Optimism and caution

16/02/2011 by Philinje.

Two articles to help your decision making, I hope.

This one is an interview with a noted expert in small cap miners and the gold investment world. Interesting that he thinks gold was oversold with extremely negative sentiment and therefore should go up. There is an analysis of seasonality buried in there. Jan and Feb are up months, March is down, April and May are up.

http://www.theaureport.com/pub/na/8614

Small cap miners are a great play, especially if recommended by an expert like this. But if we get a general crash in equities, mining stocks will get crushed, so probably it’s better to wait till this summer.

This next piece makes the argument for a sizable correction in gold. The possible target levels mentioned at the end are realistic. We hit the first one, $1320, in January and have been going up since.

http://oilprice.com/Metals/Gold/Beware-the-Coming-Collapse-of-Gold.html

Interestingly, this piece was published right at the recent bottom. Kind of validates the point made above - sentiment was quite lousy in January. But the points made here are valid, sort of - inflation fears are making gold less attractive relative to currencies. The funny thing is, gold is supposed to be an inflaiton hedge, isn’t it?

The thinking last month was that higher interest rates would slow growth excessively, AND make currencies higher yelding. But when gold spiked in 1980, interest rates were at historic highs in the US. Maybe it’s just in the beginning when central banks switch to tightening cycles that gold takes a hit. But it’s bound to be a small hit, in the overall scheme of things.

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