The time to reenter the gold stocks is upon us. During gold's most recent parabolic rise, the stocks corrected; the probability of outperformance is now in their favor and investors are again being paid for bearing the risk of a sharp correction in the metal.

Judging by the charts of some of the majors, one would never think that the price of gold even marginally increased over the course of this memorable year, 2006!!!

Bill,

The instability across global markets over the past couple of weeks has that same "feel" of the weeks that led up to the 1987 Crash.

The point is that the gyrations are enough to make a lot of people take chips off the table, whatever their outlook is in the long term.

Teresa

1987 Crash Track:

http://tinyurl.com/mss3l

ALOHA !!

Bill, notice how the POG always tanks within the first hour or so of COMEX trading. The COMEX is where the biggest gold shorts live ... namely Goldman Sachs and JP Morgan and their sponsor The US Federal Reserve Bank. Coincidence?

Academia-

If XAU & HUI are positively correlated to SP500 (and they are somewhat, but not as strongly as they are to oil and inversely to $USD)what is it in your mind that argues for an entry here when markets could be at an infexion point? Thanks. Always good to hear other views.

I took a short position in PM miners via a Profunds inverse PM sector fund at last Thursday's close - so I'm up about 10%+. Frankly, I'm torn as to whether to close that position to cash at eod today, or let it ride for a while. I see USD$ rising, which should be good for my position, yet it seems this PM miner decline may be overdone somewhat - so I'll be interested in additional info from others.
TIA, Dave

The gold miner indexes are more highly correlated to the price of gold than to the broad equity market. If correlations are measured over long time periods, this is apparent.

Also, viewing this market correction from a worst case scenario -- the 1987 crash when gold miners got cut in half -- we see that trading in the miners has been far more rational during the current bull relative to the price of gold. From my view, even if we have such an extreme correction, the miners are relatively safer than they were in the past. (For example - Newmont in 1987 traded up to ~$83/share with gold at ~$475/ounce. Today, Newmont trades at $53 with gold at ~$685. Assuming 1987 valuations are appropriate, Newmont would be trading at more than double its current price, ~$120.)

I believe that pull-backs in gold will be supported by emerging market CB buying. They have given hints that this is underway - that diversification out of the dollar has begun (I would be doing the same). Where the price of gold goes in the next few weeks is beyond me. Whether it stops falling at $680 or it corrects to $650, or $600 (all the better, TEMPORARILY clearing the market of loopy speculators), I will be building my positions in the juniors. Investors at these levels are being well-rewarded for the risks they are taking. As for today and yesterday, I have begun reaccumulation.

Even though I did quite well as gold went parabolic, I truly wished that it didn't have to be that way. Ideally, I would liked to have seen a slow, steady long-term rise benign in volatility (DREAM WORLD, of course).

"Investors at these levels are being well-rewarded for the risks they are taking."

REALLY? They haven't for the past three weeks. In fact we've seen nothing but the XAU and HUI to Gold ratio DECLINE steadily. And again today. And probably until there is a significant correction in Gold that takes the froth out of it so that high-beta miners aren't such a significant risk as leverage is about 2.5 to 3 to 1 to the underlying commodity. (Oh yeah, you pointed that correlation out to us.)

"REALLY?"

REALLY.

This is a very fast moving market. As stated, I believe it is time TO BEGIN re-building positions. You missed the last one; don't miss the next one ;)

Oh, I didn't miss it. Actually, as the regulars here will tell you, I called out the bottom for the miners TO THE HOUR. I took a position and rode it for awhile. I exited too early, yes, and was forced to jump in and out which is totally not my style. My high wire act as I called it. Running between the cars. I finally exited my last position at $725. I don't post everything I do in here.

But thanks for your analysis. ;)

Anybody who enjoys catching a falling knife is encouraged to do so.

Okay folks, as your miner boards are telling you (BRIGHT RED), oil is coming off on inventory numbers (fairly strong corelation), gold has fallen back on stronger $USD (strong correlation) and the SP500 is in the tank (weaker correlation). So XAU has finally penetrated the 144 floor it has been testing for awhile and may be headed back to fill the gap on the chart at 139/140. XAU:GLD ratio has declined from nearly 2.6 to 2.09 since 4/18 as $GOLD has risen and the miners decided they didn't like the altitude. Since we are in a fairly well defined general market downtrend and because gold hasn't significantly corrected, I have been urging caution toward the miners-- all beta really. The fact that the $USD got heavily oversold and was due a bounce was further reason. Bill has been pointing out the same. I would rather see these trendlines broken to the upside before anyone risks their hard-earned money. But that's just me.

Sorry if anyone thinks I have been too testy here. Very "bearish" today. :)

MarkM:

Glad to have you back full time .. you keep this place honest and thinking with a little 'put up or shut up' added in .. JMHO ;)

C. Note-

If only I were as happy.

I promised to only jump in when I saw something really important and today I was working from home, caught the big move being made in the markets, peeked in and just saw a few things I DIDN'T LIKE. Sooo... I donned my Den Mother garb and waded into the fray. I am not certain that all of it was long term helpful. "Academia" has had some good posts in the past and I hope he returns despite our strong disagreement over the miners here, for example.

Out of all my stocks only GFI & just purchased IVN made $ yesterday. Miners held up much better on 'Wash-a-Way' Wed. then on 'Metal Melt Down' Monday.

C.Note-

My one allowed "noon check-in " today. Miner board doesn't look too good right now, eh? How were they acting this morning when gold was up? Nervous? What did that tell you? You are catching on to this then.

NO FALLING KNIVES. Let this play out. This is do-nothing day after yesterday's excitement. Tommorrow is options expiry so that can be wild. Just sit on your hands until trends re-establish themselves. Otherwise it's just GUESSING.

g034/Others-

IMPORTANT NOTE.

I have this as a 61.8% retracement as of this morning's low on the HUI. That's quite remarkable given where gold is and what it has been doing. The daily RSI (14) is at an absurdly low 35 for a metal that's in a bull move. Normally, this area would offer excellent intermediate support. Confirmation for me would be a strong down day by gold (660 area?) and a positive divergence by the miners. We have been experiencing just the opposite.

Given that the economic context going forward is stagflationary, gold should do very well as g034 has commented. I would have your shopping lists ready and awaiting signals.

$USD much stronger overnight and that is unusual pattern (usually weaker overseas). Took gold down about $10 in an hour. If the shorts wanted a set up to probe the floor at 680 to see how far they could push it, this would be a good day.