wmeubank@ocp.kcmo.com
DOHMEN CAPITAL RESEARCH INSTITUTE, INC.
66 Queen Street, Suite 3801,
Honolulu, Hawaii
(June, 1997) PRECIOUS METALS: There's a lot of hype once again
about the precious metals sector. Those who have been bottom
fishing for the last 20 months must be running out of money. But
they continue to forecast the next big bull market in the precious
metals. Of course, that's their livelihood, so we can't blame them.
But we don't have to follow them.
We have seen the greatest financial scandal in history with the
Bre-X scam in which over $5 billion of investor's money was turned
into vapor. Where did it go? To money heaven.
Were only stupid and greedy investors taken? No. Some of the major
shareholders of Bre-X were mutual fund companies like Fidelity.
J.P. Morgan was the company's financial advisor, and Lehman
Brothers had a big buy recommendation on this stock.
Now we have a potentially new scandal in this sector from another highly promoted company. The company reported that it had received a letter from its independent consultants engaged by the company to audit drilling sampling and essaying procedures, which stated:
"We conclude that there is insignificant gold in the Josh Deposit
and that any gold detected beyond background amounts, was
introduced into the samples after they had been collected at the
drill."
The head of the company said that "the consultants have identified
the source of the tampering and it does not involve anyone from the
company."
There's an old saying that a gold mine is a hole in the ground with a liar standing in front of it. That may be an exaggeration, but it's something to keep in mind when you consider the penny stocks.
So where are the precious metals heading? Well, after a protracted
plunge lasting 20 months, any market is entitled to a rally. But as
we've seen again and again, precious metals rallies are sharp,
attention-getting, but usually of short duration. In my opinion,
it's a highly manipulated market, where the average investor
usually gets in at the top of the rally, which allows the insiders
to unload.
The XAU Gold and Silver Mining Stock Index (Weekly) shows the huge
decline of over 40% since I gave my sell signal in the middle of
1996 at a gold conference. But what's important here is that the
latest rally has gone to the first resistance level, and then
backed off. This is normal technical behavior which is usually
followed by a larger decline.
On the other hand, if this resistance line is penetrated to the
upside on a weekly basis, the case could be made that possibly a
strong bottom is in place, and that a more significant upmove will
occur. But for now, this chart says "stand aside."
The chart of gold looks a little bit more positive, as the MACD has
given a weak buy signal. This would suggest a move to the downtrend
line, which now comes in at about $358. If that is penetrated, the
$370 will be extremely strong resistance. That level would not be
penetrated without a lot of work.
The silver chart shows a pattern of lower highs and lower lows,
which is a typical bear market. The MACD indicator below is still
on a sell signal. It looks as if a short-term bottom is being
worked on, but there's nothing enticing about this chart.
CONCLUSION--In spite of the possibility of a short-term upmove,
stay out!
SUMMARY--The precious metals are trying to bottom, but having a tough time. There are some technical signs that at least a little rally could occur, but there's tremendous resistance immediately overhead. I still strongly recommend staying out of this area, because of the high risk and the low reward potential.
The Bre-X scandal with over $5 billion of stockholders values
evaporated, has now been followed by another company's disclosure
of "salting" core samples. And not only naive investors have been
taken to the cleaners. Most of the major fund families had big
investments in Bre-X, J.P. Morgan was its financial advisor, and
Lehman Brothers had a buy signal on the stock.
There are better places to make money.
Bert Dohmen
Added to the WWW 06-14-97
Last updated on 06-14-97
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com