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Stagflation Setting the Stage For Gold


With the metal and group having opened weaker this morning, GSS' chart cracked, and the picture-readers are tossing it overboard.

Golden Star (GSS) says its CEO Peter Bradford is stepping down at the end of the year, and the stock gets clocked for 7 percent? Is this an overreaction due to the difficult market environment of late or a rational response to news?

In my view, this is just another classic example of herd behavior. With all the golds having been under pressure for the past two weeks as the equity market's contagion has leaked into the gold mining sector, people are running for the door on any sign of price weakness, and that includes GSS today. With the metal and group having opened weaker this morning, GSS' chart cracked, and the picture-readers are tossing it overboard. Simple as that...

Peter Bradford leaving is actually seen as a good thing by many of the gold guys in my circle since most of the investment community hates him anyway (they feel like he has prevented potential takeover opportunities and has also done a poor job of marketing the company... dropping today's announcement in the wake of what happened to HMY yesterday is a perfect example - more on that below). Personally, I'm glad he is leaving. I think some a younger more aggressive CEO that has some marketing sense would actually be good for the company and its stock price.

Some people may even be panicking out of GSS today because of what Harmony Gold Mining (HMY) has done after its CEO abruptly stepped down yesterday (i.e.- it crashed), although HMY obviously has some production and cost problems too that actually warrant a selloff (although even it may be a bit overdone at this point) .

Incidentally, the HMY experience is why one can never ever own just one gold miner. The mining business is simply too unpredictable and inherently risky to only own one miner.

The gold group has been crushed for two weeks straight due to the stock market's contagion effect, and guys are hurting. GSS' weakness is simply a further extension of that. For those that have dry powder, it's an opportunity though.

If Helicopter Ben indicates that the Fed is finally "officially" moving to neutral today like i think he will (even though they've actually been neutral for over a year now) , we should be seeing the last of this sort of panic in the gold shares this morning. The Fed has an inflation problem, but they cannot combat it due to the worsening housing bust that has now infected the credit markets as well. Officially acknowledging that fact today should set the stage for the gold complex to take off again and resume the rally that began in late June.

Oh and by the way... the GLD gold ETF inhaled another three tonnes of metal yesterday to bring its gold holdings to another new all-time high of 510 tonnes. With continued steady investment demand like this (despite the recent financial market turmoil), it's difficult to envision gold not performing well going forward in what is increasingly becoming a stagflationary environment in the US.
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Position in GSS

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