Commentary

Gold Defies Gravity: Drags TSX from Freefall

August 11, 2011 by · Leave a Comment 

COMMENTARYProspectingJournal.com—The last couple weeks have been a sickening rollercoaster ride for investors, who are vomiting cash after a relentless series of free-falls forced even the hardiest of stomachs to give in to the fear that the world economy is, quite possibly, screwed. The occasional relief from the Debtocalypse, as seen in yesterday’s gains, seems more like another climb up the track-o-doom, as the now defunct EU is running on fumes, the debt-ceiling “solution” has sparked an endless wave of problems and Bernanke’s recent statements on holding the low interest rate until 2013 and postponing QE3 means that he is clearly depressed.

But the TSX, in the sorry state that it is, managed to claw its way out of the losers’ circle today at +89.63, with the TSX Venture Exchange hanging on at a +40.90 gain. Meanwhile, today’s biggest deadbeat, the DOW, plunged an impressive -519.83, followed by the NYSE at -319.81, and the others.

For the moment, gold critics have slid back under their rocks, as the yellow metal—once again—rose to a record high, extending its biggest rally since 2008 and propping up the TSX’s resource-heavy index. Francis Campeau, at MF Global Canada said, “We’ve managed to outperform the rest of the planet . . . mostly on the precious metals sector.”

“Money is moving out of the banks and into gold stocks or miners.”

It’s about time. While the physical bullion has been enjoying record-breaking gains, gold miners have not yet seen the translation into share prices. But today the influential miners led the upswing: Barrick Gold [ABX—TSX] was up 6.15% to $49.72, Goldcorp [G—TSX] rose 6.99% to $50.54, Royal Gold Inc. [RGL—TSX] rose 4.75% to $68.50 and Agnico Eagle Mines Ltd. [AEM—TSX] climbed 5.15% to $62.48. Overall, the gold mining sub-group was up almost 5% among the heavy-weight materials sector, while countless juniors reported positive gains.  As oil and other commodities also helped the TSX gain ground, the financial sector, not surprisingly, sank.

After all, the VIX (“Fear Index”), which we mentioned in previous articles, has been well over the so-called panic barrier of 30 points, closing today at 42.99–a 22.62% gain. So, as I asked earlier last week, is panic now a visible effect in the markets as we have broken the 30-point stronghold?

Yes. The index paints a picture of fear, coinciding nicely with the debt-based insanity gripping the world. It also looks a lot like the rising gold chart . . .

Riots in London, spiraling debt, wars–it seems they are all contributing to gold’s climb. Fear is fear after all and money is money (or is it?); thus, if fear sees the rise in gold and the collapse in fiat systems then perhaps we’re onto something.

However, what’s alarming for those wondering how to catch the gold market—whether through miners or physical bullion—is the growing mass of gold hysteria. When I noticed a discarded Metro newspaper laying on the dirty sidewalk this morning, with a full-page “Buy Gold” advertisement on the back, I thought “bubble?” When I read that JP Morgan (among others), manipulator of all things shiny, is now raising its gold forecasts to the applause of overly obsessed gold bugs, I thought . . . manipulation?

Speculation or not, perhaps at this point following and anticipating fear is the right answer: it’s doing wonders for my gold stocks, after all.

Chris Devauld
Prospecting Journal 

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Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc., which owns the ProspectingJournal.com, may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. 

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