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"Civilized people don't buy gold." ~ (Charles
Munger, Berkshire Hathaway Inc.)
For a while
this department was called the Gold and Silver Sector, giving recognition to
the problems left over from the speculative surge to April 2011. With what
seems to be the start of a new bull market, the appropriate title is used
again.
Is it a new
bull market?
As noted, the
dismal slide in gold stocks accomplished one of the worst oversold conditions
in a hundred years. Actually at 24 on the monthly RSI, it was the second
worst with 1924 at 22 being the worst. Other examples at 25 to 27 occurred in
1942, 1948 and 2008, which is the full list.
Also noted in
mid May was that once the condition registered the
rally was virtually immediate. The low was 39 in mid May.
Let's put
this in perspective. GDX set a good momentum high at 64 in April 2011, but it
was not in the order of the momentum high for silver. The next high for the
GDX was at 66 in September with the same 70 on the RSI.
Our point has
been that as the selloff on gold's completed it would be equivalent to the
overbought for silver a year ago. Some sort of symmetry.
Technical
measures of the plunge suggest a new bull market. The rise out of the middle
of May has had two constructive corrections. But, a large test of the lows
and subsequent advance would confirm a new bull market.
Let's look at
the fundamentals--not of the supply/demand analysis, but in what influences
profitability.
The world has
likely started a cyclical recession, which means a cyclical bull market for
gold's real price. One proxy is our Gold/Commodities Index, or GCI. This rose
to 499 with the crisis that ended in September and slumped to 419 in mid March. The test was successfully completed at 421 in
early April and it has rallied to 464 this week.
This also
needs a bigger test to conclude the possibility of a cyclical advance.
There could
be some new developments in the tech sector, but the gold industry is the
only sector with a track record of doing well when most of industry and
commerce is suffering post-bubble pricing pressures. Such pressures show up
as positive pricing for the gold sector.
Our advice in
early April was to begin to accumulate into weakness.
Our advice to
Mr. Munger is that civilized people should abhor an
experiment in unlimited government funded by central bankers with unlimited
ambition.
Bob Hoye
Institutional Advisors
The opinions in this report
are solely those of the author. The information herein was obtained from
various sources; however we do not guarantee its accuracy or completeness.
This research report is prepared for general circulation and is circulated
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understand that statements regarding future prospects may not be realized.
Investors should note that income from such securities, if any, may fluctuate
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from time to time, members of the Institutional Advisors team may be long or
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Copyright
© 2003-2008 Bob Hoye
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