Cliff Hangers

We're Having a Worldwide Bull Market in Gold!

By James J Puplava CFP, May 22, 2002

Special series of graphs today. Click here

As I turned on the boob tube this morning the number one headline was "Gold Hits Two Year Record High." Then just as quickly as the headline was given, the cameras switched to the floor of the stock exchange where a reporter talked about Ford's restructuring, and some other company beating analysts' estimates. I was left hanging, trying to find out where the price of gold had gone. It was like a dangling participle, a headline with no follow up story. Only later when the day's top performing sectors were reported was it acknowledged that gold was one of them. Later on in the broadcast an expert in commodities revealed that gold could head north of $400. Did the viewer get any inkling that this was more than a momentary pop in the price of the metal?

Even more striking is the fact that gold is seldom covered or reported in the daily news anymore. Back in the 80's and the early 90's the price of gold was reported each day in the financial newscast along with the venerable Dow. When I was a financial anchor doing television news in 1991, I always reported the price of gold as well as the Dow and Treasury bond yields. Today you get the price of the Dow, S&P 500, and the Nasdaq. Very seldom does newscast cover the price of gold or rarely the price of silver unless it is a major story, such as today, or when people like Warren Buffett are reported to have been buying silver. If it is covered, it is only briefly done, and then quickly dismissed. The bulk of what is covered in the financial press is "this" company or "that" company beating analysts' estimates. The story never centers on how fundamentals have worsened. Real earnings are omitted from the story.

The Hidden Story

Likewise, the gold and silver story is never fully disclosed. The fact that production is about to go into decline, or that the gold and silver industry has been running supply deficits and the price has remained suppressed appears normal. Most major mining companies haven't been replacing their annual production with new reserves each year. With prices at historically low levels, it hasn't been economic to go out and find new reserves. Instead, the industry has contracted and major gold production is about to go into decline. Over the next few years, with no new major projects coming on stream, and existing reserves constantly being depleted, high rates of production prices are going to be heading a lot higher than they are today. Gold and silver production are projected to markedly decline.

The reporters very seldom talk about these things, nor do they mention that gold and silver shares are rising around the globe. Many Internet sites no longer post the price or show graphs of several exchanges. Yahoo just stopped supplying data quotes for the JGOL (Johannesburg Gold Index). They have also announced there will be no more data feeds on the XGO (Australian Gold Index). As Nick Laird of Sharelynx.net reports, even Bigcharts has stopped providing charts on the TGL (Toronto Gold Index). It's as if they don't want you to really know what's going on.

With tension in the Middle East, India and Pakistan on the verge of war, corporate earnings dropping like a rock, and the financial system becoming more unstable, with the derivative market just short of producing another financial neutron bomb, you would think more attention would be paid to the money of last resort: gold and silver. Very little is said on the subject other than to report the price has risen. Most of the time experts dismiss the price rise as a fluke, an anomaly that isn't likely to last.

We're Having a Worldwide Bull Market in Gold

And no one is talking about it!

The reader may find it helpful to view the charts on our special page of the HUI (the Amex Gold Bug Index), the XAU, (the Philadelphia Gold & Silver Index), the XGO (the Australian Gold Index), the JGOL (the Johannesburg Gold Index), and the CBOE-GOX (the Chicago Board Option Exchange Gold Index). We've even included the FTSE indexes for Americas, Australasia, and Africa. I'm not an expert market technician. I rely mainly on fundamentals, which I believe are explosive for gold and silver. But I do know a trend when I see one. As shown in these graphs, these trends are explosive.

Investors Chase The Illusion

An investor is presented with only a few opportunities in a lifetime to make real big money. The last one was in 1991, and before that it was August, 1982. This is one of those times. What we have in front of you is the potential for 10 and 20 baggers as Peter Lynch used to say. The whole industry is under-owned. Most gold mining shares are owned by insiders, gold bugs and few speculative traders. Most Wall Street institutions don't own the sector. As the graph shows, courtesy of Ned Davis Research, the momentum and breadth indicators show strong support. The graph of the Fidelity Select Precious Metals Fund shows that individual investors still haven't caught on to the trend. Most market timers are out of gold as Mark Hulbert has recently reported, and so are most investors. Most investors are still chasing the illusion of a bull market in financial assets without recognizing it is over and gone. The financial media, Wall Street and investors are still looking through the rear view mirror and remain completely unaware of what lies directly in front of them. The media and Wall Street keep spinning out fiction of earnings miracles when it is losses that are reflected on the bottom line.

