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Silver Wheaton Corp. Message Board

  • crdnlau crdnlau Jan 7, 2008 4:35 PM Flag

    G&S and HUI or XAU

    I was once a regular here but with the bashers/pumpers removing much of a chance for a civil discussion I moved elsewhere. So you know my bias I can't time an egg so I am long term buy and hold (SLW Jan 06 @ $7.41). I try not to get caught up in day to day and if the market heads south as it did in May 06 I just back away from the computer and nobody gets hurt.

    In the extremes there are two kinds of articles. On the one extreme somebody sits down at the breakfast table and writes his thoughts about silver, gold, the market, or whatever. He offers no data or proof because the intent is to theorize (sometimes clothed as fact) usually about the future. Many of these are quite logical. On the other extreme are research articles in which the researcher tests hypotheses by analyzing data (sometimes massive data) in order to come to a conclusion that is data driven with proof. Obviously there are many degrees between these two extremes. I much prefer the latter as it is based upon empirical evidence rather than pie in the sky ruminations.

    The most important article I read in the last two years was about 6 months ago. Unfortunately I didn't bookmark it so you will have to take my second hand reporting of it. It was clearly an academic article which is important for two reasons. First they had access to a very large data base. Secondly it had to have been peer reviewed to be published. This guards against errors in quant (applying a statistical test inappropriately) as well as errors in logic to include cause and effect VS correlation. The researchers looked at a data base of 30 years or more. Here is what they found. As a stock market rises gold can rise with it (contrary to what some think but consistent with 2002-2007). At some point gold disconnects from the broad market as the latter starts to fall but the stocks often continue with the broad market. Then, they too disconnect from the broad market and recouple with gold. I think they used the HUI as a surrogate for gold stocks.

    A caveat--history repeats itself but often not in quite the same way so be careful of looking for exactly the same events. So what have we seen? Since 2002 the DOW and gold have moved in the same direction. However in the summer of 07 the two started to move in opposite directions--they were never really connected--merely coincedent movements. Many have noted that the HUI and XAU have not moved with them. Yes they are up but they are lagging. I would argue this is because the broad market still has some hold on them and they have not completely disconnected.

    So what can we apply from the above? First off unless you are a trader don't get shaken out by a drop in the DOW and the HUI. (As an aside I am not optimistic about the DOW even with several rate cuts this year.) Second, understand that POG will go up and POG will go down. Unless things change the long term bull is still here. Third keep your eye on the gold/HUI (or XAU if you prefer) ratio for clues about the coupling of gold and the gold stocks. This should enable you to worry less about the DOW because after the disconnection between the HUI and DOW the latter won't matter much. Lastly, don't worry about a one day divergence from any theory you may hold. Every trend has its exceptions and one exception doesn't end a trend. If you spot one go with it until there are enough data points to convince you things really have changed.

    One last point. The gold rocket took off in October of 06 @ $560. For more detail please refer to my post # 94 on the IV Goldcorp and gold (related stock GG). See below. For some of you that were here 2 years ago couplover is the mod for that board.


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    • Lol..I've known this poster on another board for SLW for a few years. Good to see you still around. There are so many who have dissappeared.

      I support his current and future posts. I have read many similar articles over the years. One thing I'll add is that historically, for some reason, silver can take 3 months after golds major break out before it too does something fantastic!


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