January 16, 2004

What Gives With Gold?

Two questions in the hopper today from readers... Question: What the hang-doodle is happening with gold? Newmont Mining(NEM)and Anglo-Gold(AU) have dropped dramatically over the past three days....like $8.00 per share for both of them! Question: Dan, What's going on with AU. I'm getting slayed! Answer: part profit taking part dollar strength. The dollar has stopped making new record lows against the euro....and this probably looked like a good moment to take some profits for investors who've watched gold stocks roar up in the last year. My contention for the last three years has been that this is a multi-year bull market in gold that will see an ounce of gold equal a share of the Dow. That means gold stocks, even at current multiples, have a long way to go. Holding on to a stock during a bull market is an emotional challenge. You'll want to take profits. And frankly, if you can't sleep at night, or eat a decent lunch, or need the money, then maybe you should take some profits. But I think if you hold on now, or view these moments as chances to accumulate more gold at lower prices, you're going to be rewarded later. If it's any consolation, take a look the chart below. It shows Anglo Gold (AU) in the last two years, during its rise from under $20 to over $50. The yellow line is the moving average...which while flat now, is not down...and you'll notice the stock is trading right near it. The blue line is a flatter line of support...which would mean in my worst case scenario, the stock could go as low as $35 before finding support. Based on today's action (up 0.44%) I think the profit takers, the weak hands if you will, are out. Now is a good time for the strong hands to get even stronger.


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