The Gold Mining Stocks are still Cheap

It has been just one month since I stated on King World News that the gold mining stocks had begun a new bull market.  The XAU Index of mining stocks closed that day at a new record high of 206.79.  It closed yesterday at 220.17, up 6.5% over this period.

That is a tremendous gain in such a short period of time.  But do not let that spectacular performance keep you from buying and accumulating my recommended mining stocks.  They remain good value, as is clear from the following chart that measures the XAU Index in terms of gold.

What the above chart is saying is that:

1) The last sell signal in the mining stocks was given in early 1997, which coincides with the huge bubble surrounding Bre-X.  Since then, the mining stocks have been closer to the buying area, and not even near the selling area.  This means that the best strategy over this period is the one I have been recommending, namely, pursuing the ongoing accumulation of mining stocks because you are buying stocks that are undervalued.

2) Gold has outperformed the XAU Index this decade, which is another way of saying that the mining stocks were in a bear market.  Their bear market began with the collapse of Bre-X and ended with the collapse of Lehman Brothers.  The mining stocks suffered badly in the liquidity squeeze arising in the aftermath of the Lehman collapse, and we saw a classic selling climax.  The mining stocks were driven to a low level never before experienced.

3) Since the 2008 selling climax, the XAU Index has been climbing.  But importantly, as the above chart illustrates, the XAU Index is still well within the buying area.  Therefore, the gold mining stocks are still cheap, and so are the silver stocks, some of which are included in the XAU Index.

I therefore continue to recommend the ongoing accumulation of mining stocks because you are buying stocks that are undervalued.  Those values will eventually be realized and rewarded with higher prices as the precious metals make new highs, which in turn will continue to draw more money into the sector. 

The bull market in mining stocks is barely one month old.  I expect the XAU Index will be moving higher for three to five more years.

James Turk

Free Gold Money Report

Article originally published by the Free Gold Money Report.

James Turk is the founder of the Free Gold Money Report and of GoldMoney.com. He is also the co-author of The Coming Collapse of the Dollar (www.dollarcollapse.com).. Copyright ©  by James Turk.  All rights reserved.

Copyright © 2008. All rights reserved.
Edited by James Turk

This material is prepared for general circulation and may not have regard to the particular circumstances or needs of any specific person who reads it. The information contained in this report has been compiled from sources believed to be reliable, but no representations or warranty, express or implied, is made as to its accuracy, completeness or correctness. All opinions and estimates contained in this report reflect the writer's judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility.

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Gold Still Under Owned

The debate is on. People are saying even if there is not deflation, at the same time there is no inflation, which is of course wrong. In the first place, inflation, which is defined as an increase in money supply (not prices), although growth rates are not hyperinflationary, still, they are rising. So, on the most basic level the premise these people are operating under is completely false. Prices are rising in under-owned asset groups (think precious metals and commodities) due to money supply growth, and falling in over-owned asset groups (think real estate and stocks), but all this has nothing to do with the inflation, which is a product of wrongheaded and unscrupulous government in that it's indirect wealth confiscation.

And the inflation / deflation debate has even less to do with what will happen to the gold price under either condition, as no matter which macro is dominant, eventually gold will rise anyway simply because it's under owned. So please, take all the precious metals bull top calling with a grain of salt, and the same disdain most still have for gold and silver, because there's just no way this thing is over with only a minuscule of the population involved, as it were. They're a stubborn bunch today, stubborn and stupid in more ways than one, however at some point in the not too distant future they will need will need to rediscover religion again as economies continue to collapse or perish themselves.

And even if there is another big bailout to go along with QE II, eventually the effects of all this largesse will run out, and worse, austerity will hit America. You will remember our study from last week, where both current events and historical precedents were used to paint a picture of sideways grinding in stock markets, the economy, etc. until next year, when austerity is to hit here, then kaboom. What's more, this could come sooner than we are presently anticipated, as dollar ($) sentiment (bullish QE II related sentiment) is far too negative in order to maintain the selling much longer despite the constant reminding that the Fed is being governed by bunch of out of control lunatics set against a picture of austerity in Europe.

Here, anybody who thinks this propaganda is not a product of our self-serving price managers is kidding themselves. The international brotherhood of central bankers came up with this storyline along time ago so that they could manage the $ down when need be. This is because it's better to have the illusion of austerity in Europe than the global economy collapsing. Of course we may get this anyway now with QE II fully discounted by the speculators / markets now, opening the door to a possible nasty surprise (think flash crash) at any time. So again, it appears this could be unraveling much quicker than just about anybody understands, which is why it's a good idea for the individual to be locked and loaded now in terms of desired portfolio structure, physical precious metals ownership, etc.

