sexta-feira, 29 de fevereiro de 2008


Today I will justify yesterday's post ( about the downside risks in Gold (and other commodities).

In terms of fundamentals, there are several concerns for the bulls:

1- The supply/demand equation is probably going to be reversed:

a) In a global recession environment, it is almost sure that global demand for commodities will be affected, even in the miraculous China, that is almost 40% dependent on exports. The only question here is how severe is going to be this recession, now predicted by more than 50% of economists: this will dictate how is going to be the correction in terms of percentage. I'm betting on a 50% correction but that's just a bet;

b) There are also issues on the supply side of the equation: a lot of production capacity increase plans has been started in the last 2/3 years but the effects are only starting to be felt lately because those plans take time to accomplish: you don't start to extract gold or crude oil the next day you decided it. There is a significant lag of time between that decision and the day the commodity gets in the market. There are environment studies, paper-work (licences,...) and the normal lead time that huge construcion/assembly plants like an oil platform or gold mines takes to get ready;

2- Most commodity stocks are ciclical (they depend on the prices of the materials they buy and sell) but there are currently been valued as grow stocks: this is a major - and repeated -mistake and investors will pay a high price for it.

In technical terms there is a also a great challenge for Gold investors. Gold is defying a colossal BARR (Bump-and-Run Reversal Top) in the weekly chart. Let me clarify that I'm not trading this pattern but I'm considering it as a reference for the next 2 years: