Is It Safe to Take a Dip in the Gold Pool Again?

What transpired on Thursday and Friday was simply stunning. The Dow was up 200 points then down 400, while crude gained $17 in the same time span. The S&P has now broken decisively to the downside. I can easily see the 1325 level gets tested, and 1310 would be the next resistance level. After that, it's straight to the March low. For me to continue holding my sanguine view on the market for the balance of 2008, the March low absolutely must hold.

Of course I don't structure my portfolio based on a "second half recovery." My commodity heavy portfolio only experienced a minor set back last week, and I expect it to outdistance the general market further. I have not touched my core precious metal holdings which I think are on the verge of breaking out to the upside. One thing that the exploding unemployment number did was to call the bluff on the newfound hawkish stance of the "Bearded One." Although gold was among the few red spots in a sea of green on Thursday, it jumped over $24 on Friday to end the week above $900 once again. The chart on Amex Gold Bugs Index (HUI) shows an impending break out. The MACD is very slightly negative and the stochastics have already crossed over to the upside.

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Ironically, judging by Friday's closing price relative to trend line, and MACD, the best looking stock is one that many gold bugs loved to hate for its erstwhile hedging program: Barrick Gold (ABX). Further encouraging signs include positive volume action for the past two sessions that is likely footprints of institutional money. It remains to be seen whether large cap miners will continue to be favored or whether the values in juniors will be realized if not by investors then at least by their acquirers.

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Comments

[sorgmot:]

We are long gold stocks and also copper stocks. We believe there will be a move to cartel formation in those industries. We also believe that this is the right part of the business cycle to be long them to mid 2010.

We are short financial stocks and some electronics stocks until late August 2008.

We fit our investments to the business cycle which we think is a repeating process. Perhaps you do too since we seam to agree.

These are not recommendations. See your investment adviser before making investment decisions.

2008 Jun 08 04:55 PM