by Steven Jon Kaplan
Updated @ 5:25 p.m. EDT, Wednesday, May 1, 2002.
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A special thanks to the numerous readers who e-mailed to call me an idiot in recent days, thus confirming my belief that we are close to a peak in valuations for gold mining shares.
SUMMARY: My current outlook for gold collectibles and gold itself remains SIGNIFICANTLY BEARISH. My outlook for gold mining shares remains STRONGLY BEARISH. Gold shares have been setting new all-time records of call versus put buying. Investor bullishness toward gold is currently at a level seen only a few times per decade. Current gold share valuations are anticipating a gold price move to roughly $322 spot gold, so that even if the yellow metal were to suddenly rally to that level, additional share price gains are likely to be limited. Media coverage and brokerage analysis has been almost uniformly positive toward gold in recent weeks, and do not abate even on down days, as is typical of a strongly overbought market. Typical: “Don’t Fight the Tape” by Bear, Stearns and Co., Inc., released in the morning of April 30, 2002. My favorite line: “We would not suggest investors attempt to identify one single event or fundamental that would explain gold’s positive price action.” Translation: We don’t really know ourselves why gold share prices are going up, but since they are, buy them! Another favorite line: “We expect gold to trade between $290 - $325 per ounce for the remainder of the year.” Watch this phony range (notice how analysts always predict ranges a few percent above and below the current price, no matter what) be broken first strongly to the downside, then eventually strongly to the upside. Another favorite recent bullish quote, from J. P. Morgan Securities, released in the afternoon of May 1, 2002: “We believe there are both fundamental and technical factors to consider in a market where equities have appreciated well ahead of the underlying commodity.” Translation: Gold share prices certainly seem overvalued if you have to rely on something like common sense, but as brokers, we know that logic plays no part in a discussion of the financial markets! Traders’ commitments for gold and silver, as well as for most currencies with the notable exception of the Japanese yen, point toward a significant decline in gold prices and gains for the U.S. dollar versus these currencies over the next few months, all of which would be negative for gold and its shares. As the Treasury yield curve flattens, with short-dated Treasuries seeing higher yields and long-dated Treasuries seeing lower yields, gold will be strongly pressured, as a steep Treasury yield curve is gold’s best friend. Insider selling and proposed insider selling of gold mining shares has been reported with increased intensity for the first time in several months. In addition, numerous major gold mining companies have announced new secondary issuance of either stocks or convertible bonds (Newmont, Harmony, Goldcorp, Echo Bay), as well as registrations for future such issuance. This level of dilution has not been seen since early 1996, and is almost always coincident with a short-term peak. However, gold and gold mining shares are NOT set for a multi-year decline. On the contrary, they are in the early stages of a multi-year bull market, rather than a bear market, which will take gold and its shares to higher highs later in the year, and much higher highs in upcoming years. Caution: one should be aware that short-term fluctuations in gold share prices often overwhelm the long-term trend, no matter how pronounced the long-term trend may be over an extended period of time. For example, gold shares rallied very strongly from late 1972 through their peak in the early 1980s. However, investors who bought gold shares in late 1974, after the first rally stage was essentially complete, were actually slightly losing money in late 1978, four years later. Similarly, in spite of the very strong rally in gold mining shares from late 1928 through 1937, investors who bought gold mining shares close to the first peak in 1930 were behind, not ahead, in late 1936, thus suffering more than six years of disappointment. In practice, most latecomers were shaken out by the sharp downswings, and did not even participate in the profitable final blowoff. Buy and hold can be a wonderful strategy, but only if one buys when prices are truly depressed, not when one buys to “not miss out” on a momentum trend play which is close to reversing or has already reversed. Now that the first complete rally phase is in place, gold will have to retrace sharply to shake out all the recent purchasers who are the same people who bought the Nasdaq in 1999 “because it was going up, and my friends told me not to miss out.” Recently they bought gold mining shares because “they were going up, and my friends told me not to miss out.” Once gold moves down moderately, all of these uncommitted longs will eventually exit the market, thus bringing gold back to probably just below $270 per ounce spot. Notice that gold mining shares, as epitomized most accurately by HUI, show a multi-year extended reverse head-and-shoulders pattern. The left shoulder bottomed at 60.68 on April 6, 1999; the head was the nadir of 35.31 on November 15-16, 2000; the right shoulder is currently being completed, with a bottom of 59.86 recorded on November 26, 2001. The spring or summer of 2002 will probably see a final low for HUI in the 58.5-65.5 range. If one examines a 5-year chart of HUI, one sees a nearly symmetric pattern with October 2000 as the fulcrum, pointing toward a nearly complete retracement of the gains in gold mining shares since the fall of 2001 before major support is encountered once again. The multi-year chart strongly suggests that when this support level is reached, it will hold solidly. When purchasing any securities, gold mining or otherwise, avoid buying on margin and never purchase call options, so that the magnitude of the eventual gain is the only important issue, rather than the vagaries of precise timing or interim volatility. Always stick with companies that have strong, growing earnings; avoid companies with losses. Occasionally a money-losing company will suddenly turn around and become profitable, but that is the rare exception.
