Category Archives: Gold

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.

Gold Sucks!

By Biiwii

[edit] a quick look around the interpipes tells me that there are people watching gold with no sense of humor, taking the title of this post literally or as a contrary indicator.  sometimes i just don’t know.

Ben Kramer-Miller, a fundamental gold stock analyst who I keep an eye on, recently had an article at SeekingAlpha called Gold’s Bull Run Has Not Yet Begun.  I remember taking note of the title when it came out, but as is usually the case I did not have the time, nor the inclination to read it.  I like to keep my own thoughts square and balanced and don’t need other peoples’ thoughts on gold clouding my own.

But as I was fooling around over at the St. Louis Fed’s website (it is recommended that geeks register for a free account) doing the following charts I remembered ‘oh jeez, I think somebody’s already on this topic’.  So I checked it out and sure enough he did gold vs. the Monetary Base using a graphic from the also-recommended MacroTrends website.  Anyway, preamble behind us we move on…

The long-term chart of nominal gold, anyway, has not done so bad.  Boy, this bubble from 2001 to 2011 sure was a humdinger.  It must have so much further to fall.  Look how much higher gold went this time compared to the bubble that blew out in 1980.

gold

Oh wait, this bubble was actually not as bad as the 1980 bubble when CPI adjusted.

gold.cpi

Oh wait again, gold is and has been in a bear market in Monetary Base units ever since the US dollar was freed from its shackles in the early 70’s.

gold.base

Bottom Line

  1. Either gold sucks
  2. …or its bull market has not yet begun

…and may never begin if confidence remains intact in policy makers conjuring up digital funny munny units out of thin air while holding our trust in their stewardship.

Stewardship is defined here as blatant manipulation of things that used to mean something, like the rates of interest on loans to be paid back and the productivity that would spring forth from savings, capital deployment and investment.  You know, hokey old fashioned stuff like that.

But this is a world where large entities, including governments, don’t need to be responsible for the ‘paid back’ side of the deal and so, gold has sucked because there seem to be no repercussions for it to protect people from.  They are creating debt and confidence money and this stupid rock is below the pre-Bretton Woods levels in Money Supply terms.

All the more reason that the ‘gold is not about price, it’s about value’ mantra holds up just fine.  It’s price sucks and its value in a traditional sense measured by out of control governmental money creation, has never been better.

Tilting at Golden Windmills

By Biiwii

dq.windmillsThere is a writer we’ll call Don Quixote who is tilting at something that no longer really exists… the evil gold promoters that used to be taken seriously by innocents to the tune of near total destruction of their portfolios.

Don once went on about the gold cult and I even highlighted his post because I had been going about the gold cult as well.  The cult-like aspect of the gold “community” (← a dead giveaway) was real, and the group-think that the 2001-2011 bull market fostered was very strong and really damaging to those who did not question its tenets until it was too late.

Continue reading Tilting at Golden Windmills

Gold: Value, Re-Propositioned

Last weekend, in a segment titled Gold Obsession & Ephemeral States of Mind NFTRH 330 talked about a growing presence that seems to follow Martin Armstrong’s anti ‘gold promoters’ theme.  This theme seems to be – coming as it does in a gold bear market – something of a promotion itself; just as the over-the-top inflationist gold bug stuff was during the bull market.

Please understand, dear followers of Marty, I am not at all calling him a promoter.  He is the originator of ideas, thoughts and analysis that while not all my cup of tea, is interesting enough that it is linked at NFTRH.com and Biiwii.com.  But behind this mindset that is solidifying in the public consciousness, is a growing cadre of gold bugs – some of whom benefited from the notoriety lavished upon them by the likes of Mr. Gold, Jim Sinclair – that seems to be taking things over the top*, as always seems to happen with humans and in markets.  Every mental elastic band seems to stretch too far.

In the above noted NFTRH 330 segment an article I wrote in 2007, A Value Proposition, was referenced.  In re-reading it for the first time in years I was impressed with how the ‘value’ case for gold has not changed one bit in the last 7+ years.  At least in my interpretation of value, which has kept me personally at an even pulse rate during the bear market and given NFTRH subscribers consistent perspective through a difficult, but ultimately necessary and healthy phase for gold.  It felt refreshing to re-read it.

