When three leading advisors such as John Murphy, Adrian Day, and Richard Band are in sync about a particular investment, it should warrant our attention. Following the recent setback in the price of gold, all three now believe the tide has turned and the metals is poised for an additional rally. Here is their reasoning and their outlook for gold.
"One of the intermarket
principles we follow is that a weaker dollar usually translates into higher gold
prices," says technical expert John Murphy, chief technical
analyst of Stockcharts.com and president of
MurphyMorris Money Management. Says
Murphy, "Gold has been showing more strength, and it is now above its 50-day
moving average for the first time since February. We had been looking for major
support to materialize around the $325 level. Newmont Mining
(NEM
NYSE) has been in a huge triangular-shaped consolidation pattern within an uptrend
that started during October 2000. In our view, that's a bullish pattern. If
Newmont is bottoming here, chances are good that gold is too."
"What's behind the new
spring in gold's step?," asks Richard Band
, editor of Profitable Investing
. "Four things.
First, selling by central banks has tapered off. Governments have already unloaded so
much of their gold reserves that there's not a great amount left to sell.
Second, mining companies have cut back on their hedging. Now that the
gold price has turned around, those hedges are coming off. Third, gold
demand is surging among the newly industrialized countries, particularly in Asia. And fourth,
the sinking dollar has global investors on edge. Since early 2002, the dollar
has lost about 20% of its value against the euro--the casualty of an exploding
US trade deficit (and rock-bottom interest rates, which put off foreign
investors). We suggest buying
Newmont Mining at $28
or less.
As the
world's largest gold producer, with outstanding mines and management, NEM
clearly belongs among our world-class franchises. If you prefer a mutual fund
over individual shares, I recommend Gabelli Gold (GOLDX
). Under the able stewardship
of Caesar Bryan since 1994, the fund has trounced most of
the competition in good times and bad. In the two years ended March 31, the fund racked up a
handsome 124% return."
Adrian
Day, editor of the
GlobalAnalyst.com,
says "However unnerving at the time,
gold's drop from the February peak over $380 to lows under $320 last
month should not cause too much concern, and certainly does not signal a
change in direction for the gold market. In fact, gold fell right
down to its long-term trend line, going back to the start of the bull
market in April 2001. The long liquidation appears over and we don't expect
new lows.Sentiment, which was
excessively optimistic at the beginning of the year, has weakened dramatically;
the Market Vane Bullish Consensus indicator is down to 50, the lowest
level since July 2001, a solid contrarian indicator. On a longer-term picture,
sentiment is hardly wildly optimistic. Gold mutual funds, for example, since the
summer of 2001, have seen more months of money outflows than inflows.
That's astonishing. For a contrarian, that's an extremely strong sign. Use this
weakness to accumulate the best quality gold."
