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BDR 4.8¢

Nothing has changed from longer term perspective

  1. ozpolarbear

    958 Posts.
    362
    Long term fundamentals – Nothing has changed (for the worse) over the last few days.

    I think the long term fundamentals for gold are still intact. Gold rose to almost 2000 some years back and the reasons for its rise (massive money printing, weak global fundamentals, unsustainable debt, bubbles, excessive equity market euphoria and speculation) are still intact if not far more intensified.

    GLD -Despite the positives for gold, gold has not played along and the main reasons for this over the last 2 years was the raid on GLD and talks of tighter monetary policy.

    The raid on GLD is already over. It cannot be raided to that extent again. Hence, gold has held between 1180 and 1380 for much of the last 2 years, once the raid was done. Any attempts to take gold below 1180 were met with massive rises, soon thereafter.

    Tighter monetary policy could happen to some extent with a token rate hike. That will cause too much chaos in all markets (gold could be hit to some extent) and the Fed will have to quickly change course and reduce rates again.
    Almost all major economies are involved in a full scale currency war in the past 2 months. US seems to be the sole exception and hence, the USD is strengthening. Despite the dramatic rise of USD, gold has held remarkably well, unlike commodities which have been crushed as they followed the inverse relation.

    Scenario 1 – US rises rates – Markets collapse, risk taking ends, USD strengthens, US back in recession, commodities crushed, gold hit due to strengthening USD. However, gold hit would be offset to some extent due to gold's rise as safe haven due to chaos. Several bubbles will burst in the time to come, and investors will eventually rush to gold

    Scenario 2 – US changes course, ends talk of rate rises and actually goes on to launch more QE to counter the hit to economy – Markets realize that much of what happened over last 2 years was all talk, that there is no real recovery and all recovery was a bubble that will eventually burst. USD will start to fall, gold will rise due to inverse correlation to USD, gold will rise as safe haven, gold will rise as currency as people realize that gold and not USD is the cleanest shirt in the laundry, and gold will rise as central banks rush to convert their expensive USD into dirt cheap gold.

    All of the above is only a theory and IMHO only. Making guaranteed predictions in gold is a recipe for pain. But the fundamentals have only strengthened for gold and gold should ideally, cross 2000, if not much, much more in the time to come, as countries continue their currency wars with larger doses of QE. I can give many more reasons (global macro scene) why that should happen, but let us just wait and watch things play out.

    Much of the above might not happen in a straight line, but could realistically happen over time. Short term volatility could cause pain (or great opportunities) for traders but long term investors could have great opportunities for 10 or 20 baggers, in time. My biggest disappointment would not be losing out an opportunity to buy at the best possible time (1180, 1200, .....who knows), but rather, not holding on to my goldies till the eventual rise to 2000 and beyond. As such, there could always be better opportunities to buy, but from a longer term perspective, now is as good a time as any. I’d rather buy now than wait for a confirmation as gold goes over 1500 and then start buying, only to see another hit to gold back to 1350. There is no perfect time.

    I short term, I think Chinese new year and Greek issues should continue to be a strong positive for gold.
    For risk averse investors, anyone investing in goldies like BDR, with good mine life, good cash flow and debt management, good management, and low costs, can simply hold on, as gold eventually shifts from a bear market to a bull market.

    I like DRM, BDR, RRL, TGZ and feel that many other goldies also have so much potential to be 10 or 20 baggers in the years to come. The weaker goldies which survive could even become 100 baggers. We must be patient. Our day in the sun will come.

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