I will attempt to give an unbiased outlook on the intermediate-term prospects for worldwide gold mining shares and other assets, based upon a collection of the most important fundamental and technical indicators. The objective will be to indicate critical turning points in the market. The indicators are listed in order of importance, most important first. Information in boldface has been recently updated.
Be sure to read (or attend) Eugene Ionesco's fabulous play RHINOCEROS. If you do not understand it, or you understand it but sympathize with the beasts, you will have difficulty making money in the financial markets, as you will find it psychologically taxing to run in the opposite direction of the herd.
KAPLAN’S CORNER: QUESTION: Recently a number of gold producers have announced that they have either entirely eliminated or else substantially reduced their hedge book (the amount of gold they are selling forward). How will this impact the price of gold? ANSWER: Over the long run, hedging has no effect on the price of gold, as it merely affects the timing of gold sales, rather than the total amount. However, over the short run, if the total world amount of hedging has been reduced, it is logical that this would result in a price increase, as a hedge reduction is essentially equivalent to a purchase of the same quantity. It is even possible that the majority of the recent rise in the gold price (above the pivot price of $276) was due to a reduction in the total worldwide hedge position. Over the past decade or so, producers have generally increased their hedging when prices were high and reduced their hedge books when prices were low, thus damping volatility. Some gold share investors have been more activist in recent years in demanding that many producers either eliminate or at least sharply reduce their hedging activities, so that gold share prices are more directly leveraged to the gold price. If gold producers are now more afraid of negative public opinion if they resume their previous hedging activity, it is likely that hedging will remain at a low level in the near future. Therefore, although the long-term movement of gold prices will not be affected, short- and intermediate-term volatility is likely to sharply increase, as producers are selling at market prices most of the time. Higher volatility probably means that there will be greater percentage swings in gold mining share prices over the next several years as compared with the previous several years.
Wednesday, May 1, 2002: The insider stock transaction activity indicator for gold has dropped from MODESTLY BEARISH to SIGNIFICANTLY BEARISH, as the frequency of insider sales and registrations for intended sales by gold mining executives has risen sharply over the past few weeks. Corporate announcements about new secondary share offerings have also suddenly risen over the past several trading days.
Monday, April 8, 2002: The price/volume statistics indicator for gold has improved from MODERATELY BEARISH to MODESTLY BEARISH, as the high concentration of call buying on individual gold mining shares has somewhat abated in recent days.
Monday, March 25, 2002: The outlook for gold mining shares has deteriorated to STRONGLY BEARISH, as an enormous concentration of call trading and sparse put trading in individual large-cap gold shares is indicating that a peak in gold share prices is imminent.
Monday, March 25, 2002: The price/volume statistics indicator for gold has fallen from MODESTLY BEARISH to MODERATELY BEARISH, also reflecting the speculative fever in gold mining shares in recent trading days.
