Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
In the same category

Increasingly bullish prospects of gold stocks

IMG Auteur
Published : November 20th, 2012
556 words - Reading time : 1 - 2 minutes
( 1 vote, 2/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...

 

 

 

 

Despite the recent weakness we are becoming increasingly bullish about the prospects for gold stocks. Actually, it's partly due to the recent weakness that we are becoming increasingly bullish, because the extension of the downward correction makes it more likely that the overall advance from the May low will last well into next year.

We had thought that the most likely alternative to the overall advance extending well into next year was an intermediate-term peak late this year. But with the corrective action that began in September having continued until the third week of November there is now almost no chance of an intermediate-term peak by year-end. The correction has been long enough and large enough to lay the foundation for a rally lasting at least a few months.

We acknowledge that if there were another 2008-style market crash then gold stocks would be dragged down with all other stocks, but a 2008 repeat is unlikely in the extreme. We will continue to assess the evidence in real time, but at this stage we can't envisage the monetary backdrop changing over the next few months in a way that would give a 2008-style collapse a realistic chance. Also of relevance is the general point that the next crisis is rarely, if ever, similar to the last crisis. As things stand today, the last crisis was the 'mother of all' deflation scares. It involved large declines in the prices of all investments except the highest grade government bonds. We suspect that the next crisis will involve a melt-up in gold-related investments driven by rapidly-rising fear of what central banks and governments are doing. In any case, the start of the next crisis is probably more than a year away.

Moving on, the following weekly chart of the XAU/SPX ratio is one way to illustrate the upside potential of gold stocks relative to stocks in general, assuming that the long-term bull market in the XAU/SPX ratio isn't over. This is a reasonable assumption, because a) the long-term bull market in the XAU/SPX ratio shouldn't end until the gold bull market comes to an end, and b) in our 1st October and 29th October commentaries we explained why the gold bull market was still years away from its ultimate top.

Given that the XAU/SPX ratio is coming off its most oversold extreme of the entire bull market and is still near the bottom of its long-term channel, it is reasonable to expect substantial strength in the gold sector relative to the broad market over the coming 12 months as the major trend shifts from massively 'oversold' to 'overbought'. This should result in a strong rally in the gold sector even if the broad stock market is moderately weak. For example, a decline to 1200 by the SPX combined with a move in the XAU/SPX ratio to near the top of its long-term channel would translate into a rise to around 300 by the XAU.

We aren't forecasting moves to 1200 and 300 in the SPX and the XAU, respectively, over the next 12 months. These numbers were only mentioned to indicate the XAU's upside potential. Our forecast is simply that gold stocks, as represented by the XAU and the HUI, will handily outperform the broad stock market over the coming year and in the process achieve good absolute returns.





 

 

<< Previous article
Rate : Average :2 (1 vote)
>> Next article
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Iran Agreement Boosts Peace, Def...
26 Julkeith95
How about the US invading Afghanistan in 2001, Iraq in 2003 ... leading to the current unrest in the middle east while supporting the 'Saudi's' ......
Take Possession of IRA Metals We...
24 Julericgolub
Internal Revenue Code 4975 language suggests that whether the gold is held directly by the IRA or by an IRA LLC (which is nonetheless still subject...
Gold Miners Nearing Rebound
24 Julsonora69
Silver has already made a 50 cent down and up round trip as of 3:30. This is happening on a Friday, with the stock markets failing to make an advan...
Why Pensions Are A (Big) Black Swan
25 JulS W.1
No (pensions) are not a black swan, which is totally random unforeseen event.
Iran Agreement Boosts Peace, Def...
23 Julsonora69-2
Doesn't anyone remember the Iran hostage crisis, when Iran held 52 American diplomats and citizens hostage for 444 days in 1979-1981. How about 198...
What Do Greece and Louisiana Hav...
23 Julovertheedge
"The US financial system isn’t any better. ... , Actual currency is just a little over $1.36 trillion. ..." And it is assumed that about h...
Why Are We Here?
23 Julovertheedge1
No "woe is me" here. Just another buying opportunity. Using leverage is not buying, it is borrowing. It ain't bought til it's paid off....
Are Gold Investors Finally Capit...
21 JulDoom
I just don't see capitulation as a possibility. IF you sell gold, you get...what, paper money? Paper money loses a few percent (or more) of it's va...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Tinka Resources(Ag)TK.V
commences 10,000 metre drill program at Ayawilca zinc project, announces new IP results & tar
CA$ 0.16+6.45%Trend Power :
Corporate news
Sandstorm Gold(Cu-Mo-Au)SSL.V
Files Early Warning Report
CA$ 3.12+3.65%Trend Power :
Corporate news
Crown PointCWV.V
Provides Operational Update and Announces Executive Change
CA$ 0.14+3.85%Trend Power :
Corporate news
Cardero Res.(Ag-Au-Cu)CDU.TO
Announces Acquisition of the Advanced Zonia Copper Oxide Project in Arizona
CA$ 0.01-50.00%Trend Power :
Corporate news
Vista Gold(Cu-Le-Zn)VGZ.TO
. Announces Receipt of an Additional A$5.9 Million Net Tax Refund Under the Australian Govern
CA$ 0.37+2.78%Trend Power :
Corporate news
First Majestic(Le-Zn-Au)FR.TO
announces friendly acquisition of Silvercrest Mines
CA$ 4.12+2.49%Trend Power :
Corporate news
Sterling Res.(Oil)SLG.V
Announces Appointment of Strategic Financial Adviser
CA$ 0.18+9.37%Trend Power :
Nominations
Polaris MineralsPLS.TO
Materials announces the opening of its aggregate terminal in the Port of Long Beach, Californ
CA$ 1.98-8.76%Trend Power :
Corporate news
Endeavour Financial(Ag-Au-Co)EDV.TO
Mining to release Q2 results on July 30, 2015
CA$ 0.48+2.13%Trend Power :
Corporate news
Premier Gold Mines(Au)PG.TO
confirms current Reserves & Resources at South Arturo
CA$ 1.88+0.53%Trend Power :
Corporate news
Comments closed