Gold Stocks
The bull market in gold stocks can also be broken down into three phases. The first phase began in 2001 when gold stocks made a very large advance in a short period of time. These gains were made during a severe bear market in US equities. Gold stocks acted in a truly counter-cyclical manner.
The second phase was difficult for gold shares. It coincided with a cyclical bull market on US equities. Production costs rose steadily, driven by fast growing demand for energy and base metals caused by exceptional world economic growth. Gold stock performance was choppy, with indices being pulled up by a few diversified producers with significant exposure to base metals.
The third phase started in late 2007, concurrently with the beginning of a strong advance in gold as was the case during phase one. To date, all conditions are shaping up in a similar manner as in 2001-2003. Consequently, we expect phase three to be similar to phase one in both strength and length of the advance.
It is especially important that the gold / crude oil ratio ($GOLD / $WTIC) appears to have bottomed last summer. Oil is unlikely to move much higher and the ratio will continue to trend up, taking the pressure off of the gold exploration, development and production stocks. As a result, the $HUI / GOLD ratio will begin trending up in 2008 and gold stocks will regain their leverage to the yellow metal.
This is an excerpt from an RSG Newsletter posted on January 20, 2008.
Boris Sobolev
Resource Stock Guide
www.resourcestockguide.com
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