Monday, March 25, 2002: The gauges of future inflation indicator has improved from SIGNIFICANTLY BEARISH to MODESTLY BEARISH, as both measures of future inflation’s growth rates have turned noticeably less negative.
Monday, February 11, 2002: The overall outlook for gold, gold collectibles, and gold mining shares has worsened from SLIGHTLY BEARISH to SIGNIFICANTLY BEARISH, as gold’s price rise to above $300 spot has encouraged recent purchasers who are completely uncommitted to the yellow metal unless it is rising, and who will therefore bail out given even modest unfriendly price behavior. Bearish traders’ commitments and overbought technicals support this view. Also, the first true rally stage of any real bull market needs its corresponding retracement.
Monday, February 11, 2002: The traders’ commitments indicator for gold has deteriorated from MODESTLY BEARISH to STRONGLY BEARISH, as commercials are currently net short about sixty thousand contracts.
Monday, February 11, 2002: The price/volume statistics indicator for gold has deteriorated from SLIGHTLY BULLISH to MODESTLY BEARISH, as unusually heavy gold share call buying is probably marking a short-term peak for the yellow metal and its shares.
Monday, December 24, 2001: The overall outlook for gold, gold collectibles, and gold mining shares has risen from MODERATELY BEARISH to SLIGHTLY BEARISH, as the pivot price for gold has risen from $271 to $276 spot, while gold commercials remain highly responsive to modest moves in either direction, and currency commercials are generally short those currencies which correlate significantly with the gold price.
Monday, December 24, 2001: The traders’ commitments indicator for gold has improved from MODERATELY BEARISH to MODESTLY BEARISH.
Monday, October 29, 2001: The overall outlook for gold, gold collectibles, and gold mining shares has improved from SIGNIFICANTLY BEARISH to MODERATELY BEARISH, as the traders' commitments have noticeably improved, though still show commercials markedly net short.
Monday, October 29, 2001: The traders' commitments indicator for gold has improved from SIGNIFICANTLY BEARISH to MODERATELY BEARISH, as commercials are more aggressively covering their short positions on all dips in the gold price.
Tuesday, October 23, 2001: The overall outlook for gold, gold collectibles, and gold mining shares has improved from STRONGLY BEARISH/VERY STRONGLY BEARISH to SIGNIFICANTLY BEARISH, as the gold price has dropped substantially.
Tuesday, October 23, 2001: The traders' commitments indicator for gold has improved from VERY STRONGLY BEARISH to SIGNIFICANTLY BEARISH, as commercials grudgingly, but steadily, are covering their net short positions on all price declines.
TRADERS' COMMITMENTS (COT):
One of the most important factors affecting the market is the traders' commitments as reported every Friday by the COMEX. These commitments tell you what the commercials, or industry insiders, are doing vs. the non-commercial outsiders, also known as speculators. If the insiders, such as producers, jewelers, fabricators, and industrial users, are buying, while the speculators are selling short, this is BULLISH. If insiders are selling as fast as they can, while speculators are buying left and right, this is BEARISH. In any business, especially in commodities, people in the thick of things obviously know much more about the supply/demand situation than people who have no connection to the industry and are just trying to get rich quickly. The greater the disparity of the traders' commitments from their historic norms, the farther they must rise or fall to achieve equilibrium. The ideal buying opportunities, therefore, occur when commercials are net long far more than usual; the best selling opportunities are when commercials are net short much more than usual. (Thanks to "Jimmy C." for suggesting this enhancement.)
As of April 23, 2002, released at 3:30 p.m. on April 26, 2002, the commitments for COMEX gold futures showed commercial insiders long 39,629, short 112,332; large speculators long 65,168, short 25,503. Small traders were long 42,856, short 9,818. Commercials were thus net short 72,703 contracts, their greatest net short position since February 1996 (when gold briefly peaked at $422 spot), having increased their short position from the previous week by 9,537 as the gold price rose $5.15. The pivot price for gold might not have been positively impacted by the recent rally, even with (or because of) all the media hype; it may well remain at its 2001 level of $276 spot. This indicator therefore remains STRONGLY BEARISH. Readers interested in the official traders' commitments for all commodities and financial instruments should go to http://www.cftc.gov/ for many years of data. Click on "Current COT Reports" and then on "Commodity Exchange Incorporated".
