May 16, 2006 Gold Mining Stocks and the Current Sell Off in the Metals Ken Gerbino 321gold . . . Inc

Gold Mining Stocks and the Current Sell Off in the Metals

Kenneth J. Gerbino
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Kenneth J. Gerbino & Company
May 16, 2006

This is not the final blow off for gold but could be a major consolidation and pullback that could last from two months to two years (like 1974-76).
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Gold mining dehedging will be a stabilizing factor for gold as many companies try and close out horrible hedge book positions and cover. This will be a strong influence to halt any major price declines.
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Since all the metals are getting hit hard at the same time, this appears to be big fund action and now momentum players will follow and exit.
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If there is any central bank that wanted to add some gold to the kitty without upsetting their colleagues they will show up in the next few weeks or months.
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The gold correction should be looked at from two basic global technical aspects.
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- 1) Using a base of approx. $400 gold for all of 2004, one could expect a 33% retrenchment of the move to $700. 33% of this $300 move would be $100. So a target here would be $600 gold.
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- 2) Using the shorter term base of 2006 (Jan-March of approx $570) then the move to $700 would be $130 and using a short term 50% retrenchment (due to the short term nature ) would be $65 or a target of $635. These numbers work for traders as well as jewelry buyers in Asia and India. So a $600-635 price target may be reasonable.
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The major move in gold will occur years from now when inflation is everywhere and at very high levels (8-12%) and people from China, France, the U.S. and other countries are stampeding into gold. The last few years are only the first leg of gold catching up with toothpaste, donuts and coffee. The big move is coming later.
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Major mining companies are in acquisition mode and this is a long term bullish sign as these players are extremely conservative and rarely speculate (as opposed to small exploration companies) ABX taking over PDG. Teck-Cominco merger and now Teck-Cominco going after Inco. There are others. They know the supply-demand equation for the metals is long term very favorable.
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The dollar needed a rest from its 8% sell off in the last 10 weeks and is rallying. Gold is responding to this. The other base metal sell offs are more likely to respond to other factors and that is why this coordinated selling is most likely fund driven and many funds are new to this arena... so expect plenty of volatility.
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50-day moving averages will probably bring in some support. I would suggest that long term investors in this sector protect profits, raise some cash and remain at least 60% invested as we are still in a bull market in the precious metals. But caution is advised. All metals are very pricey. The easy stuff is over.
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A hard look at 1974-76 would be a smart thing to do. This was a tough time for gold and the mining shares but it was only a rest from the 1968-73 run up and a prelude to the blast off from 1976 to 1980. This may be a re-run.
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Remember gold mining stocks that can mine gold at $250 gold or lower make fortunes at even $500 gold... so don't throw out the baby with the bath water just because a much-needed correction is now showing up.

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May 15, 2006
Kenneth J. Gerbino

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Kenneth J. Gerbino & Company
Investment Management
9595 Wilshire Boulevard, Suite 303
Beverly Hills, California 90212
Telephone (310) 550-6304
Fax (310) 550-0814
E-Mail: kjgco@att.net
Website: www.kengerbino.com

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