Spring has sprung, the grass
has riz,
We wonder where bullishness is
Contributed by Olaf Sztaba
NA-Marketletter
www.na-marketletter.com
April 20, 2006
Extracted from the April
19, 2006 issue of Market Comment.
GOLD & GOLD STOCKS
(Daily chart with the
50- and 200-day moving averages)
LONGER TERM: Despite Gold's powerful bull market
of the last five years, the sentiment toward the metal remains
tepid at best. The majority of investors are still being "educated"
by the media that the volatile gold stocks have no place in their
portfolios. Very few remember, the late 60s and early 70s, the
last time Gold made major moves. It was then viewed as a must-have
position: usually 10% of portfolios were invested in this precious
metal as a protection against inflation and negative market forces.
Today, despite Gold's orderly
rise above $600 mark, numerous voices still suggest that "it
has gone too far too soon" and advocate that it is likely
to be short-lived. History, however, suggests otherwise.
Since 1896, that is, for the
last 110 years, the Dow/Gold ratio has varied wildly but on average
it took nine ounces of gold to buy the Dow. Through the past
110 years, using this ratio and taking the Dow at its recent
level (11,300) the price of gold should be trading at $1252
per ounce (11,269/9). Today, with gold at about $614.75 and
the Dow Jones Industrial Average at 11,269, it takes over eighteen
ounces of gold to buy the Dow, well below the historical average.
Thus from the long-term perspective the price of gold is still
considerably suppressed.
SHORTER TERM: Gold and gold stocks have been showing
tremendous strength lately despite the usually weak seasonal
factors and scepticism among market participants. Investors who
missed the latest run in Golds are in the "waiting room"
looking for an opportunity to enter the market. Such a situation
usually causes corrections to be well contained.
One of the strongest arguments
for the continuation of the advance in Golds is the behaviour
of individual stocks. Important breakouts have occurred since
the beginning of the recent cyclical advance (May 2005), most
of them from long, multi-year bases. Some examples are Agnico-Eagle
with a powerful breakout from its three-year base (recommended
by the NA-Marketletter at CAD$15.00); Yamana Gold (added to the
portfolio at CAD$4.20) or the recent breakouts; Vista Gold -
a move out of the four-year base (recommended at CAD$3.59). The
above stocks, along with many others, still offer significant
upside potential and should be accumulated when an opportunity
occurs.
We expect this cyclical bull market in Golds to
accelerate, so use any opportunity to add a few golden eggs to
your Easter basket.
For individual gold stocks
recommendations sign in for a free trial at www.na-marketletter.com.
April 19, 2006
 Contributed by Olaf Sztaba
Email: osztaba@na-marketletter.com
Website: www.na-marketletter.com
About NA-Marketletter
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