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Robert Parker is a well
known investment expert, Senior Advisor at Credit Suisse and a frequent television commentator. So when we had a chance to hear him give a
presentation to an exclusive group of the bank’s heavy weight clients
in an invitation-only event, we were interested to hear what he had to say.
Or more to the point, we wanted to know what the bank’s wealthiest
clients are hearing.
Parker brought up gold
towards the end of his presentation, but since that topic interests us the
most, we’ll bring it up first.
The official Credit Suisse
policy is that investors should have 10% of their portfolio in gold. Parker
doesn’t like gold at its current prices and prefers investing in South
African gold mines or better yet, Russian mines, which he says are very
cheap. Although he doesn’t see much upside to commodities, neither does
he see much downside risk. Assuming further downward pressure on the US
dollar, the gold price could test $1,400/ounce by the first quarter of next
year, though speculative long positions are now becoming extended, he said.
Nobody has a crystal ball to
predict what gold will do, but we don’t agree with Parker’s
analysis. We believe that the bull market still has a long way to run (the
high for gold in the '70 - '80 bull market in "real"
inflation-adjusted terms is over $6,000). Think about it - even if gold bears
see higher prices ahead then we are definitely in the correct market.
Generally, we agree with the Credit Suisse policy of at least 10% of the
portfolio in gold. (In the Key Principles section of our website we explain
how to structure your gold portfolio.) According to a Bloomberg report ,just this week a Chinese newspaper
affiliated with the Ministry of Commerce said China
should buy more gold to diversify its foreign exchange reserves. China
should increase its gold holdings if the country aspires to “internationalize”
its currency, the paper said on its website. This is just one reason
why we believe gold has a long way to go before it reaches bubble territory.
Parker showed an interesting graph of long-term risk appetite (fear and
greed) going back to 1981.
We are moving back to panic
territory,
he said. Investors are cautious and there is a lot of cash sitting on the
sidelines. Let me remind you that you earn close to zero on cash and that
cash will have to move somewhere.
At Sunshine Profits we
believe a good portion of the cash sitting on the sidelines looking for a
safe haven will be channeled into gold, but not necessarily right away.
One of the reasons for the latter is visible on the following chart (charts
courtesy of http://stockcharts.com).
Namely, because it appears
that USD Index levels are likely to rise in the short-term. Since it used to
move in the opposite way to gold, silver, and mining stocks, a quick rally
here would most likely cause a decline in the metals' prices.
In the long-term chart for
gold this week, we see an important development with respect to the upper
border of the trading channel. As you might have noticed we are not using the
GLD ETF but gold itself. This is because sometimes the very long-term trend
lines could be disordered when analyzing ETF's.
The key point is that since
this is clearly seen on a long-term chart, it is of greater significance than
observations made and inferences gathered from a week or two of price action
such as is seen in typical short-term charts. This trend line has held
despite gold's attempt to move above it, and since gold consolidates below
the line, it has strong bearish implications for the short-term. Gold has
moved above this line on Friday, but this rally was not confirmed by huge
volume.
The GLD ETF short-term chart
with detailed price targets is included in the full version of this report
available to our Subscribers.
The XAU Index, which is a
proxy for gold and silver stocks, bounced off an important 2008 high as
visible on this very long-term chart. Since that time it has been
consolidating and initial declines were followed by slight increases. Recent
support levels have not been as strong in nature as the all-time high, which
created the decline initially.
Consequently, it’s
quite likely that we could see this period of decline for some time before an
eventual bottom is reached. Volume levels have been quite small when compared
to what we have seen during the decline.
Summing up, although much appears to
have happened, very little has changed in the past week. Consolidation has
been seen in the USD Index and volume levels seen in the UUP Index suggest
higher values will be seen soon for the USD. The general stock market
has consolidated slightly and we have seen small price increases on some
days. Resistance levels have now been reached and indications are that we
will see lower values very soon. Daily volume levels support this bearish
sentiment.
With positive correlation
with stocks and negative correlation with the USD Index, gold, silver and
mining stocks should continue to correct in the coming days and weeks. No big
rally is expected until perhaps late November.
To
make sure that you are notified once the new features are implemented, and
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Thank
you for reading. Have a great and profitable week!
Przemyslaw Radomski
Editor,
www.sunshineprofits.com
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