Does this mean we can't have a little rest in the precious metals (and general equities) rally? Answer: With positive internals still present in the precious metals market, anything can obviously happen, which is of course why maintaining strong core / physical holdings is so important. And in bringing in a shorter-term perspective on the markets, last Friday was the first day of the month and for that reason was subject to systematic monthly inflows that needed to be invested. And from a price management / momentum perspective, it would not have looked good to see stocks falling on the first day of a new month / quarter. Come Monday or Tuesday this will not be the case however, given the bureaucracy's price managers will be releasing the September Employment Report this coming Friday in order to continue the excitement in stocks this week, so who knows, with that and speculation concerning a surprise announcement associated with the Bush tax cuts prior to the November Mid-Term Election, it's possible the dull squeeze continues on until the bearish speculators finally puke.

What's more, this possibility is strengthened by still stubbornly high US index open interest put / call ratios (updated charts attached here), however once October is over, justification for betting negative on the markets will become increasing difficult for speculators from a seasonality perspective, possibly ushering in a material change in this regard. In terms of the attached charts, we can see that the public is already on this bus with the ratios for the SPY, DIA, and QQQQ series collapsing of late. And just look at the Commitment of Traders (COT) profile for the NASDAQ. It's a picture of bullish nirvana on the part of small speculators (the dumb money), which is of course bearish, and capable of turning the NASDAQ / Dow Ratio lower on a meaningful (and possibly lasting) basis. Now, all we need is for the pros to back off their protective put buying as we enter the seasonably strong months of the year, with November being the strongest, and we could have a seasonal inversion in the trading pattern this year, even if any weakness experienced here proved to be temporal.

In taking a closer look at the trade from yesterday in attempting to continue painting the picture, we in fact had a meaningful turn lower in the NASDAQ / Dow Ratio to define general weakness likely due to COT related considerations, so possibilities for something more profound later on might be diffused ahead of time. What's more, both financials (think XLF) and energy shares (think XLE) may have reversed lower short-term aided by the open interest put / call ratios profiles, seen in the attached above, although with POMO operations scheduled today and tomorrow, a lasting element to any such trend might have to wait. This is especially true if gold can remain invigorated, which is also a good possibility all things considered. (i.e. both POMO and rising open interest put / call ratios on GLD.) Naturally gold and silver will need to correct at some point, so if the Employment Report this Friday proves to be disappointing, perhaps a lack of money printing (note POMO's are done as of tomorrow), which is a constant and growing need these days, will facilitate such a sell-off.

Furthermore, it should be remembered from our study last week that not only do the North American (Western) stock markets have a post crash divergence to the Nikki, shown here in Figure 2, but in terms of gold, it should be pointed out it's running a divergence with just about everything else of late (the past three months), not too mention the economy, which can be seen in Figure 1 below when put against the Baltic Dry Index (BDI), which has stalled out. (See Figure 1)

Figure 1

Of course if gold (and silver eventually) is to reclaim its role as the world's reserve currency, this divergence might not be closed easily, if at all, unlike that of the stock market discussed above. This realization becomes more apparent when stocks, as represented by the S&P 500 (SPX), is also overlaid on top of the BDI, showing that a close relationship here make them more vulnerable to the larger degree downturn in credit markets, the economy, etc. (See Figure 2)

Figure 2

Further to this, it should be pointed out that even the mighty crude oil has not been able to shake a tight correlation to the economy like gold (and silver) has been able to do, which does reinforce the currency / store of wealth aspect of the yellow metal, supporting the view it has the potential to maintain it's increasing appeal amongst the investing population. Again, it should be remembered that gold is still less than .5% of investable wealth worldwide, leaving it with nothing but increasing participation rates moving forward as increasing numbers exit our deteriorating fiat currency economy. (See Figure 3)

Figure 3

And why wouldn't gold continue to do well with the race to zero in our fiat currency economies well underway. This is natural and to be expected despite what the banking cartel would like you to believe, especially when their policies / antics no longer work. Japan is the poster child in this regard, where sure enough they were at it again overnight lowering rates to zero, and like the Fed, promising fresh quantitative easing. Of course the only problem with all this is such programs have no staying power, which has been proved by Japan in that they have been doing this sort of thing aggressively since the 90's to no avail.

Be that as it may, such considerations will not stop the Fed from it's next round of bailouts in all probability, although it should be pointed out that at present all they are doing is a whole lot of jawboning, where they are likely waiting for bigger shoes to drop before stepping in on this basis again. Some speculators in the stock market are counting on them to announce at least another $500 billion at their next Committee Meeting however, which is a two-day affair on November 2nd and 3rd, right at election time.

