Gold Prices near 25 Year highs

Its funny how trades go from lonely to crowded.

I first mentioned Gold positively in a client note in December  2002; I subsequently  became more enthused about gold in early 2005.

While still net long Gold, I mentioned that I initiated a short postion in GLD as a technical trade. Given its overbought and crowded status, I wouldn’t be surprised to see it pull back toward $500. 

The initial Gold call was met with a chrirping crickets; The subsequent call was met with yawns. Aside from all the criticisms about Gold Bugs and Tinfoil hats, its funny how people NOW have finally caught up to the gold viewpoint. When I mentioned the short on K&Co. last week, my inbox was filled with derisive snorts. Short Gold? Are you mad? Its going to $1,800!!!

Ironically, the same pattern played out with Oil: I liked it since December 2003, but once it crossed $60, the call went out for $100 oil!

Crowded is the correct word.

Here’s the WSJ’s recent take on Gold:

"With gold prices near 25-year highs, more investors are searching for stocks that could benefit if the surge continues, such as shares of small and midsize gold producers that haven’t advanced as much as those of larger gold companies.

Many of these smaller mining companies are known as risky bets, because of high production costs and, in some cases, challenging pasts. That makes it a more difficult game for investors, though one with a potential big upside if gold stays at these high levels."


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Prospecting for Mining’s Winners
If Gold Prices Maintain Heights, Even Less-Efficient Small Firms May Offer Benefits to Investors
THE WALL STREET JOURNAL, January 27, 2006; Page C1

Special GOLD  focus — December 13 2002Comments
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  1. Abobtrader commented on Feb 1

    Be it oil or gold, i am also bearish on both. I just don’t know when to time the trade. If the pattern of the tech bubble is anything to go by here are some potentially bearish signals: when average Joe on the street starts talking about higher commodity prices, when funds starts better opening their doors to sucker retails investor, or when listed companies in completely different fields start talking about commodity investments to generate a boost to the share price (eg when Walmart start talking drilling at all their sites on the off chance that they may strike oil).

    All the best

    a fellow bear

    PS – When Jim Rogers went short gold many years ago it continued to explode a few hundred dollars more to the upside. His pockets were deep and he rode out the J-curve to its collapse and reaped the profits. May your pockets also be deep and your timing on the money.

  2. John Navin commented on Feb 2

    XAU has long-term resistance here at 155 or so. It might take a few weeks to digest it, but the next Fibonacci target is 198.

    TRE has been the leader during this rally.

  3. Brian commented on Feb 2

    When CNBC covers energy stocks like they covered tech stocks in 2000 (or now for that matter) I’ll sell my energy stocks. Not until then. They still hate them.

    The brutal sell-offs to which they are prone tells me lots of people are terrified of being stuck holding the bag at the top. Which is a sign we aren’t near a top.

  4. M1EK commented on Feb 2

    There are geological reasons to be long on oil beyond technical analysis – economics in the past has proved that it can’t beat the physical sciences. Gold? I dunno; but one would assume that to a certain degree it would track oil, thanks to the valuation impact on the dollar of those same oil prices?

  5. Larry Nusbaum, Scottsdale commented on Feb 2

    Gold (and silver) is money. It’s the currency of the world and the demand is rising as inventories shrink. A short on GLD is simply a gamble and not an investment strategy. It appears to have some legs up only in the short-term, then a pull back that may reward Barry on the play. I don’t know.The next four years will be that of mining stocks, similar to how 2000-2005 was the period to own Real Estate stocks and REITs…….

  6. Larry Nusbaum, Scottsdale commented on Feb 2

    Physical metal should be a part of a well diversified portfolio. It represents cash. Mining stocks should remain about 4-7% of one’s stock & bond portfolio, despite the noise and hype.
    There are major mining stocks and Junior mining companies. Most of the juniors trade in Canada.

  7. calmo commented on Feb 3

    So heavy metal it is.
    Something to weigh down those tents and keep them anchored when the wind blows.
    That dislocation Menzie Chinn thinks is coming means there are lots of potential miners just waiting to dig into something tangible for a change.
    So think First Aid/Rehab service companies in case the heavy metal doesn’t pan out.

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