On the other hand, the ratio of gold prices to many of the commodities, and the averages, is at more than a 10-year extreme, and it is not sustainable. As a matter of fact, I think it could be a drag on gold prices. Gold is the only commodity challenging the resistance point in its post-March 2008 downtrend.
It looks poised to break out, and the other commodities appear to be bottoming. However, while the extremity lasts, it could cap gold prices.
My feeling is that the gold ratios (i.e., gold prices relative to other assets, commodities and currencies) are going to ebb in the short term while commodity prices catch up a little. I continue to think that this catch-up phase will include a rally in stock prices, and a general recovery in risk appetite, even if short-lived. While it lasts, it is likely to shave a few safe-haven points off gold. It hasn't started yet.
I'm not looking for new lows in gold on this... just some backfilling and consolidation while the other commodities and assets catch up some. This could happen over the next few months. Then look out.
Regardless, however, I expect gold shares to benefit from the general return of risk appetite too. That is, but for some ebb and flow, I expect gold shares to do well whether gold goes up or not - so long as it doesn't go down too much. As long as it holds the $800-850 level, gold shares are a buy.
It is still a buyer's market. Many gold shares are still factoring in a gold price of less than $800. But don't be hasty. Rather, be deliberate, which means don't waver from the plan or your conviction on dips. Buy them. Try not to buy on days when everyone else is, like today, but make sure you have a shopping list and just pick away at it when you get the dip.
Investors should always wade in (and out) of their positions, rather than jumping in and out - as ole Jesse Livermore used to do. They called him the "Boy Plunger." He made big on the way up and lost big on the way down. There are lots of folks like that on Wall Street. They're big gamblers. You could say the Fed made them. They don't care about the black swan, because they believe that should they lose, they will just win again tomorrow.
Keep in mind, though, you're not buying blue chips here. Small-cap miners (and options) are extremely volatile and risky.
Remember this is for 10-20% of your financial assets - whatever you can sleep at night with. Some people can sleep with more - some can't sleep anyway. I guess the analogy doesn't apply to insomniacs, but you get the gist.
(Courtesy: The Daily Reckoning, Australia)
