Category Archives: Gold

Is Gold Hated Enough?

By Biiwii

goldAn article by Mark Hulbert jogged the title’s question into my mind:

This Bear Market in Gold Still Has too Many Bulls

With respect to the reasons for owning gold, I never flinch when taking a long-term value perspective.  In the monetary and financial world gold is insurance and insurance is something you buy, but hope to never need.  The value of insurance is in one of its definitions:  “a thing providing protection against a possible eventuality”.

It is good news that this ‘thing’ has not been needed as modern policy making has worked to mostly desired effects, as asset markets have been pumped by inflationary policies that have not (yet) had a commensurate level of risk discovery.

It is bad news that this ‘thing’ will be needed in the future because risk – especially when mainlined into the system through brute force policy – is always discovered, eventually.

It will be very good news for the relative few who have kept perspective and balanced the bear market risks in gold and the gold stock sector with the coming potentials.  As with any bear market, there have been perma bulls calling bullish all the way down.  But at some point, the new breed – the perma bears – are going to be exterminated.

The message of the big picture work done in NFTRH (as summarized in a recent eLetter/NFTRH.com post) is that the time is coming, but for short-term speculators, risks remain.  So as I have written for what seems like forever, individuals absolutely must understand who they are and what their goals are or risk being lost along the way to the bear market’s conclusion and the new bull market’s beginning.

When I read analysis talking about how strong US employment data are going to send large institutions running for the inflation protection of gold I tend to agree with Hulbert.  When I read things like Modi + Indian Wedding Season = Gold Bull I tend to agree with Hulbert.  When I read about China’s voracious demand for gold and that you’d better buy with the smart money, I tend to agree with Hulbert.

I won’t go into all the reasons why ‘gold as an inflation hedge’ is a faulty outlook.  This post is not about that oft-belabored point.  I will simply ask you to beware of the anti-USD obsession as applies to gold and the inflation hysterics that usually go with it.  Best case, gold would be just another item amongst commodities if the play is anti-USD.

We await a counter cyclical environment that may well include a firm US dollar.  This would not make sense to the still intact legions of pre-programmed devotees in the gold “community”.  And right there is another reason why on the short-term, Hulbert may be right.  Opportunity is coming, but it is not going to wear bells on its heels, a big smile on its face and dance around in front of you until it is understood.

Gold Isn’t Cheap…

By Steve Saville

Gold Isn’t Cheap, but nor Should it Be

Although it is not possible to determine an objective value for gold (the value of everything is subjective), by looking at how the metal has performed relative to other things throughout history it is possible to arrive at some reasonable conclusions as to whether gold is currently expensive, cheap, or ‘in the right ballpark’. In particular, gold’s market price can be measured relative to the prices of other commodities, the stock market, the price of an average house, the earnings of an average worker, and the real (purchasing-power-adjusted) money supply. In a recent TSI commentary I looked at the last of these, that is, I looked at gold’s price relative to the real money supply, and arrived at the conclusion that gold’s current price was about 20% above ‘fair value’. I’ll now take a look at gold relative to other commodities.

Continue reading Gold Isn’t Cheap…

Gold Miners ETF Bullish?

By Biiwii

This gold miners ETF has a bullish (bottoming) look to it.  Unfortunately, it is the 3X bear fund DUST.  The key level is 15, because if it breaks that it targets 19.  As of now, it lurks below so the target is not active.

dust

Here is the miner ETF, GDX with its equivalent support.  A loss of that support targets the March low around 17.50.

gdx

There have been plenty of reasons to be cautious on the precious metals on the short-term.  CoT data, Treasury yield relationships (long-term trends), gold vs. the stock market and gold stocks rising with commodities (and against the USD), which is not a preferred long-term bullish backdrop for the miners.

Now if only someone would write an article telling us about how gold is going to rocket on inflation fears by institutional money based on a strong jobs report (next one is on Friday) and we should buy buy buy the miners.  Oh wait, someone already did that before the last jobs report.

