Grandich Letter Special Alert
Gold, Mining Shares and
Oil
Peter Grandich
Grandich
Publications
October 19, 2005 9:00PM ET
The More Things Change, The More They
Stay The Same
Ever since returning back to
the gold bullish camp in the spring of 2003, I have witnessed
the crowd cycle mentality to be pretty much the same when it
comes to gold. An air of disbelief that a recent rise to a new
trading level can hold gives way to a belief that this time the
move up is real. The crowd grows even more bullish as the rally
continues, and the enthusiasm spills over to mining stocks. Then,
the inevitable sharp (but short) correction comes and the crowd
becomes deflated and disenchanted - only to see gold not fall
as far as before, recover in less time and move to a higher trading
range yet again. The cycle of excitement builds again, the correction
hits... you guess it, sad faces again. It's truly hard for this
20+ year veteran to fathom how so many people, who called, emailed
or I read their commentaries online over the last two days, can
be so down with gold at $464. You would think it was $364 or,
God forbid, $264 an ounce. IF A BULL MARKET DOES INDEED CLIMB A WALL OF
WORRY, THE MOOD I FELT TODAY TELLS ME WE'RE GOING MUCH, MUCH
HIGHER.
I've said it before and I'll
likely keep saying it as we get to, surpass, and move substantially
above $500 an ounce on gold: the gold market takes two steps
forward and one step back- and the recent action is just another
one step back. This type of trading is typical in a secular bull
market and keeps many people on the wrong side much of the time.
It's important to note how many "experts" recently
dramatically increased their gold price targets after either
being cautious or outright bearish as prices rose these past
few years. Throw in the fact that TOUT-TV (CNBC-TV) and it's
maniac member of the "Don't Worry, Be Happy" crowd
on Wall Street, Jim Cramer, actually covered gold in a bullish
manner. If that isn't a "kiss of death," what is? LOL
Special Note - One of the
few gold pundits who has been far more right then wrong these
last few years has been Bill Murphy (www.gata.org).
I subscribe to his newsletter and so should you if you are really
interested in gold.
I used this chart back in our
September 26th update http://www.grandich.com/docs/alertGL_09-26-05.pdf
to illustrate back then how overbought gold was (please note
how much of the overbought condition has now been corrected-
RSI was well above 70, now below 50). I have continuously mentioned
since then that a correction and some consolidation could be
expected, but said not to lose sight of the major uptrend. Well,
the correction has happened and while it still can reach $450-$455
before it's all over, I hope readers at least can get through
this short period without succumbing to the fear and disenchantment
expressed by many in the last 48 hours.
Please read the following recent
commentaries of mine regarding gold. The factors mentioned remain
in full force.
http://www.grandich.com/docs/alertGL_10-07-05_updates.pdf
http://www.grandich.com/docs/mw_10-07-05.pdf
http://www.grandich.com/docs/res_investor_10-14-05.pdf
Mining and Exploration Shares -
Most mining shares are at or below levels they were when gold
was considerably lower. One way to look at this is to say the
metals have outperformed the shares. Another is to think shares
are much more attractive now vies-a-vie the underlying metal
price. Actually, I think part of the emotional disappointment
in gold bullions decline the last two days is the fact that those
expressing it own lots of mining shares and not bullion itself.
They've hoped that rising metal prices would lift their shares.
In some cases it did, but across the board on average, mining
shares, and in particular, junior resource exploration plays,
have greatly underperformed. Knowing the mental make-up of the
typical player of these stocks, I suspect that my belief we can
witness a fairly tough tax-loss selling period is more paramount
now.
While the next eight weeks
or so can continue to see mining and exploration stocks under
perform the metals themselves, we seem to be setting the stage
for a market that could look a lot like 2003.
I began to speak this past
summer about an increase in mergers and acquisitions upcoming
in the mining and exploration industry. Sure enough, we've witnessed
a marked increased in M & A. I expect this to last well into
2006 and beyond as mining companies are in real need of new reserves
and ways to reduce operational costs.
Among the companies I believe
can be targets are:
Bema Gold
Cambior
Kinross Gold
Meridian Gold
Northern Dynasty Minerals *
Nova Gold
* Please note Grandich Publications
provided compensated services to Northern Dynasty Minerals in
the last 12 months.
Oil -
What few fans I had, all but left after I issued my http://www.grandich.com/docs/alertGL_08-04-05.pdf
special alert, daring to suggest the oil party was coming to
an end and if we were fortunate enough to see oil rise to $70,
it should be used as a time to lower exposure, not increase or
maintain. No one general market comment I ever made in 20+ years
ever caused more people to react (some in a not so nice way,
to say the least). I actually took these reactions as a sign
that the crowd was overwhelming bullish and the Johnny-come-lately
players have indeed already showed up. This was occurring while
Hurricane Katrina and Rita were front page news, causing even
more to question my "blasphemy" to the oil gods.
After briefly rising above
$70 a barrel, crude has been in a fairly steep retreat. While
the overwhelming consensuses remains bullish, the crude chart
is at a most interesting crossroad. After $64 resistance was
taken out to the upside in August, it failed to hold $64 after
testing it a couple of times in September. It has now become
resistance again, with the $60 level both important technically
and psychologically.
While I don't expect us to
see $20 or $30 oil again, I do think we've seen the cyclical
highs and can see a walk down to $50 or below in the next 12-18
months. The fact that most reading this right now are saying
things like "you're nuts," will give me strength to
handle the calls and emails that this thought is near certain
to produce.
A break below $60 a barrel
is almost certainly going to give the "Don't Worry, Be Happy"
crowd on Wall Street ammunition to exclaim, "Buy the stock
market!" It may work for a short period but a resumption
of the bear market is upon us and I believe we'll see the lows
made in 2002 tested and even broken to the downside before it's
all over.
Please Note - Peter Grandich
will be on "Market Call" with Jim O'Connell on Monday,
October 24th from 12:30PM ET to 1:30PM ET www.robtv.com
Peter Grandich
Grandich
Publications
P.O. Box 243
Perrineville, NJ 08535
phone: 732-642-3992
email: Peter@Grandich.com
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