The price of one ounce of gold would have to
rise to $ 2,300 to reflect the value of the US dollar thirty years ago.
The long-term picture
The bull market of the gold
price started towards the beginning of 2002. On the way from $ 252.20 to the
recent high of $ 1435 (an increase of 470%), several significant corrections
took place, the most severe one in 2008 when the gold price sank by 29% only
to jump 102% to a new all-time high. The bull market is not over!
Furthermore, we only reckon with a modest corrections within the up-trend as
we cannot yet make out any overbought market condition.
Extremes never last but no
extreme is an absolute extreme and there is no guarantee that the extremes of
2006 and 2008 will actually be repeated. To demonstrate our point, we need to
go back to 1980 when the indicator shown below went far above present levels.
It is important to note that
we have NO extreme at present. In the past, excluding 1980, it would have
paid off to play the extremes, always assuming that one can buy back at the
right moment which is far from easy. A long-term investor may feel better
simply remaining invested as he believes that prices will eventually go much
higher.
The medium-term picture of the gold price
Critics of technical analysis
include well known fundamental analysts. For example, Peter Lynch once
commented, "Charts are great for predicting the past." Warren Buffett has
said, "I realized technical analysis didn't work when I turned the
charts upside down and didn't get a different answer" and "If past
history was all there was to the game, the richest people would be
librarians." However, as the circles show in above chart, selling and
then buying when prices crossed the Moving Average, would have been a valid
strategy.
The gold/silver ratio
In times of economic slow-down,
the gold/silver-ratio reverses dramatically as can be seen in 2008. As the
next economic crises will hit again - sooner or later, the present level of
the ratio favours an investment in gold rather than silver.
Should you own gold rather than gold shares?
Gold and gold shares do not
always move in a parallel fashion. At times, gold is leading, at times the
gold shares. From 2000 to 2006, the Gold&Silver Index ratio fell by 40%,
telling us that gold and silver shares outperformed the price of gold.
In 2006, the trend started to
reverse as the ratio continued to increase and reached a lever of 5 points or
33% higher than in 2006. The crisis of 2008 hit gold and silver shares hard
as the index spiked to 11 points. Gold and silver shares were sold across the
board as investors were forced to sell to create liquidity. This extreme,
created by panic selling, created a once in a life time buying opportunity.
Few however were able to benefit from this situation as the worst fears
dictated investors’ behaviour.
The ratio has since fallen
back to 6.6 points but is still roughly 25% higher than the long-term
average.
Gold shares should continue to
fare better than the price of gold.
Conclusion
Gold should perform better
than silver over the coming months but gold shares should outperform the
price of gold!
Disclaimer: P. ZIHLMANN INVESTMENT MANAGEMENT AG
does not accept any liability for any loss or damage whatsoever, that may
directly or indirectly result from any advice, opinion, information,
representation or omission, whether negligent or otherwise, contained in the
trading recommendations or in any accompanying chart analyses, whether
communicated by word, or message, typed or spoken by any of its employees.
How to invest: http://www.timeless-funds.com/en/timeless-pre...etal-how-invest