So, if the article benefited me, its author, all these years later, I thought it might be of benefit for other peoples’ perspective as well in this emotional time of gold obsession.

As a final note, I’ll just say that it sure is interesting that today, in a wicked bear market, gold is nearly $500 an ounce higher than it was when the article was written.

* I have done my share of gold bug critiques, complete with the requisite incoming hate mail.  But the point is that the new thing going on now was nowhere to be found when it was unpopular to take shots at the gold bug ‘community’.  Indeed, with the help of a subscriber who stated ‘enough already, we get it!’ I came to realize that the horse has been dead for a while.

A Value Proposition  (November 3, 2007)

As the rot in Wall Street’s dark alleys works its way from the inside out, from the seediest hedge funds’ leveraged ‘investment’ vehicles to Main Street’s financial institutions (pensions, 401K’s, savings, etc.) gold has taken center stage, closing above $800 for the first time in its still young bull market. Fear and anxiety are increasing as the US Dollar falls further below serious long term support and in this environment, gold is an emotional conduit through which growing fears of fiat monetary instability pass. Picture a burning building with a limited number of exits and a large crowd trying to pile through the door. Let’s call it a… oh I don’t know… let’s call it a casino.

Gold is the object of many strange and varied perceptions, perhaps because it is an ancient asset that has always stirred basic human instincts for wealth, good fortune and even survival. But in light of the perverted and multi-headed monster we call a financial system – with seemingly infinite instruments of ‘profit’ limited only by the imagination of financial engineers – perceptions toward gold have become distorted, helped by an enabling Wall Street and mainstream financial media.

The main point to remember is that gold does nothing; it just sits there and does not care about the crazy gyrations going on all around it. But to understand and accept this, casino patrons must first accept that the metrics they have been schooled in and the rules they have been taught over the fiat decades to play by are not applicable. Filling the void that this lack of understanding creates is a whole host of opinions, many disparaging and/or dismissive. Others simply attempt to fit this “asset class” into conventional metrics. The inspiration for this missive was a recent SeekingAlpha piece by Brad Zigler called All That Glitters May Not Be So Golden. Mr. Zigler did not write a ‘hatchet piece’ on gold but what I find interesting is his and many other financial media correspondents’ analysis of gold as a return (or lack thereof) instrument.

Gold pays no risk premium as it carries no default risk. But in the world of financial media-fed perceptions that is a bad thing. No return you say? No markup? No leverage? Who needs that?! Gold is about value and nothing more in my opinion. That is why I refuse to get excited when its fiat currency denominated price goes up and why I also remain at a normal pulse rate when said ‘price’ declines sharply. I do agree that when trading or investing in the gold miners (as I do) it is important to keep traditional metrics in mind. But the miners are my casino of choice and I most certainly do not see the gold miners as gold, a gold equivalent or anything other than a potentially hugely leveraged play on an enduring asset of value.

Back in the real world, players are just beginning to get the hint that the risk they have taken on in the hunt for return in some very dark corners has come at a price and the price is a massive debit against the entire system of something for leveraged nothing. Yes, gold pays no premium but neither is it subject to this debit because it never went anywhere to begin with. It Is What It Is and as a barometer of global financial sentiment its exchange value is rising versus a whole host of paper promises not to mention many hard assets. So what many investors now need is a sort of 12 step program as they attempt to ‘put down the crack pipe’ and come to an understanding that real value has nothing to do with return (unlike modern portfolio and asset allocation theory) and it certainly has nothing to do with leverage.

Mr. Zigler’s assertions and my responses:

Debate has raged for some time now about the utility of gold in a portfolio. Forget, for a moment, the breathless claims of infomercial touts and Parade magazine advertisers. Think, instead, of asset class selection.

Why should anyone add gold—or, for that matter, any asset—to a portfolio? The answer that comes immediately to many people’s minds is “return.” It’s the promise of outsized, and often outlandish, returns that entices people to call that 800 number in the wee hours of the morning to get their hands on the yellow metal.

There should be no debate. An asset of historic value belongs in a portfolio if debt obligations (bonds) and calls on corporate earnings (stocks) belong there. I agree, the 800 number pitch men are seedy characters capitalizing on fear and insecurity, but why are they part of the conversation? Have you ever seen the movie Boiler Room? The world of stock scams dwarfs that of unscrupulous precious metals dealers.

