|Gold � Is the Bull Back?
David Skarica May 23, 2003
It looks as if the spike down to 320 dollars an ounce was just an enigma. Many thought that gold would collapse after the war was won and piece and prosperity would reign again. However, we did not let the most recent decline in gold stocks deter us. What we like to do here is follow trends. And the major trend for gold is up so we were not deterred by something like a 70-dollar price drop deter us even though it was very very painful at the time. Note from the chart below that gold remained in its uptrend and the 50-day moving average above the 200-day despite the decline.
We must remember that we are at a crossroads in the investment world. We firmly believe that the first quarter of 2000 was a major secular/long term peak for the stock market and that the fourth quarter of 2000 was a major long-term bottom for gold stocks. At the point we feel that the major trend changed from that of a bull market in financial assets to a bull market in hard assets.
No trend goes in a straight line, which is why we will not see gold trade straight up or the market straight down. There will bumps along the way. Market rallies within the long-term downtrend and gold declines within the uptrend. However, in the end the market should be headed lower and gold higher in the coming years.
We will say that gold has increased faster than we thought it would over the past few weeks. We expected a rally, but not to 370 dollars an ounce so quickly. What has been disappointing is that gold equities have again lagged on this rally. That maybe a good thing as it means that psychology is not yet frothy. In addition, we have not seen our juniors react at all. While juniors tend to be dependent on the outlook of their properties they will also trade with the gold market. The fact that the juniors have not moved despite the increase in the price of gold may again be a positive as it means that the market is not getting frothy (as the speculative small caps tend to rally strongly near the end of a move).
The producing stocks continue to lag the metal, but this just maybe due to the metal has moved so far and so fast to the upside. What we are expecting is that after the next gold consolidation and/or pullback gold stocks will begin to outperform.