This is likely no coincidence; giving them the flexibility to announce such measures if need be at the time if the markets were acting up. If however stocks are well behaved into next month, the Fed will likely sit pat in this regard, setting up the possibility of a seasonal inversion in the stock market trading pattern depending on sentiment, technicals, etc. We will of course be watching all this closely at the time.

For now, the consolidation in stocks over the past few days actually appears constructive for the bulls given prices have only been going sideways and not down. And although more consolidation might be in the cards, at this point, again, we cannot suggest any shorting activities, with the sentiment picture still mixed, and for this reason, downside likely limited.

No, the course of action remains the same. Hold strong core positions in precious metals and their related equities looking to add on pullbacks.

Good investing all.

Captain Hook

Treasure Chests.com  

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit their web site at Treasure Chests

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Gold & Silver Slip But Investors Still "Buying the Dips"…

gold and silver bullion failed to hold a rally in London trade on Wednesday, easing back from a bounce on "decent" Asian demand after a rise in China's benchmark interest rates yesterday sparked what one analyst calls "a knee-jerk sell-off across the commodities."

US crude oil contracts had earlier crept back above $80 per barrel, while broad commodity markets added more than 1%.

Losing 2.5¢ to the Dollar on Tuesday, the Euro rose back above $1.3850 this morning, pushing the gold price for French, German and Italian buyers down towards an 8-session low beneath €31,100 per kilo.

"Nervousness abounds," says UBS metals strategist Edel Tully.

But "Investors are still buying dips in the gold price," counters Walter de Wet at Standard Bank. "We expect this to continue for the next two weeks", until the US Federal Reserve announces its widely-expected round of quantitative easing.

"Very easy Chinese monetary conditions have been one of the primary drivers for global asset demand, including commodities," says a note from the currency analysts at RBC Capital Markets today.

The first rise in China's benchmark rates since late 2007, "This start to the rate-hiking cycle will tighten monetary conditions [and] be accompanied by ongoing gains in the Chinese Yuan."

Washington has long asked China to allow the Yuan to appreciate, because "The international monetary system today has become distorted," as Bank of England governor Mervyn King told an audience in the English Black Country last night.

"The major [trade] surplus and [trade] deficit countries are pursuing economic strategies that are in direct conflict."

"The end game...was always going to be monetary debasement, competitive devaluation and a trade war," writes SocGen's ever-bearish analyst Albert Edwards in a new report.

"As US unemployment begins to rise, do not be surprised when across-the-board tariffs are implemented if China does not revalue."

Beijing's move yesterday raised bank-deposit rates faster than borrowing rates, but it still leaves real returns sharply negative for China's cash savers.

CPI inflation was reported at 3.5% on the official measure in August. Local analysts expect to a reading of 3.6% annually for Sept.

One-year deposit rates were raised by 0.25% on Tuesday to 2.50%. Chinese savers have to tie-up their money for five years to get more than 4% interest.

Back in the precious metals market, meantime, silver prices today recovered half of their US Dollar losses by lunchtime in London, briefly trading above $23.90 per ounce after losing more than $1 on Tuesday – silver's fifth "dollar day" of the last 3 weeks.

"The price action is bearish," says a note from bullion bank Scotia Mocatta, but "due to the very strong price action last week, we do not see major selling [in silver bullion] until $22.94."

Looking ahead, "The timing of [China's] rate hike is somewhat suspicious," says a short from Japanese metal conglomerate Mitsui's London dealers, pointing to a slew of Chinese economic data – including GDP and last month's Consumer Price inflation – due out later today.

"We could see these numbers exceed expectations."

Here in London, meantime, UK government bonds rose sharply – bucking the trend in German and US debt – as Chancellor George Osborne told Parliament he would eliminate the structural deficit in Britain's state finances by 2015.

Some 490,000 public-sector jobs will be cut, with departmental budgets slashed by 19% on average over the next four years.

The Pound held below $1.4750, however, holding the gold price in Sterling just shy of £850 an ounce.

In Spain's Valencia region today, the treasurer of Villajoyosa announced "the impossibility" of paying the town council's €11.2 million in unpaid bills, since the municipality now holds funds of only €286,000.

Payments to all vendors are suspended, but council staff wages – as well as bank interest – will continue to be paid.

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Start Collecting Affordable Silver While You Still Can!

Silver has attracted mans interest for many thousands of years. Ancient civilizations found silver deposits plentiful on or near the earths surface. They would use this to incorporate into their jewelry and their pagan statues. They had little knowledge of its value and it was not used in trade until later on. Relics can still be found today of these civilizations, include jewelry, religious artifacts, and food vessels formed from the durable, malleable metal. This metal took on near spiritual qualities in marking important historical milestones that lasted for centuries, and served as a medium of exchange. The Mesopotamian merchants were doing just that as early as 700 B.C.

