Tuesday, March 18, 2008

Gold Stock Scenarios

Source: 321gold.com

"Mar 11, 2008

We have two potential scenarios in mind for the gold sector, the first of which can aptly be labeled "the 1973 model" because it involves the financial markets behaving in a similar fashion to the way they behaved during 1973. To help explain this scenario we've re-produced, below, two charts originally included [in] earlier commentaries.

The first chart compares the 1973 performances of the Dow Industrials Index and the Barrons Gold Mining Index (BGMI). The key points, here, are:

1. The BGMI was inversely correlated with the Dow during 1973 (and, by the way, for much of the 1970s).

2. The BGMI was strong from the day of the initial panic low in the broad stock market in May of 1973 (the day when the number of new lows on the NYSE exceeded 1100) until just before the Dow completed its final successful test of the panic low. The BGMI then 'corrected' for about two months while the Dow rallied.

3. When the Dow's counter-trend rebound came to an end, the BGMI's bull market resumed..."

"...The second of the two scenarios we have in mind involves the gold sector rocketing upward over the next several weeks and reaching an intermediate-term peak during April or May..."

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