Hey look, the above patterns could become invalidated at a moment’s notice.  Happens all the time.  But the actual fundamentals that matter are not yet in line.  Interestingly, gold and USD are both down today, and when it is time for a real bullish stance, they will correlate more often than people might think.

Gold Sector, Big Picture

By NFTRH

Following is a reprint of the latest free eLetter that you can sign up for as an introduction to Notes From the Rabbit Hole (NFTRH), our more in-depth market management service.

Big Picture Gold Sector Update

On shorter time frames the gold sector has been viewed as being on an ‘anti-USD’ inflation bounce.  This bounce scenario in gold stocks and commodities took a hit last week with the US dollar’s strong bounce.

In NFTRH we are managing things on both short and long time frames, with the short-term currently tied to movements in the USD.  On the long-term however, things appear to be setting up for the next big macro play.  The following charts are used for big picture updates to give perspective to the shorter-term work we do each week in NFTRH.

Gold Sector Update (Big Picture)

First and foremost, let’s deal with the elephant in the room, Uncle Buck.  The US dollar is in a cyclical bull market, subject to short-term corrective activity.  This bull market is a component to a coming bull market in gold mining shares because the same things that would drive up gold vs. commodities (including silver) and gold vs. stock markets can drive up the world’s reserve currency, USD.  That would be a rush for liquidity amidst economic contraction (which itself would be at least partially instigated by USD strength).

In short, a backdrop of economic deceleration, waning asset speculation and a lurch by market participants toward ‘risk off’ liquidity would drive up the US dollar, and also gold’s ratio to most assets.  This is a positive for gold miner fundamentals (reference gold vs. mining cost-input crude oil as one example).

Continue reading Gold Sector, Big Picture

Gold: Contrary Indicators

By Biiwii

It was bad enough that a numbered bullet point (!) using tout has been lathering the gold “community” lately with an amazing fundamental consideration he calls “the Chindian love trade” (you know, in China they buy gold for love and as their economy grows gold will go way up in price).  Never mind that he promoted gold for Indian Weddings and China demand all through the bear market or that as recently as last week he predicted that the US ‘jobs’ number would be huge and gold would sky rocket due to panicked institutional demand in the face of rising inflation.

You can’t make this stuff up.  It annoys me, but now this darker thing comes about in the mainstream media, right on cue, just as gold hit the key resistance area surrounding 1220 that NFTRH, for one, has been noting.

headline

Peter Schiff, more bullish than ever, sees gold headed to $5,000 an oz.

Schiff: upside potential in gold equities is ‘phenomenal’

Get this, gold equities have been on an anti-USD bounce along with all kinds of other stuff that will probably not be rising with them when a real bull market gets started.

The same people who were surprised that the USD rose to begin with (we were not; we gauged and tracked it from day 1) are now getting pumped again due to its correction, which was predictable given its strenuously over bought and over loved status.  But an ‘anti-USD’ bounce is all it is in the precious metals until certain parameters are taken out and certain fundamentals join other fundamentals in indicating a real bull market.

I won’t go into details because well, those are for NFTRH.  But I had to make this post because the timing of this article made my jaw drop when I saw it.

Schiff argues that more QE is coming to try to fix the damage done by the previous QE’s and that there really is no limit on gold’s price.  Fine, there are reasons that gold can one day get unchained.  But this MSM highlight is casino patron stuff.

The MSM seem to have an inventory of apt stories for any given environment.  Gold pops for a few days and MarketWatch pulls out the Schiff card.  It’s a 2 of Spades when a King and a Queen are already laying face up.

Gold and Interest Rates

By Biiwii

How many times I have read gold sector gurus working gold-bearish promotions talk about a “strong dollar” and “rising interest rates” as being bearish for gold.  Transfixing certain among the gold “community” with authoritative words about gold’s drivers, they keep ’em transfixed.  Some attained reputations by having been touted by  ‘Mr. Gold’, Jim Sinclair and then turned around and bit the hand that fed them right off when it was time to create a cottage industry of sentiment against poor old Jim and the other gold ‘Generals’ as I used to call them during the previous bull market.

