Newsflash!!… → → →
Hillary Clinton Drops ‘Pricing’ Bomb on Biotech Sector With Nulcear Tweet, Gold Stocks Drop More Than 3% in Response
Ha ha ha… you have to be a long-time aficionado of this sector to get the humor.
Ha ha ha… you have to be a long-time aficionado of this sector to get the humor.
Note: Hey, go check out the new NFTRH.com. I think it’s pretty cool.
An update on Gold vs. stock markets, as at yesterday’s close. These charts have improved today, but there is still no conclusive change in trend in gold vs. stock markets. There could be some short-term chop if for example, SPX decides to rise again (I am not necessarily buying – or should I say selling? – today’s post-FOMC drop, though I have started to position that way, while holding a few longs that are doing just fine today) to the upside target of 2040 +/-.
[confusing language alert: the above attempts to say that I still hold a few longs but started shorting the market on yesterday’s post-FOMC hysterics]
Gold vs. S&P 500
Gold vs. Euro 50…
Gold vs. Toronto…
Make no mistake, gold sector fundamentals are looking good and the macro fundamentals are slowly creeping along. But nothing worth its while happens in a flash. This is a long grind (boy don’t I know it) to a new macro picture. Meanwhile, the “community” has burped up the likes of this…
Per this, lately…
And now today the “community” is glad handing itself in similar, but far less egregious fashion as it did in 2013 immediately after the Fed rolled over and punted on withdrawing QE 3.
Hey look, just because I am getting more bullish on gold’s fundamental picture it does not mean I am going to try to make nicey nice with people (i.e. the “community”) who have guided to ruin the average gold bug looking for supposed expertise, for years now. Besides, the sector is still nowhere, technically.
Let me see Gold vs. SPX blast upward and Treasury yield dynamics change trend and then we’ll bring out our own pom poms, though they’ll never be as brightly colored as the perma-poms.
 Well, it just got a little more egregious. Here is a screenshot of a comment below the ‘glad handing’ article linked above, from the Gold Report. These guys just can’t seem to help themselves. Here is what I need to tell you; all through the bear market when certain gold bugs chest thump or try to get you to buy their view, things have not gone so well for those who took the hook. Maybe it’ll be different this time. Cue the stopped clock…
[edit 2] Oh wait, isn’t the commenter a principal at The Gold Report? Isn’t Streetwise affiliated with tGR? Wow, an inside scoop on what Jeb Handwerger thinks. Wow, I stand corrected for my wise assed skepticism. I can speak like this because I’d never get put on the Gold Report, anyway. That was after all, the entity that headlined an unfortunate article associated with Eric Sprott last year…
I can’t stand this and am now getting in a bad mood over it. So in service to mental health, I leave the subject.
In the previous post Steve Saville talks about the “true” fundamentals of gold, i.e. the ones that actually matter as opposed to the ones that make a good story. In this post, let’s review something that is related but different; gold mining fundamentals.
While we (NFTRH) have been noting gold’s negative fundamentals for years (especially the status of the yield curve and a thus far ironclad confidence in the Federal Reserve and indeed, relative confidence in global central banks), gold mining sector fundamentals have been on an up-swing. Gold’s fundamentals are generally what we have been calling macro fundamentals and the things that matter to mining operations are sector fundamentals.
In a comment included with Saville’s post linked above, we noted that acting upon manipulation ghost stories is not good for a gold bug’s financial health. However, this is not to say that manipulation does not occur. As we noted at the time and still fully believe, the macro backdrop was actually manipulated into being in 2011 as Operation Twist was set loose upon the financial markets with the express goal of “sanitizing” (the Fed’s own word) inflation signals out of the picture.
Op/Twist involved official selling of short-term Treasury securities and buying long-term securities. This kick started a now years-long downtrend in the 10yr-2yr yield curve, which has been bearish for gold the whole while. Manipulation or not, it is bearish and our advice has been that you do not stand on ideology (or worse, someone else’s ideology) with money you do not want to lose. You hold your ideals, but play the game.
