Tom Szabo

Larkin: Gold's Stealth Bull Market

Kingsgate is pretty solid as are some other ASX listed mid-tier golds. If you are looking for maximum leverage and high risk/high reward, I'd pick Oceana -- our model gives it significantly more upside potential.

Why Are Large Hedge Funds Investing in Gold?

Hedge funds are generally technical oriented trend followers, so they are mostly in gold because it is hot. Gold is NOT a hedge against uncertainty, it is a hedge against terminal economic crisis. In other words, it isn't health insurance, it's life insurance. And gold does serve as a hedge against inflation, but instead of tracking inflation in an orderly manner, gold makes its move in leaps and bounds such that all of the net rise in the gold price from $35 in 1971 to $1050 in 2009 took place on just a few monthly bars on the long term chart. The rest is back and fill action. So for example there have only been FOUR up months in the gold price between January 1980 and today: January-March 2008 and October 2009. Because of this, timing is of utmost importance when it comes to gold, and this type of situation is precisely where a hedge fund can potentially make that elusive "alpha". By the way, many people think that gold can also go up in a deflation because it was revalued from $20 to $35 during the Great Depression, but what actually happened there was an official currency devaluation.

Larkin: Gold's Stealth Bull Market

He mentions Yamana and Agnico-Eagle, soon-to-be-million-ounce gold producers with 1/3rd the market cap of already-over-5-million... gold producers like Barrick and Newmont. Where is the leverage in that? What you have to find in this market are comparatively undervalued producers like New Gold and Great Basin Gold as indicated by our valuation model. If you don't mind a current copper producer that is a gold developer as well then you might look at Taseko. There are also a number of TSX-traded up and comers that have some good leverage.

As for Mr. Larkin's statements about gold market fundamentals, they are very safe and pedestrian. He makes it sound like the gold price is going to slowly drift from $1050 to $1200. Moreover, he repeats the canard that gold will really soar when the public starts to participate in earnest. Whereabouts has Mr. Larkin been sticking his head in the sand? Did he not notice Jim Cramer, hedge fund advisor to the unwashed masses, already extoll the virtues of gold? And does he not realize there is already widespread participation by the public in the gold market --- as demonstrated by all those Cash4Gold commercials. Granted, the participation isn't a widespread buying frenzy but does he really believe this bull market will look EXACTLY like the one that ended in 1980?