Bill Cara: A return to the goldminers? Wed. 6/14/2006 8:25 AM

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June 14, 2006

A return to the goldminers? Wed. 6/14/2006 8:25 AM

After the previous Consumer Price Index data (extremely inflationary) was released on May 17, the bond market took off like a rocket from that point (not immediately following the May 10 FOMC decision).

The reason I think that happened is that it took very alarming CPI numbers to convince bond traders that the Fed would have no option but to step down hard on inflation and market speculation.

So what I suspect is that if the CPI data that will be released in 5 minutes is benign, then I think bonds will sell off and stocks and gold will move higher.

If that were to happen I would jump aboard the mid and junior golds and silvers like: Yamana, Lakeshore, Glencairn, Queenstake, Silvercorp and the great silver royalty company Silver Wheaton.

Of course I also think that Barrick Gold and Newmont (both Cara 100) will also start to perform well too.

I'll return with more of my thoughts on this after the CPI data is out.

8:38 AM update: The problem in trying to write, trade, and receive people all at once is that typos, and mis-intended actions happen.

I'll get back to this in an hour or so after my visitors have left.

Posted by Posted by Bill Cara on June 14, 2006 08:25:38 AM | Category: Economics , Goldminer Producers

Discourse

What CPI numbers would be considered benign?

Posted by: Fazeli at June 14, 2006 8:40 AM [link]

We have overall CPI at 0.4% - inline with expectations.

CPI less food & energy at 0.3% - 0.1% higher than average consensus, but still in the top range of the consensus.

This doesn't seem benign to me... but I'm definitely not an expert. It would have been nice to see core CPI at 0.2%... What does everyone else think?

Posted by: Fazeli at June 14, 2006 8:44 AM [link]

I understand that it is natural to be bulish on gold miners after such selloff -- I believe that until the end of the month any uptick in gold (and goldminers) will be face significant selling as hedge funds continue to unload.

The Fed has also draw a line in the sand regarding inflation and I would not fight it -- in other words if gold and other commodities run up, interest rates will continue to go up... ...guess who wins this battle.

The best scenario is for things to muddle through -- There may be short term rallies, but they will be diffficult to play. I prefer to stay on the sidelines.

CPI -- the core was 0.1% higher than expected, I do not think it is such a big deal, but it will provide amunition to the Fed. Managing rates looking at CPI is like driving in the highway looking at the rear mirror...

Posted by: JP at June 14, 2006 9:01 AM [link]

Isn't an equity market sell off supposed to follow higher inflation numbers? With the equity market sell off preceding the bad news on inflation (PPI and CPI both coming in 0.1% higher) - makes me wonder if humongous bank and broker had this information in advance.

Naaah. The capital markets are fair game for ALL of us. It's just that these folks are smart enough to "gauge" these numbers before they come out (please read the sarcasm - maybe too suble for some).

Posted by: jragusa at June 14, 2006 9:32 AM [link]