Clear blue sky this morning,

which at this time of year generally means it's cold out.

Janet's feeling a little better, thanks for asking.

Do you have the free cell solitaire game on your computer? I think it's possible to win this game every time you play. Well. I like winning so I play it often, and I've noticed some days I do better than others, which I''ve begun to think of as an indicator of my mental state on the various days. Am I insightful, imaginative and resourceful, or unfocused, plodding and stupid? This morning I resigned 4 consecutive games within 10 moves of starting. Not a good sign.

This has implications for other interests, but today I'm thinking about the market, and particularly gold stocks. Tim Knight listed about ten stocks he considers to be candidates for put buying (bearish). I think I've explained before when you buy a put, you buy the option of selling the stock to the person who sold the put at a specified price at some designated point in the future. Seven of those bearish candidates are gold mining companies.

When I first started posting I think gold was around 400 and I said I thought it would go to 1000, which it did, then fell back to 750 and is now moving up again, currently near 900. I am a gold bug, my thinking being that gold has always been store of value. The supply is fairly constant and limited. When governments devalue their currencies, the price of gold in those currencies rises.

By increasing money supplies far in excess of the increase in real gowth in the economies, governments have seriously devalued their currencies. Through political and financial shenanigans, the governments (particularly the US in the previous 20 years) had supressed the proportionate rise in the price of gold. Some remediation has occurred in recent years, but gold is still underpriced relative to the deterioraion of the value (purchasing power) of the currencies.

In the face of a serious recession, and probable depression governments are spending money they don't have to try to maintain economic activity. Some money they borrow, some they just print up, implying further monetary devaluation, and the likelihood investors will switch holdings from financial instruments including cash into gold to preserve their wealth, and drive the gold price up to 2,000 or 3,000 dollars per ounce.

The recent 20% price rise from $750 to $900 has caused gold mining company share prices to double in the last four months. Now, Tim K doesn't provide economic analysis or much commentary, just the charts, whch appear to him to show excessive upward movement. Given uncertainty about other equities, now trading midway between their lows of November and a 23% retracement level, uncertainty as to whether they'll rally then fall, or fall then rally, the relatively high flying gold stock appear tempting to him.

I have some questions as to how directly a rise in the price of gold translates to profits for the mining companies, but I have more serious questions about how gold fares in a deflationary cycle, when prices for commodities are falling. Tim was right about the oil companies and he was right about the agrichemical businesses (potash). Maybe he's right about the gold mining companies too.

I'll go play free cell again, and if I win a couple, I'll decide what to do about gold stocks. Maybe I'll just buy puts on Darden, The Red Lobster-Olive Garden business.