Loading ...Gold Exploration – Report December 2006- Bob Hoye
A must READ REPORT for investor in Exploration sector.
This report was written when Gold’s real price ( ratio of Gold to commodity index,(Gold/CRB) bottom in 2006–2007. Since then Gold’s real price has been trending higher and lately has broken out to a multi year high.
All important stars are aligned for a long trend change in PM sector.
A historic account of the relationship between market (boom-bust) cycle and the credits:
Credit spread ; Yield spread; and Gold’s real price.
Some snipet from the report:
“The role of gold’s real price and the exploration sector is to meet an extraordinary increase in investment demand for gold that typically follows an era of remarkable credit expansion.”
“Once the era of asset inflation exhausted itself, typically gold’s real price increased for some twenty years. One explanation is that during the leveraged manias, reckless borrowing and equally reckless lending expands credit to an unsustainable level. ”
” Other than the exhaustion of speculative momentum, key determinants have been a turn to widening of credit spreads as market forces begin to ration the availability of credit for speculation. ”
“Typically, the height of a mania is accompanied by speculative demand for credit driving short-dated rates up relative to long-dated bonds. Just as typically, the end of speculation is marked by the reversal of the yield curve to steepening. On this, treasury bill rates decline in yield as long rates increase. ”
“Also, in each of these, gold’s real price turned up and initiated a lengthy bull market for the gold sector. Within this, the exploration sector provided outstanding performance. ”
“With these, it is evident that the gold exploration sector moves more directly with changes in gold’s real price rather than with the nominal price. Very few researchers have been using gold’s real price so the link from this to market participants remains curious, but it works.”
” this appears to be making a cyclical low for our gold/commodities index has been accomplished and conditions in the credit markets are similar to those that typically anticipate a cyclical increase in the investment demand. This could inspire all aspects of the gold mining industry. For investors who can handle today’s relative illiquidity in the exploration sector, the risk/reward opportunities are outstanding”
If you are convinced that it is time for better risk/reward in exploration stock than best place to find these investments is Spock’s site:
Some current charts:
Gold’s Real price monthly chart, Gold’s real price vs exploration etf, GOEX, Gold’s real price (gold/CNX) ve credit spread (IEF/HYG) and yield spread vs HUI, Gold/CRB: Having difficulty posting here.
May post in a new post.