Gold Stock Bull

We wrote about Newcrest Mining a few months ago, highlighting the company as a prime takeover target. Newcrest is Australia’s leading gold mining company, boasting a relatively low trading price and a politically stable home. Newcrest, which has a market value of more than $A7.2 billion, has long been viewed as an attractive takeover target for top international goldminers. Newcrest currently mines about 1.5 million ounces of gold a year and is expanding output. Newcrest was upgraded to a “Buy” by UBS, with a $25 share target. UBS is expecting:

“improving production from Telfer, strong exploration results from Kencana, and a higher gold price in CY07 to drive Newcrest to our price target of $25. Despite a slow start to the year from Telfer, the drivers that should see production improve over the year remain on track; the underground is developing as planned and recoveries are improving.”

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MarketWatch just published an article entitled Dollar on Path for a Crisis. We couldn’t agree more. The timing of this crisis should coincide nicely with wave III of the current bull market and may very well be the fuel to ignite gold’s next big run.

The dollar is moving toward a crossroads. The U.S. Dollar Index, which tracks the buck against a handful of the world’s major currencies, has been consolidating along an uptrend line that began in December 2004, but also along a downtrend that started in November 2005. Given that the trendlines are on path to intersect, the dollar will be breaking out soon. Technically speaking, it looks very likely that the direction will be to the downside.

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The HUI technicals are looking beautiful on all fronts and giving a screaming buy signal. We were burned the last time the technical signal was so clearly bullish, as it was followed by quick 20% drop that led to the recent correction. Whether you believe it was blantant manipulation or not, we find ourselves in similar position today and many are questioning whether we will see a repeat of the selloff in early September. Weak hands were devasted and shaken out of the market with the last correction, but the faith of the true goldbugs wasn’t shaken. You begin to build a tolerance to these violent corrections after a while and realize it is part of the game. As long as the fundamental reasons for owning gold and silver investments remain, the bull market will continue and those that hold their positions will realize impressive gains. As more and more investors use the corrections as buying opportunities instead of fearing the end of the gold bull, the corrections will become shorter and less severe. We can’t read the future, but we are betting the recent rebound in gold stocks has injected a bit of confidence in investors and that we are on the verge of the massive wave III upleg that will push gold beyond $1,000 and silver to $20.

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