Gold Mining Fundamentals
Back on message, several of gold’s fundamental aspects also apply to the gold stock sector, but there are some wrinkles in this relationship. For instance, a gold mining operation, unlike the metal itself, is a moving target with many inputs to its final investment case. Unlike gold, which when tuning out the easy to comprehend promo’s about India/China demand, evil banking conspiracies and even inflation, boils down to confidence or lack thereof in centrally planned policy, gold mining is a business. Period. Gold itself is a refined rock.
So for instance, the strong US dollar, a negative gold fundamental as noted by Saville, is not necessarily so for gold mining. That is because the strong dollar also affects other assets, including global (local to gold mining operations) currencies and cost-input commodities and resources that go into the mining process.
In other words and for example, a gold price rising in terms of Crude Oil is a bullish sector fundamental along with being, to a lesser degree, a macro fundamental indicator. Here is a chart we are interpreting in NFTRH in coordination with macro events to project a future bull case on the sector. Please don’t get over-excited; future means future. We do not promote here.
Another sector fundamental is gold’s relationship to major stock markets. In that mainstream stock investors perceive little reason to speculate in the gold stock sector when gold is under performing stock markets, this is fundamental to the gold stock case, both in sentiment/psychology and in a practical sense. Here is gold vs. the S&P 500, Toronto Stock Exchange and the Euro STOXX 50. So far, it’s not very impressive. Despite the big upset over the last month in financial markets, gold has only bumped up a little in relation to these three markets.
And that is not even to mention the nominal technicals for gold, silver and the gold stock sector, which are and have been bearish. That is a subject for a future article and weekly NFTRH reports. Also, there are other macro and sector fundamental considerations beyond the scope of this article.
I just wanted to add some color to Steve Saville’s piece and also belabor the point once again that the easy to comprehend analysis you read on the gold sector is easy for a reason. Promotions don’t work if they make you think too hard and man, in actuality it is not that easy. It is complex and those not willing to do the work have been routinely ground up over the last several years of a negative fundamental (and technical) backdrop. Do the work and tune out the cartoons.
In reviewing Rubicon Minerals’ website (a stock I do not own, yet anyway), I came across this video of RBY’s first gold pour and just found myself laughing. I am not sure why it struck me as funny, but it had something to do with the guy trying to lug the first gold bar across the floor over to the something-or-other-ator with a large set of tongs.
Ah gold miners, waddling along lugging a heavy rock. No, this is surely not Google… or Alphabet or whatever.
Nothing has changed since then. Beyond Rangold in particular, this is a very interesting interview. There is a lot of information surrounding the gold mining industry now and the thing that is going to save the industry, along with individual miners who, like Rangold, decide to really run operations as a serious business, is the global macro backdrop.
With gold out performing crude oil, we have one cost-reduction building itself in structurally. There are other macro issues that need to come in line. But those who obsess on the gold sector as if it is the only one on the planet need to really sharpen their analytical pencils going forward because the macro fundamental picture is changing and the mainstream media – this excellent Bloomberg video excepted – is not going to guide the way accurately. In other words, Team Gold “Community” needs to make sure it does not get juked right out of its cleats at the wrong moment.
CEO Mark Bristow: “…just sharpening the pencils because things are a little tougher.”
Interviewer: “Is the industry toast, Mark?”
MB: “I believe so, the industry is toast.”
It’s not serious analysis, but it is amazing how a gap in a chart can haunt a market for so long. While there is no such gap on HUI, I took a look at the GDM and found one way back there at the start of the former secular bull market. It is almost as if 2015 is finishing 2008’s unfinished business.
Is that what this is all about? Is that why this market had to break the higher highs and higher lows (green arrows)? To fill a stupid gap? Don’t interpret the blue dotted line as support (because it isn’t). It is just there to show how much (or little) further down the gap is. There is no stop sign at a gap, it just wants to be filled.
The index put in a bottoming attempt last year amidst hype about Ukraine and gold’s geopolitical hedge qualities (which don’t exist beyond short-term momentum) and the Ebola virus that the “community” concocted at the most obnoxious point, right before the index failed. Now it’s a red arrow (lower low) and a fateful gap fill looking likely either sooner or later.
Today’s entry in the wrong headed gold obsession sweepstakes is…
They even have a picture of a golden girl in a tiny little bikini bottom. Okay, so MSM are not all bad I guess.
