Anyone watching the gold price of late? Well, its an important juncture in terms of its chart pattern. The 5-year Kitco chart for gold. It is apparent from our interpretation of a shorter term chart that $1550/oz is an important support for gold, and we are clearly close to that point. Gold might still have some consolidating to do in the physical market, but its worth taking a look at some gold producers and emerging producers in the equities market.
Clearly there is a bit of upside in the gold price. But the greater opportunity for non-leveraged investors is likely to lie in the equities market - at least for gold stocks given that the broader (Dow/S&P500) is testing its previous highs - 14100 points for the Dow.
We have some thoughts on some good stocks at our Spec Mining Guide.
You might however wonder whether you can trust that the gold price is going higher. We recognise that there are basically three compelling values which underpin gold prices:
1. Low interest rates - basically depositors are subsidising borrowers, so its better to buy any 'good investment' rather than hold cash
2. High asset prices - property prices around the world are fully priced; yields are with few exceptions not good (Asian tigers, Japan), equities are fully valued.
3. Relatively cheap - Gold prices are not fully valued. On this commodities blog we have posted graphs showing the historic relationship between gold and the Dow Jones. This graph sees gold going to $2500/oz in this cycle. Remember that in the last gold boom in the 1980s, gold went to $780/oz. That was 30-odd years ago. Compounding inflation over that period gives you a clue as to the under-pricing of gold.
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