It seems that the general populace have increased speculation on Gold stocks since Mr Greenspan talked about deflation. This is amazing as Gold is meant to rise when inflation occurs. Perhaps the Gold market is telling us that Greenspan is a bit silly.
The XAU has risen above 80 from a low around 60 in mid March. I have noticed the following trends in the Gold stocks in the last year.
~ they have been rising with the market not against it ~ AUD price has fallen from $640 to $515 since Feb but stocks like Newcrest have increased. ~ there is clear non-confirmations going on between stocks in this sector, eg. NCM, KCN, LHG have been performing separately to each other ~ Australian institutions who put us into US stocks in 1999/2000 (late in the run) are now looking a companies like NCM. In the past 2 weeks 2 substantial shareholder notices have been released. ~ Jewellery demand dropped 15% in the first quarter. ~ The speculation long position in Gold is 64,800 near the record in Feb and around the same point as before the 1997 gold crash. ~ most gold stocks are in upward corrections from peaks occurring in May 2002. ~ the USD Gold price is at critical junction and could be interpreted as just beginning the wave C of the correction from from the 1996 high of $416. If this is the case it will be the final leg of the bear but could take gold below $200USD. ~ the above means the rally since 2001 was a correction in the larger bear market. ~ in the depression gold was fixed at $20US by the government, silver which was not hedged dropped 70%. ~The critical resistance for the 20 year bear is around 400USD.
What does this mean? We could see a similar incident in Gold to what happen in 1997 and shares could revist those levels. eg. LHG 60 cents, NCM under 2.00, KCN below 1.00.
I know this sounds rediculous and I will admit I am wrong and go long is gold breaks $400. However, a deflation scenario would quickly lead to the liquidation of the long speculative positions.
I short NCM at 7.70 so am down a little, but increased my positions today by shorting LHG & NCM. I think this is a good risk reward play.
