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By Ned W. Schmidt |
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Those rushing into the paper oil market and chasing Gold on the latest news need to answer two important questions. Why has Silver not been confirming move in paper oil and Gold? Why have Gold stocks not been confirming this action? Failure of these two markets, until Tuesday, to have joined in paper oil mania induced market action raises serious concerns about both the price of paper oil and Gold. This week's chart is of the GDM, the index of Gold stocks from the Amex. That index is also the model for the GDX, the Gold stock ETF. As is readily apparent from this graph, Gold stocks had not confirmed the the action in either paper oil or Gold until most recent trading. That suggest players late to the game. Traders afraid of missing out on free money. And note, tertiary “break outs” are more often the “two minute” warning. GDM is no higher that it was in early October of last year.
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Gold stock investors tend to be a more value oriented and well informed group. They rarely move based on today's cute news story. For whatever reason, they are holding back their money. This group of investors had already recognized the necessity of Israel taking action against Iran's nuclear weapons creating activities. That possibility is actually old news to them. Israel may see themselves having no choice but to act against Iran if McCain's loses the U.S. Presidential election. If you were Israel, what would you do? U.S. Presidential election is in November and the inauguration is in January. That time period is “window of necessity” for Israel. Such possibilities in the world are reasons to own Gold. Rarely are events hyped by “drive by” media a reason to buy Gold. Investors should recognize that paper oil mania, fueled by daily news hype, is not sustainable. Gold investors should be adding to holdings on lower prices, not chasing Gold higher in the midst of another news story being hyped to pump paper oil.
Ned W. Schmidt
CFA,CEBS,
publisher of The Value View Gold Report
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