Two goodies for you from two very sharp Café members. Both came in over the weekend:
Hi Bill:
In June of 2004 I sent you a chart showing that gold does NOT go down in all US Presidential election years, as was being touted by many a "professional" commentator at the time as a reason to sell. To the contrary, I pointed out that when gold is in a bull market, gold goes UP or at worst has a positive year closing at its highs, even if not closing above the previous year´s close. This was true of the US Presidential election years 1972, 1976 and 1980.
2004 was the first year since 1980 that gold once again had a positive year over year closing. This, to me, breaks the spine of gold´s 20 year bear market. Maybe now more people will, as you say Bill, "get it" and acknowledge that gold is once again in a secular, generational bull market. Please see attached chart.
Now, one might ponder that if this is true, then other strong characteristics of the bear market must have cracked also. This is true and I offer one other major hint that, yes indeed, the PM markets themselves are screaming "to the moon" (again, as you say): for this I show you Nick Laird´s great, but now obsolete, 3 year up/5year down cycle which has also just been broken. Based on this cycle, 2004 should have been a down year but instead was a fourth year up. Please see second attached chart.
The lackluster performance of the mining equity market this year was not at all surprising as so many new companies were launched and the existing ones competed hungrily for new funds that had been denied them during the 20 year bear market. I read somewhere (my apologies to the source for not remembering) that PM share equity financings and mergers consumed 17 billion US dollars in 2004 as opposed to only 3 billion in 2003. For a small market sector, that´s a good piece of change and drew funds away from chasing prices up. I remember in 2001 and 2002 CDE almost tripled its market capitalization without the share price moving up at all. Then in a quick 7 month period from August 2003, CDE exploded from about 1.50 to over 7.50.
Periods of consolidation, restructuring to new realities, and refinancing are NECESSARY in a nascent bull market, especially in an industry that has been so starved for so long as the precious metals industry has been. When I started again my activities in the gold share market in 1999, I traded in and out of positions frequently, and did well. 20%, 40% and even a lucky 80% were good for me then, and out of the portfolio went the shares. Then in 2001, after a tough 2000, I sold positions in 2 companies (HM and ASL) for profits of 15% and 53% only to see the shares blast up another 100% to 500%. This made me restructure my thinking so as to allow me to somehow make gains of over 100%, a feat I thought was to good to happen to little old me (a difficult psychological hurdle). About the same time, Jim Sinclair came online, launched/presented to me (and many others I suspect) through Midas, and both LeMetropole Café and Mineset became daily musts for me. Through these two sites I mustered the courage to calmly (sort of) buy all major dips, employing 10 to 20% of my allocated capital for the sector on each down swing. By mid 2003 I had deployed 83% of my PM funds and by the end of the year had profits in multiples of 100% in all stocks. I got lucky and took large though only partial profits in January 2004. Since then I have employed the buy all large dips and hold strategy that Midas advocates, and feel very well about the portfolio´s prospects going forward. Interestingly, anyone who comes into the community for the first time now and buys, will be picking up shares at levels that I sweated at to allow the market to come down to me during the year. The value in PM shares today is phenomenal; the fundamentals in the gold bullion market keep getting more and more bullish. Did you see the piece on JSMineset where Goldman SachsGoldman Sachs forecasts that net foreign investment income is likely to shift to a sizeable deficit during 2005, growing thereafter. ?
2+2=4 and strong multiple fundamentals for bullion (supply/demand deficit, US budget deficit, US trade and current account deficits, Russia, China, Japan declaredly diversifying their reserves away from the US dollar, world geopolitical whirlwinds, Germany declaring they will not use their full WA allotment, etc.) will continue to equal higher prices for PM equity shares.
But one has to see it to "get it". I am sure that the technical milestones broken as commented above, coupled with the now undeniable positive fundamentals in favor of gold, will certainly catch many peoples' eye as the new year enters and investing strategies are debated, outlined and executed.
Happy New Year.
All the best,
David
