OUTLOOK

"Profiting from a Decline in Gold Stocks"

7/26/2007

In our Outlook on 7/16/07, we stated, "We believe the XAU Index, representative of gold stocks, will decline to 146 or less after reaching its high of the year at 152.19 on 7/13/07."  We said this correction would occur within 6 weeks.

Our forecast was correct.  On 7/26/07, the XAU declined below 146, reaching as low as 144.59 for the day.  In 10 days, our short position in gold stocks achieved a profit of 5.02%.

As contrarians, we were bearish on gold stocks when the majority was bullish and expected a major rally in the XAU Index.  In the end, it was rewarding to do the opposite of the crowd.  Year to date, we have profited in 6 out of 8 completed trades.

Mark Yuan, CFA