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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Will Gold Price Drop to $500?

Commodities / Gold and Silver 2013 Jun 16, 2013 - 10:17 AM GMT

By: Peter_Zihlmann

Commodities

A drop of the gold price to $ 500/ounce is highly unlikely in view of the sharply rising National Debt in the USA but also in Europe.

To quote John Hathaway, manager of one of a most respected gold fund, a sharp rise of the gold price is more likely:

"With gold and silver under continued attack from the mainstream media, John Hathaway warned King World News that we are at the point where global investors will be shocked as gold is quickly repriced a jaw-dropping $1,000 higher, taking gold to new all-time highs.


1980 to 2013: From bear to bull

Spot Gold Monthly Chart

Hathaway also cautioned that global markets are rapidly approaching a loss of confidence in central banks which will cause tremendous turmoil in the paper currency markets. Hathaway, of Tocqueville Asset Management L.P., is one of the most respected institutional minds in the world today regarding gold, and his fund was awarded a coveted 5-star rating."

The long-term picture of the bull market since 2001

Spot Gold Weekly Chart

The bull market of the gold price started towards the beginning of 2002. On the way from $ 255.3 to the recent intraday all-time high of $ 1,923.7 (an increase of 650%), several significant corrections took place, the most severe one in 2008 when the gold price sank by 30% only to jump 182% to a new all-time high.

The bull market is not over! The gold price is in an oversold position, as shown above, which is far worse than in 2008 or even in 2000. Such extremes have always been followed by strong movements to the up-side. After 2008, gold rose almost 200% while gold shares jumped 400%.

What the PMO Indicator shown above clearly demonstrates: extremes will always be corrected. In fact, we had great sell opportunities in 2006, 2008 and 2011. On the reverse side, 2001 and 2008 were unique buying opportunities.

At present, we again have such a buying opportunity! This is not the time to stay on the side-lines. You have to buy now!

Should you rather buy gold shares instead of gold?

First, there are a few basic facts that one has to know:

  1. Gold stocks are more volatile than gold.
  2. It is hard work to select the right companies and to monitor them.
  3. You should know the Management.
  4. You should have a long-term view.

As most do not have the time to devote several hours a day

  • to employ a bottom-up selection process and fundamental, proprietary research to identify companies that are considered undervalued, based on growth potential and the assessment of the company's relative value, and
  • to seek exposure to overlooked and undervalued gold stocks across the world,

this work is best left to an experienced fund manager. The following chart reveals the risk and rewards of such investment:

Tocqueville Gold Fund Weekly Chart

Gold sometimes outperform gold shares, at times however gold shares fare much better? Following some figures:

  • GOLD 2000 to 2011 (high): +652%
  • GOLD SHARES 2000 to 2011 (high): +1,331%
  • GOLD 2000 to 2013: +416%
  • GOLD SHARES 2000 to 2013: +514%
  • GOLD 2011 (high) to 2013: -31%
  • GOLD SHARES 2011 (high) to 2013: -57%

Big companies or rather "juniors"?

  • Every big company was once a "junior"! See Goldcorp.!

Goldcorp Weekly Chart

  • Selecting the right "junior" is high risk. It makes therefore sense to choose a Fund that invests in "juniors" to diminish the risk.
  • To find out more, go to www.timeless-funds.com

Conclusion

To quote John Hathaway once more: "So from a contrarian point of view, the setup is perfect for the commencement of a huge upward leg that will take gold and silver to all-time highs."

By Peter Zihlmann   /   Andrew Portmann

www.pzim.com
invest@pzim
phone +41 44 268 51 10
mobile +41 79 379 51 57

THE TIMELESS PRECIOUS METAL FUND is a shareholder in the company and will benefit from any increase in the company's share price.

How to invest: http://www.timeless-funds.com/en/timeless-precious-metal-how-invest

Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so.

Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell this stock.

Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock - or to use their own brains.

In our opinion, the best approach is to buy a diversified portfolio of stocks as represented in THE TIMELESS PRECIOUS METAL FUND or THE SIERRA MADRE GOLD & SILVER VENTURE CAPITAL FUND instead of shares of only a small number of companies.

Peter Zihlmann Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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