GAUGES OF FUTURE INFLATION:
The Economic Cycle Research Institute (ECRI) monthly U.S. future inflation gauge (USFIG) for March, released April 5, 2002, was at 97.6, down modestly from 98.2 (downwardly revised from 98.6) for February, and is just above a 26-year low. Its smoothed annualized growth rate rose to –6.1% from –6.9% (downwardly revised from –6.2%), which was just above a 20-year low in the growth rate.
The Foundation for International Business and Economic Research (FIBER) monthly U.S. leading inflation index, released April 5, 2002 for the month of March, was measured at 93.0, up from 90.1 (revised downward from 91.8) in February. Its smoothed annualized growth rate rose to +0.8% from –6.5% (revised downward from –3.5%). This was its first positive reading since June 2000.
This indicator remains MODESTLY BEARISH. The worst readings have likely already been reached.
WORLDWIDE INTEREST RATE POLICY:
Gold must always compete with time deposits as a short-term investment. Therefore, as interest rates rise, there is more to lose by being invested in the yellow metal rather than in an interest-bearing time deposit. As interest rates fall, there is less to be sacrificed by being invested in gold. On the flip side, lower short-term interest rates sometimes stimulate economic growth. Gold acts most strongly when inflation is outpacing the percentage gain in GDP, as is currently the case. In addition, gold tends to perform best when the spread between the risk-free short-term interest rate and the inflation rate is either negative or very small, indicating that individuals who have selected safe time deposits for investment are finding themselves either falling behind or remaining just barely ahead of inflation. It appears as though the Treasury yield curve is going to flatten, perhaps significantly, which would be profoundly negative for gold as short-term time deposits compete more fiercely with gold, which pays no interest, while rising long-dated Treasuries inspire money to exit the precious metals markets.
INSIDER STOCK TRANSACTION ACTIVITY:
If an officer of a corporation is buying stock in his or her own company, it is a strongly bullish sign, since such a person would logically be the most familiar with the actual profits and losses, as well as pending projects and other relevant news. Similarly, if a corporate insider is selling, even if the stated reason is to pay for a child's college education, it is clearly a reason for turning bearish, since that person has rejected this investment in favor of another course of action. The higher ranking the corporate insider involved, the more emphatic the signal, since the more knowledgeable such a person would be with the entire outlook of the company.
On Tuesday, June 12, 2001, Robert H. Clark, Jr., director of Homestake Mining (HM), announced a SALE on May 4 through May 9 of 525,000 shares at a price of $6.47-$6.80 per share, reducing his total holdings to 6,435,343 shares.
On Tuesday, June 12, 2001, Linda K. Wheeler, vice president of Newmont Mining Corp. (NEM), announced a SALE on May 18 of 72,500 shares at a price of $23.50 per share, reducing her total holdings to 7,134 shares.
On Wednesday, June 20, 2001, Douglas J. Newby, shareholder in U.S. Gold Corp. (USGL), announced a SALE on May 21-22 of 10,000 shares at a price of 44-45 cents per share, reducing his total holdings to 43,125 shares.
On Wednesday, July 4, 2001, Leonard Harris, director of Glamis Gold Ltd. (GLG), announced a SALE on June 12 of 30,000 shares at a price of $2.82-$2.86 per share, reducing his total holdings to zero shares.
On Wednesday, July 4, 2001, David L. Hyatt, vice president of Glamis Gold Ltd. (GLG), announced a SALE on May 21 of 10,000 shares at a price of $2.91 per share, reducing his total holdings to zero shares.
On Friday, July 6, 2001, Monarch Resources Ltd., beneficial owner of Hecla Mining Co. (HL), announced a SALE on April 30 of 379,900 shares at a price of 78 cents per share, reducing their total holdings to 5,945,350 shares.
