Consider Gold — Here’s Why

October 14, 2003
Dave Floyd

I wanted to discuss some
longer-term ideas in today’s piece. I have made a point from time to
time to share these ideas with you from time to time. Currently the gold stocks
are in what I would call a unique situation. First, they have made an
incredible run year to date. Take a look at the daily charts below, talk about
solid total return. Now, a couple of weeks ago the gold stocks hit an air
pocket on big volume. Nonetheless, the sell-off was right into solid support.
So, while in a short period of time they were hit hard, they have maintained
their technical merit. Yesterday’s action was solid, and that really got me
interested again in possibly adding to my current positions.

The 50 day ema has played a critical role in
recent sessions, and the price action yesterday seemed to re-establish the
upward price momentum.

Technicals aside, there is a solid fundamental
case for gold stocks (yes, I know fundamentals, but long-term they do play a
role).

1. Currency devaluations: Devaluations
worldwide is unsettling, perhaps the smart money is looking for something with a
store of value as opposed to some piece of paper that can be printed at will.

2. Inflation: Inflation? Yes,
regardless of what the spin-meisters say about deflation, nothing in my world
has gone down in price (technology being the exception). But what the smart
money is probably eyeing is the enormous amounts of liquidity that has been
injected into the economy by way of Central Banks. This has set the stage for
inflation within a few years, it is basic economics.

You decide, would you rather invest in an asset
that is cheap historically or bloated tech stocks? The outcome, while not
certain, favors an asset class that represents some degree of value. In the
long run, “expensive” stocks do not make money for investors, that has been
proven.

Turning to Forex, call it lucky or perhaps skill,
I dunno, but I was real happy with the way the currency pairs played out that I
had mentioned in yesterday’s column.

“The
EUR/JPY and EUR/CAD
are setting up as nice shorts, keep your eyes on these two pairs.”