Silver then had a direct role to play in Americas economy in 1792 when Congress based the currency on the silver dollar and its joined connection to gold. In 1965 the use of silver was discontinued and instead was used in various other industrial sources that were called for in the beginning of the 20th century.

Today not only is silver considered to be a valuable and an extremely rare commodity, but it is more importantly thought to be a safe and wise investment. While is true is that silver is a scarce mineral that can still be found in Mexico, America, Peru, Australia and Chile. It is also one of the most affordable precious metals that are found. What does this mean? This means that it enables the masses to be able to collect silver while the prices are still in the ignored affordable range. By just collecting one silver eagle or numismatic coin per month, leave the collection alone and let it build and grow over the course of a few years; one would have built up a nice comfortable asset.

The American Eagle Bullion program was launched in 1986 with the sale of gold and silver bullion coins. The popularity of the Silver American Eagle coin was due not only to its beauty which is based on the famous "Walking Liberty" of Adolph Weinman's 1916 U.S. half-dollar but also to the fact that the government guarantees that each coin contains 1 troy ounce of silver, is 99.9% pure and is legal tender, which enables the holder to sell its content for face value at any given time that they choose to do so. Value is strictly based to the current market value. And at the present time, the price of silver has not been this high in decades and experts predict it to get much higher in the future.

In reality with the current economic situation at an all time low, the value of the American dollar holds little to no value and it is getting poorer every day. People need to ignore the "Cash for Gold" commercials and find out the reason "Why?" are these commercials always asking me to get rid of my precious metals. Financial experts that make their passion of studying global economies collect assets such as silver. Commodity investors have been strongly urging Americans' to buy silver and gold for a while, but the words have been ignored.

They fear that the economy will not support the stock market and the dollar much longer without heavy repercussion to those that are serious collectors of silver.

It is a fact that the value of gold and silver may fluctuate from time to time, but all signs point to an upward trend at the moment, it has always remained a sturdy and rock-solid investment. It has carried nations through rough times when their dollar failed and it will do the same again. Only those that are wise enough to see the reality of this will survive the turbulent times that are ahead.

Start collecting affordable silver while you still can!!!

You can learn more about how easy it is to start your own silver and gold coin collection today by going to http://www.WNYCoins.com and watching our presentation. Hi, my name is Scott Dietzel and I was turned on to coin collecting by my 12 year old son. It is sort of funny that he should know the value and benefits of coin collecting more than someone two or three times his age.

By utilizing a system to collect your coins, you can pretty much just set it and forget it and let your collection start to build. If you would like to learn more about the system that I use, you may go here. Start collecting affordable silver while you still can!!!

<b>Gold Prices</b> End Lower; $1400 Still Eyed

NEW YORK (TheStreet) -- Gold prices fizzled out Friday with trading influenced by a stronger dollar and profit-taking.

Gold for December delivery lost $5.60 to $1,372 an ounce at the Comex division of the New York Mercantile Exchange. The metal traded as high as $1,386.40 and as low as $1,362.70 during Friday's session, but the price was falling double digits after the Comex closed.

The U.S. dollar index was adding 0.65% to $77.04 while the euro was falling 0.88% to $1.39 vs. the dollar. The spot gold price Friday was falling $14.90, according to Kitco's gold index.

Gold prices were retreating despite the fact that Federal Reserve Chairman Ben Bernanke in a speech Friday gave the green light for more monetary easing. Bernanke said inflation "can be too low" and that "overall economic growth is less vigorous than we would like," but investors didn't learn anything new and no dollar amount was put on any accommodative measures.

Further supporting Bernanke's argument was the fact that the core Consumer Price Index for September was unchanged. Bernanke said that the Fed's next steps will be dictated by economic data and that a lack of inflation in September will certainly support the thesis that more money printing is needed.

Bernanke did say that the Fed will proceed with caution, leaving some question marks about how much money the Fed will inject into the system. Bernanke also said the economy should grow more quickly in 2011, which in turn raised the question of how long the Fed's monetary easing will last. Bernanke said that the Fed is already outlining an exit strategy to put a cap on quantitative easing and to make sure that inflation doesn't surge out of control.

His cautionary tone crimped gold's rally along with profit-taking as investors booked gains after gold's monster rally this week and on the heels of options expiration.

However, most analysts predict that gold prices should head higher in the short term amid the backdrop of monetary easing. George Gero, senior vice president and financial consultant RBC Capital Markets Global Futures, said that "buyers appear from everywhere at the first sign of profit-taking as currency weaknesses are hedged to maintain purchasing power."

With gold prices still eyeing $1,400 an ounce, the question remains just how high can the metal go?

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