According to Goldman Sachs, gold provided the best
returns of all commodities in the past five years when adjusted for
volatility and says the rally will continue as options traders signal no
change in the metal's relatively low risk.
The Bloomberg Riskless Return Ranking shows the
Standard & Poor's GSCI Gold Total Return Index produced a 6.5 percent
risk- adjusted return in the five years that ended last week, the highest
among 24 commodities tracked by S&P, data compiled by Bloomberg show.
Silver, the next-best performer, yielded a risk-adjusted gain of 3.1 percent,
while a total-return index for all raw materials slipped 0.2 percent.
Goldman Sachs forecasts gold will reach a record
this year. In a Jan. 13 report Goldman Sachs said that gold futures will
advance to $1,940 an ounce in 12 months. Morgan Stanley forecasts the metal
will climb to a record average $2,175 in 2013. David Einhorn's
Greenlight Capital Inc. said in a Jan. 17 letter to
investors that the fund continues to hold gold and gold-mining equities
because of concern that global fiscal and monetary policies "tempt
fate." George Soros increased his stake in SPDR Gold Trust (GLD), an
exchange-traded fund tracking the metal, to 48,350 shares as of Sept. 30 from
42,800 and added options, according to Securities and Exchange Commission
filings. Soros reinvested in gold shares after selling 99 percent of his
holding in the first quarter of last year.
Nouriel Roubini, the economist
who predicted the 2008 financial meltdown, said last week that the risks that
spurred market volatility last year will keep swaying asset prices and the
global economy. He listed as "persistent problems" rising commodity
prices, saber rattling and uncertainty in the Middle East, the spreading
European debt crisis, increased frequency of “extreme weather
events” and U.S. fiscal issues.
In other news, we ran across unconfirmed reports
that India may barter some of its gold holdings with Iran, in exchange for
crude oil. The report, which appeared in an
Israeli website, coincided with the visit of an Indian official delegation to
Tehran to find ways to continue the bilateral trade despite the sanctions
imposed on Iran. Use of gold as currency may help India get around the
proposed freeze on Iranian central bank's assets and the oil embargo that the
EU foreign ministers have agreed to impose on Monday. India depends on
imports to meet around 80% of its oil requirements and Iranian crude accounts
for a 12% share in India's total oil imports. Naturally, this is a
step toward re-introducing gold as a major international currency, which is a
very bullish factor for yellow metal's price.
To see if the short term picture is just as bullish
for the precious metals sector, let’s turn to the technical part with
the analysis. This week we will focus on the mining stocks. We will start
with the XAU Index and the very long-term chart (charts courtesy by http://stockcharts.com.)
In the very long-term XAU Index chart, a move above
an important long-term support/resistance line is seen. The recent breakdown
is therefore invalidated (just like it was the case with previous similar
moves), and the recent strong move should be viewed as a bullish confirmation
of this fact.
In the long-term HUI Index chart (proxy for gold
stocks), a sharp rally has taken place following the
recent fake-down (instead of breakdown) below the 500 level. This is very
much in tune with last October's trading patterns which were followed by a
sharp rally in which the index rose in excess of 20%. Such a rally appears possible
The next few days could see a small move to the
downside, but a reversal will most probably follow. The above chart has very
bullish implications and suggests a major move up is in the cards.
In the short-term GDX chart, the miners have
followed an interesting path. The recent
decline took miners to the October 2011 level. If the correction is over,
then expect a move to the upside similar to the previous one. Calculating the
medium-term resistance line brings us to a likely target around $58.
The miners appear to be heading to the $58 level
where the declining resistance line and the 50% Fibonacci level coincide.
Once this short-term resistance line is reached, a pause in the rally is
probable after which an additional period of rally seems likely.
Overall, the situation in miners is a mirror of what
we wrote in our essay on January 27th, 2012 on the bullish outlook
in the precious metals market:
breakout in euro above the short-term declining resistance line has been
confirmed, which is bullish for euro and bearish for dollar. The situation
for the general stock market is a bit unclear for the next few days, but the
outlook remains bullish for the weeks and months ahead. Based on
correlations, these factors do not disrupt our bullish view on the precious
Summing up, the situation in mining stocks remains bullish. The
miners' sharp increase has confirmed the similarity with the late October
trading pattern, and the implications are bullish from here.
To make sure that you are notified once the new
features are implemented, and get immediate access to my free thoughts on the
market, including information not available publicly, we urge you to sign up
for our free e-mail list. Gold & Silver Investors
should definitely join us today and additionally get free, 7-day access to
the Premium Sections on our website, including valuable tools and unique
charts. It's free and you may unsubscribe at any time.
Thank you for reading. Have a great and profitable