Gold Bull Market Defense

[Francisco Monjardino]

Boa tarde,

Aqui fica uma chamada de atenção para mais um interessante artigo publicado no site www.financialsense.com:


- GOLD BULL MARKET DEFENSE, by Frank Barbera (June 3, 2005)


Introdução:

THE GOLD BEAR'S RATIONALE

Over the last few months, Gold Stocks have been in decline with the widely watched XAU Index most recently hitting a low of 78.23 on May 16th. At that point, the XAU was down 21.39% for the year and 28.60% from its November 22, 2004 peak at 110.25. Within the community of technical analysis, there are a certain contingent of "gold bears" that make the argument that Gold Stocks have slipped into a "bear market". In my view, this argument is completely unfounded and suggests a weak grasp of the gold and gold stock market. One example of the bearish argument is that within markets, a 20% decline often defines a bear market. As noted above, gold stocks are recently down 28.60% from their November 22, 2004 high. Thus, according to the gold bears, Gold Stocks are in a bear market with the current rally described as a bear market rally.

Understanding Beta

What the bears are missing is an understanding of volatility. Where gold stocks are concerned, there is a very high "beta." In the stock market, "beta" describes the sensitivity of an index or stock sector to broad market movements with the S&P 500 assigned a beta of 1.00. As an example, a stock sector with a beta of 0.5 will tend to participate in broad market moves, but will only gain half as much as the market overall. A portfolio or sector with a beta of 2.0 will tend to benefit or suffer from broad market moves twice as much as the market overall. Gold Stocks have a negative beta, which means they are strongly inversely correlated to the overall stock market indices. What's more, the negative beta for the Gold Stocks is on the order of 3 to 3.50 times the volatility of the S&P 500. As a result, if the S&P 500 had an 8 to 10% decline, it would be considered a "normal correction," while a 20% decline or more would define a bear market.


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(Continua em: http://www.financialsense.com/editorials/barbera/2005/0603.html)


Abraço,