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Market Conditions by Amaury deBarros Conti Senior Gold Trader, U.S.Global Investors The Golden Rule: “He who has the gold makes the rules.” On April 2,2001, gold closed at a new 52-week low of $255.55 an ounce. Now,fast forward to April 2,2002, and gold closes at a new 52-week high of $305.85 an ounce. During the same time period, the Philadelphia Stock Exchange Gold and Silver Index gained 56.92 percent while the Standard and Poors 500 Index gained a mere 0.52 per-cent (including reinvested dividends). Incredible! Over the last twenty years,the average gold bull market has lasted between 16 and 18 months. This, in turn, has produced a greater upside potential for the commodity and gold related equities to move higher. Overall, several themes have recently contributed to the fundamentals of the precious metals industry: Rising demand. Global unrest. Consolidation. Look at jewelry. Historically, the demand for jewelry has accounted for about 85 percent of gold’s use in the marketplace. Now let’s look at investing. The investment demand side of the equation for gold has dramatically improved with certain dynamics creating a steady demand for gold over the last six months. The tragic events of September 11th, the war on terrorism, investor distrust created by highly questionable corporate accounting practices, and the international demand for gold (especially from Japan and Argentina) have all contributed to gold ’s recent price appreciation. Looking ahead to 2002, the output of gold on a global scale is expected to decrease. Gold companies, which were in survival mode for many years, have either reduced their new exploration programs or have completely shut down unprofitable mines and operations, or both. Finally, low, short-term interest rates in the United States, renewed merger and acquisition activity, investor sentiment and the strength of the U.S.dollar, linked with a running budget deficit, are compelling reasons for the price of gold and related equities to continue to improve over the remainder of the year. While gold equities have risen in price over the last 12 months, their valuations are still cheap when compared to other gold bull markets. This, along with the fundamentals I have highlighted, still bodes well for these stocks over the next six to 12 months. Amaury de Barros Conti has been a guest of CNN Money and provides commentary for CBS Marketwatch, The Street.com and Multex.com. |
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