They now offer the cartoonish opposites to Sinclair’s formerly cartoonish bullish stuff.  The dollar is bullish so gold is bearish… interest rates are rising so gold is bearish.  Well, for different reasons neither of those statements – fed to some non-discriminating gold bug herds who lap anything, as dispensed by an authoritative figure, that fits their current view (in this case, ‘we won’t get fooled again’ bearish) – are true.  It’s just paint-by-numbers stuff that is easy to digest and understand.

In the case of interest rates, they are rising.  What do the newfangled gold bears have to say about that?  I saw their anti gold cult ‘cult’ leader write several times that rising interest rates would hurt gold.  I did not see any mention of interest rate differentials, which mean only everything where gold is concerned.

Get this, gold can benefit greatly when rates are rising, as long as the inter-bond signals are inflationary and indicative of an inflation problem.  Gold can benefit when rates are dropping, as long as short-term rates are dropping harder and the implication is a flight to liquidity and risk ‘OFF’.

The reason Thing 2 in the chart below has been stable to (now) firm while Thing 1 launched upward…

tyx.gold

…is because Thing 1 has also been steady and has gently risen vs. Thing 3 (2 year yields)…

30.2

There is no simple analysis of gold and interest rates.  If someone in the mainstream print or TV media or a gold guru going on reputation (and a talent for serving easy to digest tidbits) talks about gold and interest rates in surface, linear terms it is advisable to disregard it.  There are reasons that most people are not going to be on board when the time is right, and this is one of them.  This stuff is fairly, but not overly, complex.

Add in the other elements involved like economic trends, psychology/confidence and okay, it’s complicated.  But its doable if you keep cool and keep a working b/s detector against all of those trying to sell you analytical tidbits.

Franco Nevada is Royal

By Biiwii

There are a lot of things I don’t know.  But one thing I do know is that Franco Nevada is looking bullish in relation to fellow gold royalty company, Royal Gold.

fnv.rgld

Good Gold Stock Performance

By Biiwii

Given Steve Saville’s all too accurate portrayal of the gold stock sector as one of big thrills and all too bloody spills (Poor Gold Stock Performance…), I thought I’d put up a chart of one of mine that I have held, traded a little, but mostly held.

Klondex is just a little engine that could and has been able to since establishing a bull market for itself in 2013, long before the sector bottomed (assuming it bottomed).

kdx

Here’s the weekly showing the beginning of KDX’s bull market (black arrow).

kdx.wk

So if your resident gold stock expert does not have the likes of KDX.TO, KGI.TO, LSG and/or other relatively strong out performers on their recommended list, you might wonder why.  These have been among the items I perceive as ‘relative quality’ as listed in NFTRH each week.  And I am not a gold stock expert… duhhh.

Here’s a hint though… neither are the gold stock experts, most of the time.

Problematic 1970’s Comparison

By Steve Saville

The Problematic Comparison With the 1970’s

We suspect that the gold bull market that began in 2001 is, in very rough terms, an elongated version of the 1971-1980 bull market. Part of our reasoning is that there is evidence in the performance of the gold-mining sector of a bullish gold trend beginning in the early-1960s, with gold itself being unable to reflect this bullish trend until 1971 when it was officially untethered from the US$.

At the point when the official link to the US$ was broken, the gold price was like a coiled spring. After it was released it shot upward in spectacular fashion to a high in 1974 and then plummeted to a low in 1976, all as part of trying to find the level that best reflected gold’s value under the new monetary system.

Continue reading Problematic 1970’s Comparison

Randgold Ups Reserves…

By Biiwii

Randgold Resources (GOLD) is one of the few senior gold miners I am able to list in NFTRH as a miner of relative quality.  It appears along with Royalties, Junior miners and Explorers that are always on my watch list.

I sold it on the last pop to the March high, but found this article at Mineweb to be interesting.

Randgold: Ups reserves, raises dividend, seeks more growth

On 2014 performance, CEO Mark Bristow (pictured) noted that unlike most of its gold mining industry peers, Randgold had not needed to write down its reserves and resources as the gold price dropped because it had calculated its reserves at $1,000 per ounce and its resources at $1,500 per ounce for the past four years. Many other miners, developers and explorers had been building higher prices into their calculations and have since had to backtrack, sometimes resulting in some major write-downs.

