Murphy, Day, and Band: Go for Gold
05/09/2003 12:00 am EST
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."