on gold - a *should read* - temple article

  1. dub
    29,574 Posts.
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    An article which I think well worth reading follows.

    The only contentious statement I find in it is "We're seeing such an environment building again; one which is extraordinarily bullish for most commodities once more, including gold."

    I accept that gold is seen by the majority as another commodity. For mine, that is just the superficial face/veneer of gold. Gold has a much deeper, older, stronger persona - one immensely more powerful than commodities like coffee, aluminium or pork bellies. But, JMO eh.

    Anyway, here 'tis:-


    Chris Temple, Editor
    The National Investor

    Two years into this new bull market, gold's adherents can point to a number of successes. The gold price is up by nearly $130 per ounce from its lows, or 50% over a little better than two years. Gold mining shares, though they've given us some stomach-churning volatility at times, are up by multiples of two, three or even more in many cases. By all appearances, the factors that have led to this move appear set to continue into the indefinite future.

    One thing chronically missing during this time, however, was a significant increase in long-term demand for gold and gold equities. As I and others have commented innumerable times even this year, virtually all of the activity in these areas has been driven by short-term "hot money." Speculators of one kind or another have given gold (primarily) a wild ride, up to $390 one minute, down to $320 soon thereafter, etc. It mattered little what the fundamentals were.

    That has begun to change more noticeably. Indicative of the rapidly broadening interest in the gold sector was the near festive atmosphere at this week's New York Institutional Gold Conference, held at the Marriott Marquis just off of Times Square.

    It wasn't that long ago that one would have been forgiven for attending such a show and thinking he'd taken a wrong turn some place and ended up at a wake. On Monday and Tuesday, however, the atmosphere was radically different. As always happens when a market gains momentum, more retail investors get drawn in. The show's organizers told me there this week that pre-registrations were up by better than 20% compared to last year, to over 3,000 people. Even more impressive was the volume of walk-in traffic during the show; almost constantly during both days, long lines could be seen at the registration booths.

    In addition to this, money managers, investment bankers and related sorts were in much more prominent attendance--and apparently with their checkbooks in hand. According to IIC organizers, this was the first show where MAJOR investment houses had been in prominent attendance in several years. At this show, of course, you have a heavy representation of small exploration companies--those who hope one day to announce that their hard work (and maybe a little luck) have resulted in an economical gold mine. To get to that point, companies need MONEY; a commodity that has been in fairly scarce supply for a number of resource-oriented companies in recent years.

    Several company representatives--including a couple I know well--all told Yours Truly that this mood has also changed. Investment bankers and other professional, big-money investors were literally going company-to-company at the show in an effort to find someone who needed and/or wanted money. What a change!

    It seems as though a growing number of people are finally ready to act on what has always been a solidifying bull market for gold. It is one as well which, as I wrote in another recent commentary, has started to take on a character of its own. Rather than reacting to one perceived piece of either pro or anti-gold news after another, the yellow metal has recently been able to break out of this mold. During the dollar's recent rally, gold went up. Now that the dollar has sold off anew--gold is still going up. News looked upon as either bullish or bearish for the economy similarly is not reacted to in the kind of knee-jerk fashion we've grown accustomed to.

    Yes, it finally seems as though the long-awaited arrival of some new (and some long-lost) gold sector investors is materializing. Sure, a lot of these folks are chasing momentum and strength, just as they are wont to do where any other asset class is concerned. But it seems as though some of this new money is coming into the gold sector to stay for a while. After all, regardless of the day-to-day news, the long-term picture is unmistakable:

    DEFICITS AND A WEAKER DOLLAR--A few days ago, President Bush asked Congress to go another $87 billion into debt to support the crumbling occupation of Iraq. Add to this the continued pilfering of the Social Security Trust Fund, new expenditures/subsidies for everything from energy to prescription drugs and more, and there seems no end to the destruction of America's fiscal picture and, ultimately, the currency.

    GLOBAL FEARS--The world is not a safer place since September 11, 2001. Iran and North Korea both are rattling nuclear sabers. Israel appears set to go after PLO leader Yasser Arafat, plunging the Middle East into greater conflict. Iraq is unraveling. With the world on a knife's edge and nominal economic recoveries still suspect, any major, new shock could quickly send the world back into recession.

    THE RETURN OF STAGFLATION--It's time to get re-acquainted with stagflation, a phenomenon that marked much of the 1970's--a time, lest you've forgotten, that gold saw its greatest days. A combination of weak economic activity and rapidly rising prices kept financial assets in check, but led to huge moves for a number of commodities. We're seeing such an environment building again; one which is extraordinarily bullish for most commodities once more, including gold.

    In the near term, the bulls retain the upper hand. Each time in recent days when gold has drifted back down slightly, new buying has immediately materialized. We'll see some choppy trade for perhaps a few more days as the recent gains are consolidated. Next, though, will come a new attempt by the bulls to knock a few more shorts off the fence and into covering. Particularly if gold can move above its February 5 high of $391.00 per ounce, it could--albeit briefly--be off to the races, as a stampede could quickly vault gold to well over $400.00 per ounce. Especially if such a move occurred suddenly, we'd want to watch it for an opportunity to quickly take some profits off the table temporarily. But make no mistake: the broadening of the interest in the gold sector as I have earlier described it here is the single most important bullish development in months, and has removed much of the risk of holding either gold or gold shares, even at these prices.

    (NOTE: The next Institutional Gold conference will be held in San Francisco on November 23-24; for more information or to register, go to www.iiconf.com. Prior to this is the big New Orleans conference, to be held October 29-November 2. For more information on this one, visit www.neworleansconference.com.)

    -Chris Temple
    September 12, 2003

    (NOTE: Chris has just completed a comprehensive update on the gold sector which, among other things, includes a look at gold’s fundamentals, investment demand, the future monetary role of gold, how to select viable gold companies for investment/trading purposes and more. As an introduction to The National Investor, he’s offering a FREE COPY to our readers; to get yours, send a request via e-mail to [email protected])


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