On Tuesday, July 10, 2001, Francis R. McAllister, CEO of Stillwater Mining Co. (SWC, which produces palladium and platinum) announced a PURCHASE on June 26 of 100 shares at a price of $29.50 per share, increasing his total holdings to 10,100 shares.
On Wednesday, July 11, 2001, Edward I. Armstrong, divisional officer of Silverado Gold Mines Ltd. (SLGLF), announced a SALE on June 18-June 28 of 50,000 shares at a price of 20-26 cents per share, decreasing his total holdings to 100,000 shares.
On Monday, September 17, 2001, Malcolm W. MacNaught, the new CEO of Stillwater Mining Co. (SWC, which produces palladium and platinum) announced a PURCHASE on August 16 of 200 shares at a price of $26.80 per share, increasing his total holdings to 200 shares.
On Friday, October 12, 2001, Malcolm W. MacNaught, CEO of Stillwater Mining Co. (SWC, which produces palladium and platinum) announced a PURCHASE on September 21 of 300 shares at a price of $22.15 per share, increasing his total holdings to 500 shares.
On Thursday, October 18, 2001, James W. Stuckert, director of Royal Gold Inc. (RGLD), announced a PURCHASE on August 6 of 2,650 shares at a price of $4.75 per share, increasing his total holdings to 1,606,100 shares.
On Thursday, February 14, 2002, James W. Stuckert, director of Royal Gold Inc. (RGLD), announced a PURCHASE on December 20, 2001 of 9,300 shares at a price of $5.40 per share, increasing his total holdings to 1,606,100 shares. (I have no idea why his total holdings remain mysteriously constant after repeated purchases, you’ll have to call him to find out.)
On Thursday, February 28, 2002, James W. Stuckert, director of Royal Gold Inc. (RGLD), announced a PURCHASE on January 24, 2002 of 18,800 shares at a price of $5.35 per share, increasing (supposedly) his total holdings to his usual total of 1,606,100 shares.
On Thursday, April 11, 2002, Michael S. Hamson, director of Newmont Mining Corp. (NEM), announced a SALE on March 25, 2002 of 3,210 shares at an unspecified price, reducing his total holdings to 9,743 shares.
On Thursday, April 11, 2002, M. Craig Haase, director of Newmont Mining Corp. (NEM), announced a SALE on March 22-25, 2002 of 188,560 shares at a price of $26.37-$27.06 per share, reducing his total holdings to 35,324 shares.
On Monday, April 15, 2002, Mark A. Lettes, officer of a subsidiary of Apex Silver Mines Ltd. (SIL), announced a SALE on March 11, 2002 of 1,000 shares at a price of $12.48 per share, reducing his total holdings to 10,641 shares.
On Monday, April 15, 2002, Keith R. Hulley, officer and director of Apex Silver Mines Ltd. (SIL), announced a SALE on March 11, 2002 of 5,000 shares at a price of $12.32-$12.35 per share, reducing his total holdings to 19,312 shares.
On Thursday, April 18, 2002, Vicki J. Veltkamp, vice president of Hecla Mining Co. (HL), announced a SALE on March 22, 2002 of 5,000 shares at a price of $1.70 per share, reducing her total holdings to 16,307 shares.
On Thursday, April 18, 2002, Michael H. Callahan, vice president of Hecla Mining Co. (HL), announced a SALE on March 28, 2002 of 5,000 shares at a price of $1.92 per share, reducing his total holdings to 42,282 shares.
On Monday, April 22, 2002, Peter B. Babin, president of Royal Gold Inc. (RGLD), announced a SALE on March 1, 2002 of 15,000 shares at a price of $7.25-$7.30 per share, reducing his total holdings to 216,495 shares.
Due to a recent significant increase in insider sales by gold mining executives, as well as a sharp rise in registrations of intended sales during the month of April, this indicator has deteriorated to SIGNIFICANTLY BEARISH.
