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PMS Weak End Upchuck for Oct 4,5

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The United States is headed for record budget deficits, Washington's strong dollar policy is crumbling and the economic prospects for much of the world seem to be hanging by a thread.


Sounds like ideal conditions for the price of gold to rise, and hence a perfect time to buy gold mining stocks, right? Not exactly, according to anal cysts John Tumazos and Jared Muroff at Prudential Financial.


Mr. Tumazos and Mr. Muroff released a study of the gold mining industry yesterday, and they conclude that the biggest players are already fully-valued or overvalued based on their outlook for the price of gold.


"It appears that the gold stocks are trading not on the current gold price, but on bullish expectations for the gold price where it could cross US$500, US$600, or even US$700 an ounce," the report says.


Since hitting a low of US$255.55 an ounce in April 2001, has risen 50.8%. The metal closed at US$385.40 an ounce yesterday, up 11% for the quarter. That's the best three-month gain for gold since 1999, and the price now sits just a few dollars shy of the six-year high it hit last week.


Mr. Tumazos expects the price to keep climbing throughout the next year, but the prices attached to major gold mining stocks make them a dangerous bet at these levels nonetheless, he said.


The two anal cysts calculate a multiple of "net present value" for each of the six largest publicly-traded miners, and the conclusions are startling.


According to their research, Goldcorp Inc. is discounting a gold price of US$830 to bring its shares into line with its net present value. Newmont Mining Inc. and AngloGold Ltd. are discounting a gold price of US$671 and US$625, respectively.


Canada's two major producers are trading at more reasonable levels, but still reflect some aggressive targets. Placer Dome Inc. is factoring in a US$577 gold price, while Barrick Gold Corp. is discounting US$524 an ounce, according to the report.


By their estimates, Goldcorp is trading at 2.3 times its net present value, while Barrick and Placer dome are at 3.1 times and three times respectively. Newmont trades at 4.4 times NPV, and AngloGold is at 4.47 times. Prudential says a multiple of three times NPV indicates a fully valued stock.


The calculation is highly subjective because it includes a raft of debatable assumptions and estimated cash flows. For example, Prudential assumes that 75% of the companies' recoverable resources will be converted into provable reserves and eventually mined.


The anal cysts also figure that each company will have to spend US$40 per ounce to develop and eventually mine unproven resources, and that new mine construction will take two years.


The report applies a different discount rate to each company based on their unique technical, financial and geographic circumstances.


Obviously, these are rough estimates, but they still provide an interesting picture of the industry's future.


While some might say these valuations are justified given the enormous uncertainty facing world financial and currency markets, only the most ardent gold buyers expect the price to keep climbing at the rate it has over the past two years.


Prudential expects the gold price to keep climbing through next year. Mr. Tumazos revised his 2004 gold price forecast up to US$425 from US$375 yesterday to reflect the ongoing turmoil in the U.S. economy and the rising demand from hedge funds betting on a market decline.


But the rush to restart several large projects that had been shelved for years while the gold price languished points to a glut that should put a cap on rising prices in the future.


Mr. Tumazos expects the price to ease back to US$400 in 2005, followed by a decline to US$375 in 2006. And by 2009, he expects prices to return to US$325 an ounce.


With that in mind, the anal cysts initiated coverage of Goldcorp with the same "neutral" rating given to Barrick and Placer Dome. And because of their higher valuation as compared to net present value, the anal cysts rate Newmont Mining and AngloGold "underweight," Prudential's equivalent of a "sell" recommendation.


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Tonto..... where is the Lone ranger? did you kill him off?


RGLD... is a momentum stock that makes an excellent trading vehicle from both sides of the plate.... let it bounce before you go short though IMO....

thanks anjing....thinking a low retrace next week possible for entry.....thanks for BGO charts!! The Lone Ranger...well, hes a little stiff these days!! :P

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Tonto said:


"Due to the upcoming election etc. at the absolute must hold up mentality in the markets seem to tell me that gold/silver miners will be better off investing in towards next summer or spring.....to much at stake and with the vix etc. so low it seems a must to get fear out of the markets....I got a good lesson friday oin how manipulated gold can be."



Any true believer in the existence of the "matrix" would be strongly inclined to respect your prediction, but what if it is known by spring of 04 that revenues continue to decline to the point where there will be a 1 trillion $ or greater deficit... that could rain on the Bush parade.

Logic tells me you may be right, but I can offer no guarantees that the holy dollar won't go down another 20-30% before the election.. thus shooting gold upward.


I am thinking out loud here.. any comments from our fellow gold followers?

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Initially, it appears that the gold bears may be correct, since most of the leading stocks in the HUI took out swing lows on higher volume.




However, I have also seen the "imminent breakdown" phenomena in Mo-Mo Monkey stocks get Steve McQueened in an immediate U-Turn.


We'll know withing a few days whether this gold selloff was a false break to the downside, or the real deal....

Extremely dangerous to short anything that is in a bull market.


Trust me. I shorted ALL of the stocks listed below, and was badly burned.


This may be a normal bull market shakeout, designed to fool most participants. A list of Mo-Mo stocks below broke swing lows on massive volume, but instantly recovered.


Examples of these Steve McQueen U-Turns which left Hapless Short Sellers in the dust:



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Price Line == Close

Maroon == DMA(31,-16)

Red == DMA(62,-31)

Green == DMA(123,-62)

Black == DMA(123,-62)-DMA(62,-31)

Pink == DMA(DMA(123,-62)-DMA(62,-31),+123)


Concept: Backward displaced moving averages (read up on Hurst to understand this better) used in a MACD type fashion (display volatility/cycles across a zero baseline) with a moving average of the result pushed one period of the longest average forward in time as a forecasting tool based on cyclical action.


All dates and periods are measured in calendar days.


Black and Pink lines are zero based and translated to 400 (e.g. read 400.00 as the zero crossing line for these to indicators)


Projection from this chart shows 11/18 as next low.


Purpose - just one more cross verification method of where our next low will occur based on cycles.


Brain hurt? :lol:


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12:01 POG was taken down on Fryday - only on Fryday's are other markets closed at this time - gold trades 24hrs except for fryday


Wyndy I understand that 3 black crows are usually retraced and the highs retested


If the broads don't sink like a rock and gold retrace this 20 dollar decline I'll be a monkeys uncle


The Railroad track should fully retrace very quickly - like Monday :lol: this is the largest pullback in years - it should be BIG price rejection or else......

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