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XMFSinchiruna (26.59)

Golden Pearls of Wisdom



June 19, 2009 – Comments (10)

This one from Jim Sinclair on what's occuring in the gold market lately and the light of the dollar. The statements are brief, to be sure, but provide an extremely timely reminder to Fools that if they've ever considered going long gold to defend against significant deterioration in value of the dollar over the long haul, then there may well be no time like the present.

Sustained $1,000+ gold is a certainty, IMO. The precise timing can not be known, but I very much agree with his assessment that the next major move in gold will be a sizable upside move that leaves many wishing they had acted.

No regrets! :)

If you need encouragement of a more comprehensive nature, then please consider my two-part case summarizing the fundamental case for gold exposure, don't miss binve's amazing blog post weaving fundamental and technical analysis seamlessly into a cohesive unit, and his related discussion of the dollar.

Fool on!

From Sinclair's site:

There is no better proof that we are getting extremely close to the Armstrong/Alf point of lift off than the violence of the shorts in their desire to cover both in paper gold and the long suffering junior gold shares.

The method used is to increase the short position now while we are waiting for the uptick rule to be reinstated all while driving a bulldozer of selling into markets. This selling is not to sell shares as much as it is to make a grandstand play to shake the confidence out of the bulls.

This type of strategy in paper gold today and many of the highly shorted junior gold shares is to ignite the passion of fear in holder’s hands, therein allowing the shorts to make cover.

Call or email your company and inquire about their fundamental position. If it is good, then be sure you are witness to a strategy that is as old as markets themselves. This strategy is used by bulls to run shorts, and shorts to make cover depending on the circumstances.

In my opinion we are very close now to the best and longest move upwards in the gold market.

Gold is going to $1650 and then on to Alf’s numbers.

The US dollar has nowhere to go as its support here has been only algorithms and coordinated statements of support, but actions to the contrary by the BRICs.

Stay the course.


10 Comments – Post Your Own

#1) On June 19, 2009 at 9:23 AM, binve (< 20) wrote:

Sinch: Great post! Jim's reasoning on his site is very clear. Like you have been advocating for a long time, everybody should read his formula. Thanks for the the links to my posts! I really appreciate that, and the compliments :)

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#2) On June 19, 2009 at 10:01 AM, XMFSinchiruna (26.59) wrote:

Jim's Formula ... since the thread was hijacked last time. :)

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#3) On June 19, 2009 at 10:17 AM, jmt587 (99.80) wrote:

Sinch, what is your favorite big boy (non junior) gold mining stock?

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#4) On June 19, 2009 at 10:48 AM, ocsurf (< 20) wrote:

I like CEF and AUY

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#5) On June 19, 2009 at 1:18 PM, masterN17 (< 20) wrote:

What is the best way to invest in gold from an equities account?  Is there a commodity ETF?  Mining ETF?  Who profits most from a rise in gold prices?

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#6) On June 19, 2009 at 1:29 PM, 100ozRound (28.64) wrote:

There are several bullion ETFs.  GLD, SLV, IAU come to mind.  I wouldn't invest in them though because they are just pieces of paper that say you hold a stake in Gold or Silver.  CEF is a good play though. If you want exposure to bullion, the best way is to actually hold bullion.  You actually have physical possession of it.

As far as a mining ETF goes, GDX is worth looking into.

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#7) On June 19, 2009 at 1:30 PM, XMFSinchiruna (26.59) wrote:


Miners have the greatest exposure (leverage) to changes in gold price in both directions, and so can exhibit significant volatility. If you're set on an ETF vehicle, there's the GDX, though I favor the selection of specific miners.

I discuss a multi-tiered approach in this article.


Of the big boys, I consider GG to hold the greatest upside potential. AUY and AEM are intermediate miners, so I place them in a different category, and they are my top 2 for intermediates.

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#8) On June 19, 2009 at 1:34 PM, XMFSinchiruna (26.59) wrote:

Here's a very important development, confirming what I've been saying from the beginning of my time here ... that central bank gold sales are a non-factor!

Aram Shishmanian, CEO, World Gold Council,

“We are pleased to see that the IMF’s plan to sell gold in a structured and non-disruptive manner has gone through due political process without problem, which is a credit to the responsible behaviour of all parties involved in the process. These sales will not constitute any net addition to the amount of gold the market is already expecting from official sector sources as a whole, and therefore we anticipate zero market impact. We believe this announcement, if anything, will lead to positive sentiment among market participants as it clarifies that there will be no net addition to overall gold supply.

“In these times of financial instability, gold’s universal role as protector of wealth has come to the fore, not least as a crucial part of reserve asset portfolios. The fact that these sales will effectively rescue the IMF from a difficult situation regarding its own finances is proof of gold’s unique investment characteristics, long-recognised by central bankers and institutional and retail investors alike.”

Given the IMF’s status as “a lender of last resort”, World Gold Council believes it is imperative that the organisation continues to hold large gold reserves and acknowledges the IMF’s public declarations that:

“The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies.”


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#9) On June 19, 2009 at 1:44 PM, masterN17 (< 20) wrote:

Thank you for your response.  What are your thoughts concerning the (supposedly constant) relative valuation between gold and silver, and the current deviation of that ratio from historic norms (leaving silver historically undervalued)?  Would you consider it a better value point?  Finally, how would you value a commodity such as these?

If these questions are answered in your article I apologize for being lazy.  I will read it soon but these questions are off the top of my head now and I don't want to forget them.

Thank you,

- N 

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#10) On June 19, 2009 at 2:31 PM, XMFSinchiruna (26.59) wrote:


No problem. Those issues are addressed in several recent articles, which I'm happy to refer you to.

I do consider silver to have more upside potential than gold, the the deviation of the ratio fom the historic mean is indeed a major component of that investment thesis. Personally, I am more heavily invested in silver miners than gold miners overall, though I expect gold to more than double. 

Next, I urge Fools to ditch the word 'commodities' when referring to gold and silver. Although they trade on commodity exchanges and share some important characteristics with commodities, in the context of the fundamental rationale for having exposure to these metals while the US dollar faces an unprecedented crisis of confidence relates solely to their importance as monetary metals. Gold, in particular, is a currency first and foremost. Silver has more of a dual identity, but it is still its monetary role that is far more relevant to today's silver investor ... and rightfully so.

Binve speaks more to the latter issue in his blog post linked above.

As for valuing gold and silver ... this is very complicated territory, requiring a very lengthy response. Like anything, they are valued by the market place every day, though there are a host of issues impacting both presenbt valuation and expectations for future valuation ... including the fundamental picture for the dollar, the scale of the Fed balance sheet, U.S. current account deficit, debt, etc., the anticipate scale of quantitative easing, the scale of the global market for derivatives, manipulation of gold and silver prices (past and future) by powerful bullion banks and other potential market-makers, the potential for a run on paper gold and silver assets which in some cases may themselves be leveraged versus the total supply of actual metal backing those assets, etc. etc. I lack the time to answer that question comprehensively, but stay tuned ... I try to state the valuation case in segments as we roll forward in this multi-year bull market (in part because circumstances affecting the outlook for gold and silver prices are constantly changing).

Thanks for your curiosity, and please feel free to follow up after going through some of the resources provided.


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