Sunday, March 16, 2008

Gold Miners vs. Gold part 2

My first chart showing the Canadian Gold Miners ETF vs. Bullion Ratio on March 4th, 2008 highlighted the growing body of evidence that Gold Shares (more specifically Canadian Miners) appear to be bottoming and ready to break out from their 2 year lag relative to Gold Bullion.

Ive posted an update of this same ratio for March 14th, 2008 below.

With the Federal Reserve likely to announce further rate cuts this coming Tuesday and Gold Closing above $1000 for the first time, the mining shares have yet to reflect any sort of speculative fever. I would not be surprised to see the metal hold firm while the shares suffer alongside any serious market downturn over the next few weeks, but I would also expect the miners to recover fast and make new highs towards the end of the year and this ratio should show some marked improvement.

If this will translate into a run up in the Junior Mining sector has yet to be seen, if banks remain landlocked over solvency issues then the financing for new projects may remain tight until Bonds begin to reflect inflation concerns and the flood of money will exit in search of hard assets.

Update/ 6:52 PM:

This editorial posted below from Bob Moriarity, president of echos my sentiments regarding the ratio of gold mining shares to the metal. The rest is a series of dire warnings that I can only watch in wonder if they should ever come true. These truly are interesting times.

A Time for Caution, Update 1

Bob Moriarty
Mar 17, 2008

I wrote a piece 10 days ago suggesting caution on the part of my readers. Gold and silver are at bullish extremes; the dollar is at a bearish extreme. In any normal time, we would expect to see a correction, probably violent. I still believe we will have a correction shortly but we may no longer control anything. While the metals and the dollar are showing extremes of emotion, the shares of mining companies still seem to be very bullish based on my read of the XAU over gold.

My readers are smart enough to realize we are not in normal times. We are in a Domino Depression where we can expect two or three hedge funds to collapse every day, banks to go under on a regular basis. Northern Rock collapsed last fall, I for one, cannot understand how the rest of the banking system has not failed.

It's starting again; we are in uncharted waters where no one quite understands where we are; we've never been here before. Bear Sterns crashed on Friday last. On Monday March 17th, President Bush meets with the infamous Plunge Protection Team. The alternatives are everything from a Bank Holiday to a nuclear attack on Iran to Bush declaring a "National Emergency" and naming himself Fuhrer.

One of the very real alternatives is Weimar style inflation. That's what the government would like to do; it's a question of if the rest of the world will go along with it. All it would take for a total and immediate failure would be for China or Russia or Japan or Saudi Arabia to dump the dollar.

It's a time for caution. We SHOULD have a violent correction in gold and silver and the dollar based on emotion and government intervention but we could see $3,000 gold in a week or the start of a living nightmare brought to you by the Gang of Fools in Washington. No one knows.

I'm tempted to say the government's ability to deceive is far greater than I ever imagined and the stupidity of Americans equally unimagined. We may well coast into Armageddon at a nice measured rate or we could see a freeze-up next week. The time will come when there is a total freeze-up in the banking system and all the banks will close. I just don't know if it's next week or not.

It's a time to be cautious. We are not entering a recession; it's a full-blown Domino Depression. It's not a time to be in CDs or Real Estate or speculating in the stock market. You need to own real things of some real value. Our world is changing at an ever-increasing rate. Own some physical gold and pay attention to what is going on.

Mar 16, 2008
Bob Moriarty
President: 321gold

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