No Speculative Froth, Yet

Source:

...The total absence of speculative froth at the small-cap end of the gold sector indicates that the public has not yet embraced the gold bull. It seems that hedge funds are responding to the gold rally by buying a few highly-liquid gold shares, but the general investing public -- the main driver of the smaller and less-liquid stocks -- remains unimpressed.

A pullback should commence within the next few days, but the fact that the HUI has closed above its November-2007 peak suggests that significant additional gains will be achieved over the next couple of months.

If the magnitude of the current upward leg ends up matching the previous upward legs in the gold sector's long-term bull market then the HUI will peak at around 620 during the first half of this year. However, we don't think it's prudent to fixate on specific upside targets because the current upward leg has already deviated markedly from the pattern established during previous upward legs and could continue to do so. Instead, we should remain alert to the possibility that the current leg will peak at a much lower or a much higher level than predicted by the historical record...

we have been constantly frustrated over the past 5 months by the failure of most gold stocks to respond appropriately to the substantial strength in the bullion market. We have been especially frustrated by the lack of action at the junior end of the gold sector. These are the stocks that offer the greatest leverage to gold and should therefore have provided the greatest gains once it became clear that a major upward leg was in progress, and yet, with a few exceptions, they have done very little...

The total absence of speculative froth at the small-cap end of the gold sector indicates that the public has not yet embraced the gold bull. It seems that hedge funds are responding to the gold rally by buying a few highly-liquid gold shares, but the general investing public -- the main driver of the smaller and less-liquid stocks -- remains unimpressed.

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