OTHER PRECIOUS METALS:
The behavior of silver, platinum, and palladium can serve as an early signal for gold, since these metals often rally or decline first. After trading in early December 1996 at a very small discount to gold, spot platinum reached a huge premium to spot gold as it hit a new 7-year high in August 1997, then declined almost all the way back to its 1985 low in December 1997 before rebounding above $400 per ounce in July 1998, then returning to a new post-December 1985 low of $330 per ounce in the early morning of October 30, 1998. Since then, platinum has continued to experience the agony and the ecstasy, soaring to $640 per ounce in January 2001, then sliding to $401 per ounce by October 2, 2001. If nothing else, this certainly debunks the myth that sentiment about any particular commodity is unlikely to change rapidly over a short period of time, a reason often cited by ignorant though admittedly highly paid gold analysts! Platinum is likely to continue to trade at a substantial premium to gold until we are deep into a recession, when it often then moves to a small discount to the yellow metal. Palladium had been rallying the most sharply and consistently since Tuesday, December 31, 1996, surging from $115 in late 1996 to $1150 (not a misprint), a new all-time high, by January 2001. Since then, palladium has proven that it can move rapidly in both directions by plunging more than 70% to $305 by October 23, 2001. As is typical, silver continues to be more volatile over the short run than gold. After touching a long-term double bottom of $3.50 per ounce spot in February 1991 and again in February 1993, silver made an attempted upside breakout in late 1997 and again in 1998 by soaring above $7.33 per ounce, before returning to its multi-year equilibrium price. Silver touched a nadir of $4.015 spot on Wednesday, November 21, 2001, its lowest level since September 29, 1993.
On Wednesday, November 15, 2000, and again on Thursday, November 16, 2000, HUI, the Amex Gold Bugs Index, touched a historic intraday low of 35.31. The multi-year downward trendline in HUI was broken during the rally of April-May 2001, and since then has successfully held successfully to the upside. On Monday, April 29, 2002, at 10:34 a.m. EDT, HUI touched an intraday peak of 114.37, its highest level since May 6, 1998. HUI is currently very significantly above its 200-day moving average of 74.64. This measure remains MODESTLY BULLISH, as gold shares' attempt to hold above their 200-day moving average remains in progress.
In August 1998, gold broke below its 1985 lows and retested levels from 1979, the yellow metal's strongest rally year to date. At 3:24:20 a.m. EDT on Friday, August 28, 1998, spot gold touched $270.50 per troy ounce. Not coincidentally, the U.S. dollar made a multi-year top against most currencies on the previous day. At 1:51 p.m. EDT on Wednesday, August 25, 1999, gold traded at $252.00 per troy ounce spot, its lowest point since May 11, 1979, over twenty years earlier. At 7:45:00 a.m. EDT on Tuesday, October 5, 1999, spot gold touched $338.00 per troy ounce spot, its highest mark since October 1, 1997. As with gold shares, the downward trendline for spot gold dating back to the first week of February 1996 was broken during the early autumn 1999 upward spike and is still holding above it. Spot gold touched a nadir of $254.75 spot at 1:29:00 p.m. EDT on Monday, April 2, 2001, its lowest point since September 20, 1999. Spot gold rallied to a peak of $312.50 spot at 7:16 p.m. EDT on Sunday, April 28, 2002, its highest level since February 17, 2000. Spot gold is significantly above its 200-day moving average. This reading is SLIGHTLY BULLISH.
Total gold mining equity option U.S. daily volume is very substantially above normal levels while put-call ratios are significantly below normal levels. This is SIGNIFICANTLY BEARISH.
Synthesizing these three signals as a group, the price/volume statistics indicator is MODESTLY BEARISH.
SPECIAL POLITICAL CONSIDERATIONS:
Since the passage of his much-ballyhooed tax-cut package, President George W. Bush will now assume full responsibility for the deteriorating U.S. economy in the minds of most American voters. This is even more true now, as Enron and other scandals will inevitably bear the mark of perceived Republican cronyism, regardless of whether or not it is deserved. Of course, the truth is that Clinton, Rubin, Greenspan, and Co. created the euphoric boom which was really responsible for the upcoming "Great Recession". Therefore, Bush is certain, like Herbert Hoover, to be a one-term President; the Democrats will surely regain the White House in 2004, just as they did in 1932, even if Mickey Mouse is their candidate. Stimulating the economy without regard to inflation will be the watchword of the decade, and quite likely the early years of the next decade as well.