Gold is suffering a major meltdown. Prices for the yellow metal have dropped to their lowest level in more than five years, and the downdraft didn’t relent Monday, with futures recording an eighth straight session of losses.
The Chief market strategist at something called CMC Markets (what’s his middle name, Michael, Matthew… Milton?) is trotted out to tell us why gold sucks so much.
Over the past week, “a number of events and trends have come together to create what looks like a perfect storm for gold,” said Colin Cieszynski, chief market strategist at CMC Markets.
He listed 4 significant influences:
1). Reduced demand for defensive havens
The “risk of an imminent Grexit has passed for now,” and political tensions around the world also appear to be easing with the completion of the Iran deal and the U.S. “reopening diplomatic relations with Cuba,” said Cieszynski.
The usual reasons for the public to believe; Straw Men, all. Just picture gold bugs clinging to their stupid metal and when Iran finally got done, they puked it up. I criticize some gold bugs but on average, monetarily speaking, the real ones make the average market participant look like a casino patron and little more. Any dumb rationalization will do as to why a market does what it does, for the average casual participant. Say what you want about gold bugs, but they are most definitely not casual.
2). Reduced need for inflation hedges
With Iran preparing to return to the oil market amid a continuing supply war among other producers, the price of oil has tumbled back toward $50 a barrel. That means “headline inflation looks likely to remain subdued for some time,” Cieszynski said.
Oh my gawd, did he really say that? Do not fear Uncle Buck, dear gold bugs. In the best investment (gold mining) scenario Unc and Gold can each be firm. Go ask Bob Hoye, he’ll tell you why. The macro funda are incomplete as of 7:01 US Eastern time on Tuesday July 21. That is because inflation is still in play as stock markets benefit. It is when the inflation fails that the macro is going to turn.
3). U.S. interest-rate liftoff and U.S. dollar rally
The risk of financial crises in Europe and concerns that China could spiral out of control and disrupt the world economy have eased dramatically, “keeping the Fed on course toward interest-rate liftoff.”
That is a consideration, and I think gold is pricing in tighter monetary policy at this time.
4). China and gold purchases.
China on Friday released data on its gold holdings for the first time since 2009. Gold reserves rose by about 60% from 2009 to 1,658 metric tons, which would have been great for gold, “except that gold only represents about 1.5% of China’s forex reserves and this percentage has not grown in the last six years, crushing hopes China would save the gold market,” said Cieszynski.
Enough with the China demand crap. It was worth ignoring when it promoted by perma bulls and it is worth ignoring now as a bearish fundamental. For every seller there is a buyer. Anyone who was buying the China/India “Love Trade” bullshit that has been churned out there through the bear market got exactly what they deserved and learned a great lesson. That has value.
MSM mainly reflect back to us the ‘news’, what is or has happened. MSM, especially MSfM, never give the straight scoop ahead of time when it is actionable. Anyway, gold is down big this morning (partially recovered) and it’s pig pile time in the financial media.
For its part, here is MarketWatch chiming in to help investors realize that gold could keep on crashing.
Clearly, the precious metal hasn’t been helped by Friday’s news that China isn’t holding as much gold as originally thought and by signs the Fed will go ahead with an interest-rate hike. But ponder this question from WSJ’s Jason Zweig, posed in a commentary as gold settled at five-year lows Friday (and kept falling Monday): “So why, even as Greece has defaulted, the euro has sunk against the dollar, and the Chinese stock market has stumbled, has gold been sitting there like a pet rock?”
This Zweig thing seems to be everywhere. Viral. Some guy putting out a contrary indicator media piece years after it would have been useful and it is viral? Well, in the opening segment in this week’s report we addressed this before moving on to the analysis.
“From a contrarian’s perspective, this is the kind of stuff that is going to help empty the still over-bullish side of the boat (after it capsizes) and temporarily break the gold obsession that is hard wired into so many people (it’s just a pet rock, after all). Here we have to remember that when the MSM trumpets, it is selling headlines. Who buys the headlines? The public. Who is always wrong at important turning points? The public.”
Check out the whole segment linked above.
An article by Mark Hulbert jogged the title’s question into my mind:
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.
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.
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.
Here is the miner ETF, GDX with its equivalent support. A loss of that support targets the March low around 17.50.
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.