A Look at Extreme Gold Disparities

We now have a large number of disparities facing gold investors. Here are a few oddities I’ve noticed and I saved the biggest for last:

- We are now facing the $120 level for oil, yet gold is currently at $890.
- Rice, a staple food for half of the global population, has doubled in price over the past three months, yet gold is falling.
- Currently gold continues to drop when U.S. markets are open, yet overnight gold typically ends up in Asian markets.
- Mid-large cap U.S. gold equities, such as Yamana Gold (AUY: 13.44 +0.37%, vol: 4,800,957), Barrick Mining (ABX: 39.87 +0.50%, vol: 3,674,910) and Newmont Mining (NEM: 44.52 -0.47%, vol: 2,603,548) have roughly dropped 20-25% in the past two months. In Asian markets, many mid-large cap gold equities have dropped 50% or more.
-Many gold equities are trading at prices when physical gold was in the $700-$750 range.

The brilliant minds of the gold investment world have reported about the perfect economic storm brewing for gold and gold equities. To a large extent they were correct as we witnessed a dramatic surge in physical prices from the fourth quarter of 2007 to the first quarter of 2008. All the financial turmoil, rate cuts and rise in inflation should have propelled gold equity investments as a safe hedge against a falling market. What we witnessed with gold equities was an entirely different story leading to a large disparity.

There seems to be a weaker connection between the rising physical price of gold and gold equities, than the falling price of physical gold. When the physical price of gold drops, as we have seen in the past two months, the price of gold equities drops doubly. We are now rapidly approaching heavily oversold territory for gold equity investments. Once financial markets stabilize and capital begins to flow back into equity markets, gold equities have tremendous room to play catch-up. This is contrary to what many people are reading from analysts and the media.

Looking back at gold equities' rise in 2005 and 2006, we can see that rising prices had little to do with financial turmoil in global markets. Pandemics, terrorism and natural disasters seemed to push gold equity investments higher than a possible financial collapse. This is why it will be prudent to watch capital markets stabilize before shifting a large share of your gold investments in favor of equities.

Disclaimer: The author hold no positions in any of the stocks mentioned.

Comments

[bowman711]

I have read several comentators who suggest that gold is being manipulated by the 'super big boys' on Wall Street. If so, it is probably to disguise the actual fall of the dollar in terms of gold. The fall of the dollar is, of course, a concern.

It seems to me that now there are only two ways to stop the decline. Either the Fed raises U.S. interest rates, or it pressures the other major currencies to lower their rates. The first option would likely push the U.S. economy into deep recession. [Indeed, I have read people writing about 'depression' for the first since I started studying economics over forty years ago.] The second would be to expand the money supply even more, and that would raise the price of gold in terms of Euro, Kroners, etc., if not in dollar terms as well.

Either way, I would submit that the disparity in gold to other commodities is probably the result of market manipulation of gold and not to free market factors. Why? Because, I would guess, the government and Fed and their 'inner friends' on Wall Street are trying to keep the market from a major collapse before the election.

[jamest]

agree with bowman711.
'super big boys' are trying to squeez money from PM market. (made a pretty scary trend chat for those trying to transfer US dolloars to PM).

If you know what the Fed is trying to do, and if you are very smart, you can follow the wave that Fed wants to make it happen, but it like dancing with death, very dangrous.

To me, I want to stand by, because the market now is not real. Too many traps, watch out.

[silver-bullet]

The following web site exposes what the 'big boys' are doing:

www.gata.org/

All I can say is, when ever gold/silver prices, uncle Sam is subsidising my precious metal purchase - at the expense of the US tax payers. This is a free country, work what is happening to your advantage. Dollar cost average and buy into strength.

Remember, there are more of us than there are of them. The market is the entire investing world - that includes China and India.