WE’VE SEEN GOLDILOCKS AND THEN BABY BEAR, PRETTY SOON MAMA BEAR IS COMING:
There have been a few dozen major financial bubbles in world history. Every single one of them has ended with a huge collapse in equities valuations. This is not going to be the first exception. By the time we’re done, the Nasdaq will be below 300 and QQQ will be below 6 (these are NOT misprints). If the Nikkei can go all the way back to its level of December 1983, then there’s no reason the Nasdaq can’t go back to its level of October 1987, when it bottomed at 288.49 intraday. Perhaps we will bottom in the summer of 2004, matching the pattern of the 1920s-1930s. Before the bear market is over, ALL of the following “unthinkable events” will have to occur: 1) Microsoft will pay at least a 5% annual dividend; 2) the dividend yield on the S&P 500 index will exceed 7%; 3) Microsoft and Intel will switch to the NYSE (notice that the symbols M and I remain unused; if you want to talk about a conspiracy, this is no coincidence); 4) tickers will disappear from virtually all public buildings; 5) several major and many smaller mutual fund companies will no longer exist; 6) (to be continued).
HUI "MAGIC MULTIPLE FIVE":
HUI is the Amex Gold Bugs Index, a weighted index of gold mining shares. In addition to being a useful leading indicator for the price of gold, there is a historical correlation between the behavior of HUI as it approaches or crosses any multiple of five, and the short-term future performance of the price of gold itself. The most bullish behavior is if HUI begins the day above a multiple of five, goes below a multiple of five during the day (particularly if the intraday low is the lowest level in several weeks or more), then closes the day with a gain. The most bearish behavior is the exact opposite. I prefer HUI to the more established and former favorite XAU due to the greater responsiveness and accuracy of representation of HUI. One unfortunate characteristic of HUI is that it always opens at the previous day's closing price, which is clearly inaccurate and distorting. Whoever is in charge of this index should remedy this defect.
HUI dropped to an early morning low of 105.78, then surged powerfully to a late morning peak of 112.57 before fading to close up 1.68% at 109.32. Since the key level of 105 was modestly approached and held to the upside, but then the key level of 110 was initially broken to the upside and later rebroken and held to the downside, this is SLIGHTLY BEARISH.
On Monday, April 29, 2002, HUI touched an intraday peak of 114.37, its highest level since May 6, 1998. On Wednesday, November 15, 2000, and again on Thursday, November 16, 2000, HUI hit an intraday bottom of 35.31 (holding just above 35, another multiple of five), marking its all-time low.
Remaining diversified, including the following mutual funds, roughly in order: VUSTX (long-term U.S. Treasuries), VGSUX (U.S. utilities), FIUIX (U.S. telecom and utilities), VWEHX (U.S. higher-grade junk bonds), ACTAX (long-term zero-coupon U.S. Treasuries), VPACX (mostly Japanese equities), as well as an increased short position in gold mining shares, and a still substantial cash holding. Once the current short-term rally in U.S. equities tops out, I plan to purchase puts on QQQ. I intend to cover my short positions in gold mining shares once either gold goes below $270 or commercials go net long at least ten thousand contracts, whichever comes first.
(c) 1996-2002 Steven Jon Kaplan Your comments are always welcome.
AUTOBIOGRAPHICAL SKETCH: I was born and raised in Baltimore, Maryland, U.S.A., and was graduated from the Johns Hopkins University with a Bachelor of Engineering Science degree in May 1982. I have been studying the precious metals markets since the 1970s, and began this web site in August 1996. I maintain a fiercely independent stand toward the financial markets, and am not compensated by any person or organization with the exception of the advertising banners posted on this site. I am also a music composer, pianist, computer programmer, bridge player, and runner, and enjoy world travel.
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