 Gold: Phase II Is Here
Todd Stein & Steven McIntyre
The Texas Hedge Report
February 17, 2006
Courtesy of www.texashedge.com
From the late 1990s up until
the last year or so, anyone who advocated investing in gold was
viewed as a "gloom and doomer" or worse. When you mention
gold to someone these days, they no longer look at you cross-eyed.
We believe this development marks the official end of phase I
of the gold bull market.
Phase II is all about climbing
the so-called wall of worry. Some very sophisticated investors
have accumulated positions in bullion and mining shares, but
the general public still has no idea what is going on. Gold,
which is still primarily viewed as a hedge against terrorism,
has yet to resurface as an inflation/U.S. Dollar hedge requirement
for most mutual funds as it was during the 1980s. That's right,
you probably don't remember, but twenty years ago, gold was considered
an essential cash-equivalent for many popular mutual funds and
most of them had a few percent allocated to the yellow metal
at all times. The dollar weakness of 2001-04 and subsequent reflation
has put gold back on the map which means it is ready to launch
into phase II.
What we can expect to see next
in terms of gold price acceleration is a repeat of phase I but
with a lot more volatility. Gold has run up quite a bit over
the last few months and it likely needs to shake out the weak
hands before moving higher. But because we are in phase II, the
corrections and subsequent bounces will come a lot quicker than
in phase I because the smart money is learning to buy on the
dips. The very end of phase II will be when major investment
banks become long-term bullish on the price of gold. We don't
expect this to happen anytime soon as equities (and maybe energy)
are still king on Wall Street.
Habits of central banks in
Asia, the Middle East, Russia and parts of Latin America are
another sign of phase II. These countries are all adding to their
gold reserves as they realize the value of holding the
oldest currency in the world. Phase II will morph into phase
III once every central bank starts adding (instead of selling
or holding) gold reserves amidst U.S. Dollar and fiat
currency crises. Finally, you know it will be time to sell when
gold and silver dominate the airwaves of CNBC. If you ever attend
a cocktail party and the topic of conversation is Latin American
gold mines, it's time to get out.
February 17, 2006
Todd Stein & Steven McIntyre
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Todd Stein
& Steven McIntyre
email: admin@texashedge.com
For more information, go to http://www.texashedge.com.
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