Gold Index Rallies for 65% Gain

Here’s a chart of an index of stocks which recently rallied more than 65%. Can you guess which one it is?

For the answer keep reading…

Here is what I wrote, a few weeks ago, when I taunted the gold bugs, asking “Where is your golden idol now?”

Gold Bugs Index (HUI) has strong support at 175, which would mean the k-ratio to the low 0.20’s and once again, it could set up as a buying opportunity.

That turned out to be a pretty good call, all in all. To be honest though, I didn’t expect such a bombastic rally. Just that the relentless selling would be met with some meaningful support.

By the way, am I being too harsh on the gold bugs? You know, those who believe gold will go to a bajillion dollars and we’ll have to use it for legal tender in some post-apocalyptic “Mad Max” scenario. After all, if gold tops out and craters with the rest of commodities, in the face of one of the most ruthless bear markets and more importantly, in the face of perhaps the harshest global credit and financial crisis we’ve ever faced, when exactly will it rally?

Anyway, I’m sure that folks like Jim Sinclair will come up with some rationale and continue on with the same mindset. It is probably the fault of “manipulators” - just like the stock market is manipulated by the PPT (which by the way, is doing an amazingly atrocious job right now).

Interestingly enough, within the same time period physical gold rallied only 18%, going from a low of $700 per oz. to a high of $825. The previous counter rally in September was a respectable 40% but still a baby compared to this one. I guess my point is that gold and gold stocks are like everything else, supposed to be borrowed for a trade, not married for life. And a good gauge is the trusty k-ratio.

Here are the stocks that make up the Gold Bugs Index (HUI) which their individual weight:

• Barrick GoldABX16.76%
• Goldcorp IncGG16.10%
• Newmont MiningNEM10.41%
• Harmony Gold Mining AdrHMY6.78%
• Gold Fields Ltd AdrGFI6.76%
• Kinross GoldKGC6.43%
• Randgold Resources AdsGOLD6.07%
• Eldorado Gold CorpEGO5.52%
• IamgoldcorpIAG5.41%
• Comp de Minas Buenaventura AdsBVN4.75%
• Yamana GoldAUY4.01%
• Agnico Eagle MinesAEM3.73%
• Hecla MiningHL2.59%
• Golden Star ResourcesGSS2.38%
• Coeur d’alene MinesCDE2.31%

Comments

[Ivan the Cr...:]

"After all, if gold tops out and craters with the rest of commodities ..."

It didn't "crater" as much as other commodities. Or the US stock market. Or foreign stock markets. Or the US housing market. Or ...

2008 Dec 04 12:29 PM

[Pipo:]

Listen to a Richard Adkerson video interview of FCX`s CEO. He talks about the current situation.

ceotalk.blogspot.com/2...

2008 Dec 04 12:57 PM

[nmelendez:]

In a deflationary environment, gold retains it's value. In inflationary times it rockets up. These are not normal times. We are in on a roller coaster, up..down...up...down. Thats why you see so many hedging on gold. Once the dollar reaches a peak, people will re-shuffle assets and you will see a lot of persons portfolio being 10 to 20% in gold. Either way up or down, gold wins. BTW, i am not a proponent of the gazillion dollar gold ounce, i do recognize it's time to buy what others will be buying down the road.

2008 Dec 04 04:00 PM

[jo0hn2:]

amazing how you make fun of people when your saying stuff like bajillion dollars are you serious? oh it also doesnt help when you use extremes and rare case scenarios and occaisonally people who actually believe the mad max scenario as a representation of a whole. seriously or make a point.

2008 Dec 05 01:26 AM

[sorgmot:]

It is now December 5, 1938. If you take out your history books you can be helped in defining your financial expectation and in setting time scales for your current situation. By the way, the USA is now playing the role the UK played in the 1930's and 1940's.

The US $ is now in a short squeze as people all around the world have lost all their wealth and can not borrow US $'s now to pay their US $ ious. Yes, the borrow and spend binge took place every where as in Moscow, London, Paris, Madrid, and everywhere. Most of the assets bought were non productive, that is they do not make money and thus have zero yalue unless one can find that greatter fool with his or her own money (borrowing is out ot the question now).

Now in 2008, world wide, business goes into the tank and stays in the tank. As we have already learned in the USA, Government printing of money does no good and in fact prolongs the problem by keeping some fovored groups employed (such as bankers) who need to be laid off. and by increasing the debt load overhanging the World's declining asset values.

Well, onto the USA playing the role the UK played in the 1930's and 1940's After 1930 the UK pound went from US $ 5,00 to US $.1.00. And since the US $ lost value against gold as it rose from US $ 23.00 to US $ 32.00, the UK pound lost 5/6's of its value against gold.

Patients are a lovely virtue.

Now, the question for the class is, "What currency will replace the US $ as the new reserve currency and when?"

Let's skip the question about the next big war.

Good Luck.

2008 Dec 05 09:59 AM

[waldipup:]

"After all, if gold tops out and craters with the rest of commodities, in the face of one of the most ruthless bear markets and more importantly, in the face of perhaps the harshest global credit and financial crisis we’ve ever faced, when exactly will it rally?"


If you can make this simplistic statement , there is too much to explain here.

But just simply , add 3 cans of water to a can of concentrated frozen orange juice and then taste it.

Pretty good , right?

Now add 10 more cans of water and taste it.

Not much juice taste anymore , right?

Now apply the same concept to the dollar.

Maybe now you can guess what will e-v-e-n-t-u-a-l-l-y happen?

2008 Dec 05 10:09 AM