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Gold Bears Head for the Hills

SOURCE:[The Globe and Mail]- It’s looking more like the bear market for gold stocks is over.

Investors should use any market weakness to take positions in gold stocks because there is a strong case for the price of gold bullion blowing through $2,000 (U.S) an ounce over the next 12 months, suggests the head of research at Dundee Securities Ltd.

“While the odds of picking a market bottom are undoubtedly poor, it seems likely to us that August might well have been a turning point for gold equities,” Ron Stewart said Wednesday.

Gold bullion and equities have moved “dramatically higher” after the Aug. 23rd release of the minutes of the U.S. Federal Open Market Committee (FOMC) meeting that took place some three weeks earlier, and indicated another round of quantitative easing [bond-buying program] was imminent, he wrote.

The trend of gold outperforming equities was likely broken by events in August, and “signals the possibility of a change in market sentiment towards gold companies, which were previously stuck in a secular bear market when compared to the bullion price since 2006,” Mr. Stewart wrote in a report.

While acknowledging that the price increase in the gold securities may not be sustainable in the short term, he expect many of the equities in the Dundee coverage universe will “take out their 52-week highs” over the next year.

“In the near term, as we approach the U.S. election on Nov. 6, we wouldn’t be surprised if the market pauses or even gives back some of the recent gains,” he said. “Under our best guess of an Obama victory, momentum should pick up thereafter and end the year strong ...We recommend that investors use this period to take a full position in high-quality precious metals companies.”

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