Over the past 9 days the potential for a Democratic nominee to be identified in the U.S. Presidential race became clearer, crude oil has topped $100 a barrel, China has begun to recover from winter ice storms and started the Lunar Year of the Rat. Each of these items has helped to place upward pressure on the spot price of the precious yellow metal commodity gold. Thus today we are at a point where record profits are being reported by some gold mining stocks, and gold spot prices have breach historic levels.

And I’m not surprised.

I have mentioned,

“As these facts are absorbed by the markets, increased volatility and further upward pressure on gold should continue. It’s likely that the Philadelphia Gold and Silver Index and Amex Gold Bugs Index will reflect this pressure. Several Canadian gold miners are also likely to have a short-term boost as they will have increased sales due to lack of competition.

Perhaps most important will be the timing of all these events. If they are moderately spread out and occur individually I expect that they will not be able to retard the move in gold. Combined or occurring close together the effect will be magnified.”

When I made this statement gold spot prices were above $920, now on February 21st they have reached $948. That’s roughly a 3% increase in 9 days, and a continuation of the trend established at the beginning of this year. And it’s not limited to just gold commodity prices.

Barrick Gold Corp reported a 28 percent gain in fourth-quarter profit, or 61 cents a share, beating the estimate of 14 analysts. Barrick was able to attain this while production in 2007 fell 6.7 percent to 8.06 million ounces.

Given that fact, what would an investor or analyst think when you consider that supply is in the throes of shrinking due to power outages and other factors in South Africa. One example is DRDGold, which dropped production 13% in the 4th quarter, and yet is up 4.4% today.

But the growth is not limited to just these companies.

The TSX material stocks gold sub-sector is up 1.4 percent. That includes the aforementioned Barrick and Goldcorp. Other companies around the world on the rise include Exxaro, AngloGold Ashanti, and many others.

The facts are that China and India need gold. Even in a global slowdown their demand has increased pressure on supply. Recession and inflation fears and a lagging stock market in the United States have not diminished though they are not leading world headlines this moment. Oil prices are foreseeable going to continue higher and place more pressure on world economies, especially if OPEC cuts production rates as expected. And the prospect of a Democratic President in America is generally seen as a negative for the stock market, further spurring a move to gold to hedge investments. I have said,

“All stock markets, all financial markets, move on emotion first. That’s given. And few things are more emotional that 1.25 basis point moves by the Fed in a week. But fundamental facts of the markets always come to fore and correct the emotion. To me, $1000 gold, and higher gold stocks across the world, is as fundamentally sound today as when I discussed it earlier this month and in December of 2007.”

I’m no analyst, nor am I making an advisement. But I do believe that the factors are in place, and the results are like dominoes falling. Unless investor sentiment changes, which actions by Warren Buffett and the IMF have not been able to counter to date, I see nothing to stop this trend.

Now I will go one step better. If supply remains constrained, as we can see is likely, and the U.S. economy has the mild recession now being stated by the Federal Reserve. If oil production is cut, in combination with the recent U.S. refinery accident that has placed pressure on capacity, and Senator Barack Obama becomes the Democratic nominee for the President of the United States. If all those actions occur, which seem 80% probable to me at this time, then I believe that gold spot prices in excess of $1125 are possible by the end of this year. Commensurate with this move should be gains among the gold mining stocks across the world.

Labels: AngloGold Ashanti, Barrick Gold Corp, China, DRDGold, Federal Reserve, gold spot prices, Goldcorp, OPEC, Senator Barack Obama, stock market, U.S. economy, Warren Buffett

So gold continues to rise. And as this incredible run continues, the call for it to end abruptly increase. Many have stated that they see this as an aberration. That none of the factors in the market support such a strong and steady rise. Fear is moving along with the price, as often occurs when dramatic changes happen.

But there are a few that feel this rise is not only justified it’s completely logical. Those events such as the mortgage crisis, weak Dollar, Fed rate cuts, oil per barrel prices and other factors have to equate to a move in gold spot prices. This says nothing of the increase in demand coming from China and India.

In one particular case we see that Chip Hanlon on TheStreet.com has made a case for 9 gold stocks that can benefit from the continuing interest in gold. One of those stocks you may recall from a recent post here, which has made new 52 week highs recently. That stock is Newmont Mining and in the number 1 position on the list.

“…an unhedged giant that produces gold in many corners of the world, from North America to South America to Asia. Gold bugs, who tend to dislike companies that hedge their production for any reason, tend to favor this stock as a leading large-cap choice.”

In the number 2 position is another popular and oft mentioned Goldcorp.

"Record gold production for the company in 2007 is expected to be followed by another record in 2008, and the company just announced its first monthly dividend a few days ago."

Perhaps one of the more interesting items on the list is the number 10 pick. The Silver ETF is the last choice on that list. It would seem that silver is a contra-indicator. By that I mean, once silver begins to have its run, gold tends to end its run. Since silver has not been influenced yet, it would indicate that gold has more room to go.

“…silver tends to rally most strongly at the end of major gold moves (as do the most junior, speculative mining shares). The fact that silver has not yet blown off suggests to me that more upside remains.”

The entire concept is interesting since this article looks at riding the run of gold and working on the ultimate question in all stock purchases – timing. Not only has he picked 9 gold stocks to ride the bull, he has also looked at riding the one position that may indicate the end of the run and the growth of perhaps a gold bear.

Never doubt that the people over at TheStreet.com are on the ball.

Labels: Chip Hanlon, Fed rate cuts, gold spot prices, Goldcorp, mortgage crisis, Newmont Mining, oil per barrel, Silver ETF, TheStreet.com, weak Dollar