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Gold Versus Paper August 11 2012 Letter

Gold Versus Paper August 11 2012 Letter

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Published by guru9876543216625

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Published by: guru9876543216625 on Aug 19, 2012
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Gold Versus Paper
Turning paper into Gold 
 August 11th, 2012
 LONG TERM PICTURE (months to years)
We are perfectly set up for an “inversion” cycle where Gold and Gold stocks go theopposite of the general stock markets of the world. The current cyclical bull market incommon stocks, which is within the context of a secular bear market, is now long in thetooth for those global common stock indices that are not already in a bear market. I believe the globe as a whole, when using indices such as the global Dow ($GDOW),Morgan Stanley World Index ($MSWORLD) and Dow Jones World Stock Index($DJW), is already in a cyclical bear market. In fact, the blue chip US stock marketindices are some of the few left in the world that are not yet in a bearish alignment.As a Gold investor, I don’t really care. I have zero percent of my investment assets incommon stocks “for the long haul.” However, many Gold and precious metal (PM)mining stock investors fear cyclical bear markets in common stocks because Gold stockswill often track the general market direction. This is what happened in 2008 after theMarch top in the PM sector. However, what these investors often ignore is the lateAugust 2007 thru March 2008 period as well as other examples in history such as the late2000 thru mid-2002 and the 1973-1975 periods. These were important periods whereGold stocks acted as countercyclical assets and went the opposite direction of the stock market.Though I realize I may sound like a broken record on this concept, it is where big moneycan be made as a speculator and investor. Bear markets can be tricky to trade and theyoften contain big countertrend moves that keep the “slope of hope” alive. If one caninstead trade or invest in a bull market, the profits come much easier and require fewer good timing decisions.There are some very important and in fact critical reasons for wanting to invest or speculate in Gold stocks right now from the long side. In no particular order, here theyare:1) The “real” price of Gold (i.e. price of Gold divided by the price of a basket of generalcommodities) tends to rise during recessions, which roughly correspond with commonstock bear markets. This improves operating margins at producing Gold mines, as thecost of energy and other needed commodities falls relative to the revenue obtained byselling their Gold. We are currently near record highs in the “real” price of Gold whenusing the CCI commodities index as the denominator (i.e. $GOLD:$CCI ratio). If we aregoing even higher, then margins should increase considerably for producing Gold mines:
 2) Senior Gold stocks (using the $XAU as a proxy) are massively oversold relative to theGold price.
 3) Senior Gold stocks (using the $XAU as a proxy) are majorly oversold and have justhad a 40% bear market (which I believe to be already over as of the mid-May 2012 low)and are also at very long term support:

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