November 29, 2005
Alec Hogg
Moneyweb Holdings Limited
The breakthrough gold bugs have been waiting for came at 2:30am last night. I know because that’s when my mobile received an SMS from Thebulliondesk.com. Clearly, some regard the metal’s penetration of $500 an ounce as a major event.
This news is sure to further elevate the status of Virtual Metals CEO Jessica Cross. Two weeks ago, the usually conservative Cross predicted on Moneyweb Radio that the gold price would break $500 before Christmas. It was then trading at $478.
Cross was discussing her Yellow Book, an in-depth analysis of demand and supply factors which her company had just completed. The normally deadpan wife of former SA Reserve Bank Deputy Governor James admitted to being “excited” by what she discovered after extensive research into the demand and supply factors.
The discussion in which Cross summarises the thinking behind her conclusions are well worth revisiting. The full interview is at: http://www.moneyweb.co.za/moneyweb_radio/mny_power_hour/568164.htm
Back to the present where gold is holding above its psychological level this morning. Those who claim to understand these things reckon the price will probably ease back into the $490s in the next few days but then explode sharply higher.
They say this will be our last chance to buy into a rocketing asset class because once gold really starts running, it’s difficult to climb aboard.
Four years since he last graced our radio studio, technical analyst Issy Bacher emerged from hibernation last night to stick out his neck further than ever he’d risked previously.
Bacher’s Cycle Trends computerized programme, an accurate predictor of gold prices during Bull Markets, is once again flashing all the green lights.
He believes investors can buy blindly into bullion, coins and equities – admitting his own equity portfolio is now 100% invested in gold shares. Bacher told our national radio audience the gold market is in the infant stage of a move only seen four times before in the quarter century he has followed the metal.
Said Bacher: “In 1983, it was enormous, you could have bought Loraine (a marginal gold stock) at R2 and sold it for R20. In 1987, the (JSE gold) index went from 3500 to 8000. In 1993 from 2500 to 5500. That’s after the break; not from the bottom, when it breaks. In 2001 it went from 1400-odd to 3500.”
As for this time, Bacher says: “When they run, you can’t catch them. And it’s usually the first six months. If you go back in history, it’s usually double or treble the index.”
So should we blindly follow the cyclist as Bacher prefers to be called? At the very least, there’s a case for some exposure to gold shares by those who haven’t yet got onto the bus. Particularly as this move looks a lot more sustainable.
Wealth being spread through strong economic growth in India, China and the Middle East is introducing millions of gold-obsessed people as first-time buyers. This provides the solid base that did not exist during those brief periods when gold traded above $500 in 1983 and 1987.
While gold has been grabbing the headlines, platinum surpassed an even more important barrier overnight when breaking through $1 000 an ounce once again. This is the second time in the past week that the price has moved into four figures and should also steel the resolve of those who those riding its strong uptrend.
One of the more interesting aspects of the latest surge by precious metals is that it has come during a period of US Dollar buoyancy and oil price weakness. Jessica Cross interprets this as proof that the strength is coming “internally” from the gold market itself, rather than being driven by the more speculative external factors.
Elsewhere this morning, share markets globally are down after weakness on Wall Street overnight. The S&P and Dow lost around half a percent and the Nasdaq is off double that. Asia is softer and European exchanges are expected to follow suit in the nervous hours ahead of the interest rate decision by the ECB.
The South African Rand is holding onto last night’s gold-inspired strength, trading at R6,46 to the US Dollar; R11,13 to the Pound and R7,67 to the Euro. The Brent crude oil price is trading a touch of $53 a barrel.
Alec Hogg presents the Moneyweb Power Hour every week night between 6pm and 7pm on Radio 2000.
http://www.moneyweb.co.za/shares/traders_notes/631704.htm