Financial Sense University ~ Gold Stock Alert Weekly Update by David Vaughn 11.20.2004

ARE YOU GOING TO THE FUNERAL?
by David N. Vaughn
Gold Letter, Inc.
November 20, 2004
(submitted November 18)

And how is gold doing for the week?

Gold is healthy & well, but can we say the same for the gold shares? Observing the overall mass psychology of gold stock investors leaves me to conclude that there are a lot of un-happy campers out there. Yes, since last spring earlier this year many gold stock investors have �thrown in the towel� & sold their precious metals shares in frustration & disillusionment.

�Gold touched $440.25 per ounce on Tuesday in Europe, scoring a new 16-1/4 year high for the third day running, with the market poised for more gains.� Reuters, 11-16-2004

Did the news text above sound positive or negative for gold?

�Expectations of further dollar weakness amid worries over the U.S. current account gap were seen taking bullion to $445, ahead of $450, as a falling U.S. currency strengthened the metal's appeal for non-U.S. investors.� �Analysts and traders said expectations of further inflows of demand with the imminent release of a new exchange-traded gold fund in New York were also enhancing gold's allure.� Reuters, 11-16-2004

The bullish news we just read means nothing to many gold investors who have turned remarkably bearish in the past six months. Any of you out there suffer from heart disease or worry about �arterial� clogging?

�Wisconsin University researchers recently tested the effects of lager beer versus Guinness stout on a group of dogs that had narrowed arteries. Examining platelet levels that provide a marker for arterial plaque buildup, the WU team concluded that a daily ration of Guinness helped prevent such buildup�� Health Institute Forum, http://www.hsibaltimore.com/ea2003/ea_031201.shtml

Well, it’s good to know something natural out there that will help blood circulation & prevent blood clots. Editor

�Because other trials have shown that moderate beer consumption may have a positive effect on heart health, the researchers say their results may indicate that the dark stout's high concentration of antioxidant polyphenols somehow combine with alcohol to create a heart healthy effect.� Health Institute Forum, http://www.hsibaltimore.com/ea2003/ea_031201.shtml

Well, let's leave the Irish, their Guinness & get back to gold.

I guess you could say that for many those �precious� metals shares just do not seem very �precious� anymore. Now is that an understatement or am I hitting the mark fairly close in this revelation? Sounds like a lot of folk believe gold is soon to have a funeral even as gold reaches new highs.

But do you really know what this means in terms of opportunity?

These are actually all the indications of a strong bull market in its very early stages. And a very powerful bull market just quietly & stealthily awaiting a trigger to set it off. Personally, I believe the only funeral we will soon be having are for those who failed to acquire a position in gold before the next big price advance.

And how powerful will that next price advance be when it arrives?

A clue to this is to examine present indicators. Just how coiled is the spring pulled back that will propel the next leg of the gold market forward? And this we can determine by gauging just how negative the present sentiment is towards gold stocks. And that mood at this time is extremely negative which oddly is in reality a very powerful bullish indicator.

Well, I think we can agree that many of the junior gold shares have dropped in price dramatically these past six months even though the physical price of gold continues to climb & break records. This fact has caused many gold share holders to panic & give up the ghost.

Read the following email I received this last week from a reader. This email I believe is probably very typical of about 99% of most gold equity investors now.

Dear David,

I for one am sick and tired of hearing people saying "Gold is soon going to break out". I've been hearing that for a LONG time now from many, many analysts and it has continued to just painfully inch higher at a snails-pace.

Just wait till gold breaks out over 430 then it will shoot to the moon" "Once through resistance at 432 gold is gonna surge upward powerfully" "Once the election is out of the way the Gold-cartel will have no further reason to hold back the POG and it will fly" "In the next few days gold will break out above 435 and then its All-Aboard the Gold Train.

I'm tired of hearing it.

Not only has Gold NOT surged upward to 480-500 since the election ended, the junior gold stocks have been a friggin disaster that I wish I had never gone near, and it looks like they're never gonna move.

For more than a year now my juniors have relentlessly sunk lower and lower and even now when gold is the highest its been in 16 years and far higher than it was when I bought the juniors STILL my juniors are way, way below their previous highs and my portfolio is down 40%. I'm just hoping to God that they can come back up 20% or so and then I'm gonna cut my losses and get the hell out for good. It seems to me that unless the POG does surge upward in a powerful up leg the juniors will not move at all.

First it was 430, then 432 now 435. I suppose when gold breaks 435 and still goes nowhere they're gonna start saying "just wait till gold breaks through 438 then its 500 here I come!

