 Why the Strong Rally in the Gold Stocks
Kenneth J. Gerbino
Archives
Kenneth J.
Gerbino & Company
Investment
Management
September 29, 2004
In the last week the gold and silver mining shares have put on
an impressive rally. The rally is well ahead of the gold price
and the dollar decline. The dollar is only down .6% and gold
only up $6 in the last 7 days, yet the XAU is up 8% and many
Canadian juniors 10-20%.
My thoughts on this are summarized
as follows:
- The junior mining sector was
oversold due to massive amounts of private placement stock becoming
free trading in the last 6 months and much of this may be absorbed.
.
- Goldman Sachs had favorable
comments on the gold share sector by analysts.
.
- Phelps Dodge broke out to
new 10 year highs and woke up the establishment money manager
universe to the resource sector and naturally the gold shares.
.
- The announcement by the Argentinian
Central Bank that they had accumulated 42 tonnes of gold, and
then recently added to this position to 55.1 tonnes, added to
some official credibility for gold. The fact that Argentina usually
has owed money to Chase, Goldman and Morgan makes this an intriguing
development. Do these powerful world class investment banks know
something we don't that could be positive for gold's reserve
status in the future and have advised such a move?
.
- Institutional Investor
Magazine last month
had one of the most intriguing articles on the top 25 most highly
paid hedge fund managers. Reading the first 12 segments on the
top 12 multi-billion dollar funds, I was pleasantly surprised
to read that half of the top managers said they did well in 2003
and mentioned either gold, resources, precious metals, shorting
the dollar, owning foreign currencies and mining stocks. What
this tells me is that the smartest and strongest players in the
world know what goldbugs and hard money investors know. A good
portion of the hedge fund industry invests in exotic, leveraged,
arbitrage transactions, but there are plenty that can and will
buy gold mining stocks. I believe this group is now coming back
to the gold stocks. A few months ago I was in the office of one
of the most famous hedge fund managers in the world and met a
few of his traders. They know what we know.
.
- There are rumors that the
U.S. may attempt to design a revaluation downward of the dollar
in an organized way for trade purposes to alleviate the huge
U.S. trade deficits. An article from Dow Jones News Service U.K.
stating such a proposal was presented to George Bush before the
coming IMF meeting makes this a bit more credible. Positioning
the dollar devaluation as a simple trade mechanism as opposed
to a depreciation of the currency might make it more palatable
for the average citizen.
.
- There are always momentum
players on Wall Street. The key to being successful is to find
a big move that has already started and wait for the pullback
that always occurs... i.e. wait for the second and more powerful
leg. Well, the 2003 gold stock bull market woke up a lot of these
guys but most of them missed the boat. But they know all major
trends will take a big breather and eventually resume. They have
been alerted and are waiting. When it looks like it is starting
all over again they will pile in with huge amounts of capital.
I believe these players have just now started to join the gold
mining bandwagon.
.
- Almost the entire financial
establishment, and that includes tens of thousands of money managers,
understands deficits and trade imbalances and expensive wars
and that super low interest rates are artificial. Most of them
know sooner or later something bad might happen. Some of them
are probably buying gold mining stocks.
.
- And last but not least, the
gold stocks have had their correction. They have based out for
the better part of six months. It would seem logical for a resumption
of the uptrend.
Please visit our website
for more articles on gold, the economy and the stock market.
September 28, 2004
Kenneth J. Gerbino
Archives
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
321gold Inc
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