Tuesday, November 22, 2005

Metals Stocks: Gold within striking distance of $500 an ounce - Mining and Metals - Natural Resources - Commodities - Markets/Exchanges - Market News

Gold is in striking distance of $500; "buyer beware". If I thought gold was going to continue to rise, I would buy gold stocks which rise faster than gold when times are good. Of course, gold stocks will come down by a bigger percentage move if the price declines. If I were forced to take action today, I would sell gold stocks short rather than buy.

The evidence around the globe is that interest rates are on the rise. Pressure is on the Chinese to raise rates, the ECB is considering a rate increase and the US is considering rate increases. The cost of holding gold is the real cost of money. Inflation hawks are willing to argue that inflation is out of control. They are likely to use the rising price of gold as the foundation of their argument; circular reasoning at best.

The bull market in energy is making another run today with "surprise" cold weather hitting the northern hemisphere. In the past several weeks, I have time and again shown that new supplies and new refineries are being built. We all know that it will take a couple of years for these projects to have their effect but we also know that the market will move in anticipation. Hoarding of oil supplies is now the norm. Like holding gold, there is a cost to holding oil.

The costs are going to go up on December 13 and probably again by February. If I were going to trade, I would sell miners short. For now, I'll avoid this market as I believe the oil price is going to lead the gold price down.