May 08, 2003
by John Dobosz
NEW YORK - The greenback is down more than 5% since early April. Gold is trading near a two-month high. Is there life yet in gold's three-year run? Yes, say both resident goldbugs and more diversified gurus tracking the metal.
"With the dollar dropping like this, gold demand is growing and growing," writes Bill Murphy on his online forum, Le Metropole Café, a site popular with hardcore gold aficionados. "Pile an overbought and overvalued US stock market (the S&P 500 P/E is 30, double the historical average) on top of that. . .and you have a recipe for an explosive gold launch in the very near future--like any day," he adds. Murphy also points to technicals to make the bullish case for gold, observing "a very tight reverse head-and-shoulders pattern" following the break from its high in February. Spot gold topped out at $382 an ounce on Feb. 5 and now trades for about $340.
Another gold member, James Dines, editor of the Dines Letter, says that the Fed's fear of deflation has prompted a highly stimulative monetary policy. Dines says that the excess credit creation could even ignite "hyperinflation" that will eventually destroy the currency.
"Fedhead Greenspan is playing with fire, but whether he understands that, or is merely simplistically assuming a little inflation would help counteract a deflation, will be revealed in the fullness of time," writes Dines, whose portfolios were up on average 23% last year. Before that dollar meltdown happens, Dines is advising his subscribers to buy some gold stocks, including: Agnico-Eagle, Placer Dome, Harmony Goldand Hecla Mining.
Another gold-junkie, Tom O'Brien, editor of the Largo, Fla-based Gold Report, trades both stocks and metals using technical analysis, recently bought a couple of cheaper gold equities: Vista Gold and Durban Roodepoort, with respective price targets of $5.85 and $2.88. O'Brien also bought Gold Fields with a two-month target of $12.80 and Goldcorp, which he says should climb above $12 "quickly."
But it's not just the gold bugs howling about gold's glory. Decidedly mainstream Richard Band, editor of Profitable Investing, bought Newmont Mining at $28 and believes it should make the mid 30s within a few months. Band cites a decrease in central bank selling and a demand for gold in developing countries (as well as the declining dollar) as bullish drivers of gold's price.