If an investor would only to take the time to read most annual reports of companies reporting earnings beating estimates, they would find a world totally different than the one reported each day by the press. In order to keep the markets up and put a floor underneath the market, it has become more necessary to spin the illusion of artificial prosperity. The experts know that when the crash comes, it is more likely to be followed by a depression. This is what keeps the authorities up at night, and the midnight oil burning at bullion banks and derivative firms. They are staring at 10-sigma events all around them and are praying none of them erupt or become a reality. They face only one major problem, which is the rise in the price of gold and silver that acts as a barometer of the financial markets and on governments. Right now the barometer is dropping below 29, signaling major storms ahead. Wall Street is still forecasting sunny skies ahead when in fact, the financial barometer of gold and silver is forecasting otherwise.

Moody Markets

The major markets fell earlier in the day as police closed the Brooklyn Bridge in New York this morning after an unattended knapsack was spotted. Security has been heightened recently after the FBI said terrorists had targeted the bridge and the Statue of Liberty for possible attacks. The government has been letting U.S. citizens know that it is just a matter of time before the next attack, which could be as deadly as the first. The President has been attacked by liberal Democrats for not doing enough before 9-11, and that he knew it was coming, which is completely false. Since that didn't work, they are now attacking the President for warning the American people of possible attacks. CBS anchor Dan Rather called the attack warnings 'bogus.' The terrorists are getting exactly what they want, which is to sow doubt and confusion. They are using the military tactics of Sun Tzu brilliantly. It is sad to see the country so disunited at a time of war. In times past, the opposition party usually united behind the President and remained united to show strength and resolve. Instead, we have a few politicians with political aspirations demagoging the issue of terror and war much to the delight of the country's enemies. It is no wonder that investors are frightened. Maybe that is what the rise in gold and silver is telling us, that the faith in government and the financial system is slowly waning.

Benchmark indexes rebounded at the end of the day after a large buyer came into the market helping to prop up stock prices. Nevertheless, most stocks declined today with five stocks falling for every four that rose on the Nasdaq. Winners were about even with losers on the NYSE. Volume declined to 1.14 billion shares traded on the big board and 1.70 billion on the Nasdaq. In the broader markets, gold and silver shares, natural gas and oil service issues had another explosive run up in price as the price of gold rose $2.20 to top $318, sending the $GOX index to a four-year high. Investors are fleeing to safe haven areas such as gold, silver, utilities, and energy much to the dismay of Wall Street. On the down side today investors continued to dump techs despite Nasdaq gains along with financial, airline, and retail issues. With the headlines talking about mounting terrorism, war and recession, again it is driving investor anxieties. It is getting harder and harder for analysts and anchors to spin the recovery story. Nobody is buying the miracle in earnings stories anymore, especially in the tech sector.

Overseas Market

European stocks dropped, led by Deutsche Telekom after Europe's biggest phone company posted its sixth consecutive quarterly loss. The Dow Jones Stoxx 50 Index fell 54.34 points, or 1.6% to 3420.57. All eight major European markets were down during today's trading.

Japan's Nikkei 225 stock average rallied to a 9 1/2-month high, led by UFJ Holdings Inc. and other banks, after a report lifted expectations for economic growth that may help lenders reduce bad loans. The Nikkei gained 1.4% to 11,961.98, its highest since Aug. 8, 2001.

Treasury Market

Government bonds rallied for a second day. The 10-year Treasury note climbed 9/32 to yield 5.12% while the 30-year government bond ran up 11/32 to yield 5.64%. Thursday's agenda includes weekly initial claims and April durable goods orders, which are seen rising 0.8%.

James Puplava

© 2002 James Puplava

Contact Information

James J. Puplava CFP
PFS Group
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