I believe it will happen. But I wouldn't be surprised (and I do hope you are right and I am wrong) if it just continues to crawl slowly upward at an agonizing pace.

Despondently yours,

Michael

Let's go over what despondent Michael just shared with us.

Michael stated that gold:

��has continued to just painfully inch higher at a snails-pace.�

Well, I for one am pleased with gold's slow rise as this exhibits strength & not just a quick & short term rally.

Michael also said:

��it looks like they're (gold stocks) never gonna move.�

Well folks, if your investment or speculation horizon is just 6 or 12 months you then definitely do not need to be buying gold stocks, but should be purchasing lottery tickets instead. I believe with lottery tickets there is a drawing every Saturday.

And in exasperation Michael cried out:

�I'm just hoping to God that they can come back up 20% or so and then I'm gonna cut my losses and get the hell out for good.�

From reading the above text I hope this fellow never gets married or has children if his capability for patience & discipline is this limited. Personally, I find living with my wife & raising my son, 3 cats & a dog a lot more demanding than waiting for gold stocks to appreciate in value.

I have said it before & I will say it again.

99% of those investing in gold stocks or ANY type of investment really do not need to be doing so, but would be happier & better suited �investing� in the weekly lottery. Why do you think the ranks of the well to do are thin & a minority? Those that do succeed do so only because they had a plan, patience & the discipline to carry it out.

And Michael�s final comment I will respond to is the following:

��it just continues to crawl slowly upward at an agonizing pace.�

And what do I say to the above?

I began following this gold market as a na�ve outsider in 1997 & I had the historic opportunity to witness gold descending to around 252 an ounce. I watched as analysts decried the end of gold & the beginning of a new grand financial era that would witness a Dow climbing to 100,000.

And for half a decade I watched daily & painstakingly with the hope that gold just may �JUST MAY� come within a few dollars of a 300 dollar ceiling. Yes, for half a decade I waited every week to see if gold would eventually break out once again above the 300 dollar cap that held gold prisoner with binding chains.

And now we have investors who are crying because the gold market has taken a breather since last spring? Like I said before, if you can’ttake the heat then get out of the kitchen.

I will say this though. For those investors who have sold all their gold shares at a bottom these past few months they will be buying them back at a premium in a few years after they climb to the sky. Because in reality it is the �Michaels� of the world that the investment community actually makes money on. These are the ones who buy at a high & sell at the bottom.

Anyway, I don't mean to poke fun at Michael, but this game is deadly serious & should not be played except by those with strong stomachs. You know, we hear all the time about a person�s home being their most valuable asset. Well, evidently a family of beavers out near the Mississippi has taken this advice to heart.

�It was probably the world's richest beaver dam. Beavers found a bag of bills stolen from a video poker casino last week, tore it open and wove the money into the sticks and brush of their dam on a creek north of Louisiana Highway 48.� ��part of 70- to 75-thousand dollars taken from the Lucky Dollar Casino in Greensburg. About 40-thousand dollars was recovered.� KSLA-TV, AP, BATON ROUGE, LA

What these beavers did might not be a bad idea. As the dollar continues to drop in the next few years home owners can weave the increasingly worthless US Dollar into the fabric of their homes.

And is gold a bad investment today & for the future?

�The offering (WGC�s planned sale of gold backed shares) in New York may BOOST investor demand for gold by as much as 550 tons, or about 18 million ounces, in the first year, London-based research company Virtual Metals said in August.� Claudia Carpenter, Bloomberg News, 11-14-2004

Does the above news text from the respected Bloomberg sound like wishful thinking & fantasizing?

�$500 an Ounce Forecast�

�Goldman Sachs JBWERE Pty last week said gold prices may rise to $500 in the next year as declines in the dollar boost demand for the precious metal as an alternative investment.� Claudia Carpenter, Bloomberg News, 11-14-2004

And when will the gold shares turn around & begin their climb forward again?

I do not know & I am not going to make a prediction. But I am going to continue to study the �trends� occurring around us & extrapolate where things appear to be heading. And as I continue to study & examine current events I will continue to hold my gold shares & be PATIENT.

�Gold reached USD440.25 per ounce yesterday, a 16-1/4 year high for the third day running. The high gold price reflects the market expectation of further US dollar weakness because of the US current account gap, according to analysts. Bonds are also falling, so gold is an alternative investment.� Ameinfo.com, 11-17-2004

Want to see where today's gold stocks just may travel to in a very few years? Click the following to find out. http://www.goldletterdv.com/WHYGOLD.PHP

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