Bristow commented, “We have looked closely at all our mines to ensure that they will still be profitable at $1,000 per ounce and we’ll continue to review our operations against a range of gold price scenarios. With the inclusion of Gounkoto underground we are now able to demonstrate a 10 year plan of plus 1 million ounce production per year and all our operations will be profitable at a $1,000/ounce gold price which is unique in the industry.”

I do not make much public commentary (leaving that for the freely available micro managers) about when the sector will be ready for real investment (it’s still a bear market, technically, folks) but I will note that this is one of the companies that will be around and in position to lead when the time is right.

But looking ahead, Bristow notes that there is great potential in the existing low price environment for additional growth opportunities resulting from the squeeze on developers and explorers resulting from this. “Organic growth will remain our core driver but, as we look ahead from this position of strength, we will consider opportunities that are often generated by stressed markets and may well elect to play a part in the likely restructuring of the gold mining industry,” he says.

As he has been able to do in the past, he also points out that the company has solid operations with strong cash flows, a robust balance sheet with no debt and substantial cash, and a share price which for years has consistently outperformed the market. Its five-year forecast shows a growing production profile and a reduction in costs.

Why am I pumping Randgold’s tires here?  I don’t even own it.  But I always appreciate well run businesses and management that is in line with investors’ goals.  That is what I think Mark Bristow is and I just wanted to highlight that.

As to the chart, I lucked into buying it right at the March low and sold it on the pop (one bear market rule is that if you are going to trade long in a bear market, you are sure as hell going to take profits).  The chart has a lot of work to do, beginning with the red dotted line, on through the moving averages, turning RSI and MACD green, etc.

But it’s a quality miner among the wreckage.

gold

Here’s Why it Could Get Way Better for Gold

By Biiwii

Here’s why it could get way worse for gold

gold

“When that dollar really does break up towards that 100 level on the futures… ahm, perhaps the Fed raises rates, whatever it may be, that will be the thing that finally pushes gold through to the downside and for traders – this is trading nation [biiwii comment: wtf does that mean?] – gold is a great trader to the downside.  It tends to be very deliberate, very tradeable… I look forward to it but its still range bounce for now.”

Well okay, CNBC’s talking head expert agrees with Team Final Plunge, all aboard the Gold Downside Momo Express!  By the way TFP, how do you feel having this crowd in your trade?

Now don’t get me wrong.  I am not bullish on gold’s price yet and indeed NFTRH‘s lowest potential target is 970.  But never will CNBC be right there giving the public the ‘need to know’ information when they really need to know it.  If gold takes a final plunge, it is probably going to be quick and it is going to be a final washout prior to something entirely new on the macro.

Anyway, then they go on to blab about bad fundamentals “as the US dollar rises” and needs “a real volatility avoidance mentality, and we don’t see that.  Overall I’d say you’re better off focusing on your equities and fixed income vs. gold.” 

Then the Barbi Doll doing the interview of these high level geniuses closes with “not a fan, that will do it for us…”

Get this; these clowns following the trends were nowhere to be found last summer when we began chronicling the bottom and upturn through resistance in the US dollar.  These clowns are the ones who are going to put the public against gold, for the US dollar and for equities just as these clowns are the ones who put them in gold and silver heavy in 2011.

Get this also; while it has been a patience play for sure, a strong US dollar is one strong fundamental consideration in bringing on a new bull market maybe not in gold, but in the gold stock sector.  That is because we are 100% focused on economic cycles now.  Not some stupid blathering about a strong US dollar and the Fed’s ongoing Kabuki Theater ‘will they or won’t they raise the Funds Rate by a lousy 1/4 point’.

I really do dislike the MSM’s utter banality, it’s just that I need them to gauge the psychological aspects of an overall plan that includes so much  more than what the average TV star analyst puts out there, not to mention a good chunk of the mainstream financial services industry.