Gold isn’t the end-all, be-all, however. In the long term, the metal’s price is notoriously unstable. Since gold’s price was allowed to float in 1970, its annualized standard deviation—its price variance—has been clocked at nearly 20 percent, versus 15 percent for blue-chip stocks. And in that time, gold’s return has only averaged 8 percent. The S&P 500 earned 11 percent per year.

There is the word “return” again. The reason gold has under-performed over the measured time frame (minuscule in the context of history) is because contrary to what some gold bugs may think, there certainly was upside to the fiat money system. This upside was manifested in liquidity to build out all manner of productive enterprise. The United States for example spent the majority of the 20th century on the upside of this build-out. The question now becomes ‘do we remain on the upside or have the secular changes beginning in and around 2000 marked a decided switch to the inevitable payment to the piper (of the debt used to keep the dream alive)?’ If you think there is still productive upside, you will see gold’s ‘return’ as sub-par. If you believe that secular changes are at hand, you are looking for that exit door in a crowded casino and you don’t give a damn about return. You want to stay whole.

So what return can we expect from gold? Well, financial theory says you can’t expect any increase in an asset’s value without growth prospects. Stocks’ expected return derives from earnings growth. Issuers of corporate securities can create things and grow. There’s a real prospect for a company trading its shares or warrants to be worth more and more as the result of management decisions. Gold itself doesn’t produce earnings, and for that reason its expected return can be approximated as zilch. Nada. Bupkis.

Mr. Zigler is correct. Gold provides no ‘return’ in the modern asset allocation theory sense of the word. But in bringing the word ‘value’ into the equation he again shows how modern portfolio theorists are trained; no return, no ‘growth’ = no value proposition. Gold does not stand at $806 this morning because of its growth but rather because of its retained value vs. paper instruments – USD first and foremost – which are coming under heavy questioning. It should be noted that in the US the stocks of these growth entities are denominated in USD.

Appreciation in the price of gold, of course, does occur. History attests to that. There’s just no reason to expect it. What influences the price of gold are external, not intrinsic, forces.

It appears Mr. Zigler and I have been watching two different financial systems over the last several years but I certainly agree that gold’s value is affected by external forces.

He then goes on to write about the gold miners which is my usual subject matter on the TA Blog [edit; much less so now, as too many patrons micro manage every squiggle in this sector publicly and NFTRH reserves most of its gold stock analysis for subscribers], so I will just end here this critique of modern portfolio theory as it applies to gold. I hope it helps shed a little light on an alternate way of thinking for a few people.

I will leave you with a final thought that I was taught early on in a school of decidedly unconventional asset theory. Price is price and value is value. They are not one in the same. Unfortunately that simple thought has been schooled out of the masses. I have no doubt that pitchmen of all types will come out of the woodwork to hawk the golden solution to an awakening public. A fortunate few will keep it simple however and remember that real value is enduring and real value is not a pitch. I find value splitting wood at my wood pile. I find value in jamming loudly on guitar. I find value in Google. I find value in the air I breathe. I find value in remaining financially whole. I do not find value in debits attached to an unpayable black hole.

4 Safe Haven Investments to Replace Swissy & Gold

Trying not to pre-judge the title as flat out stupid, let’s proceed to the article…

Four safe-haven investments to replace Swiss francs and gold –MarketWatch

Where to park your money until the next crisis blows over

Greece is on the edge of a dramatic exit from the euro EURUSD, -0.09% . The Russians are meddling in the Ukraine again. The oil price CLH5, -0.46% has been hammered, creating an arc of instability across the Middle East. The global economy is, as is so often the case, poised on the edge of another crisis. If it happens, money will start fleeing to safe havens, somewhere where it can be safely parked to ride out the turmoil.

The tension builds…

But where’s it gonna go? For several generations, the answer to that question was easy enough. In a crisis, you parked your cash in the Swiss franc USDCHF, -0.12%  , or else in U.S. Treasury bonds TMUBMUSD10Y, -0.97%  , or in gold GCH5, +0.22%  . The trouble is, none of those safe havens are as “safe” as they once were.

Yes, hello… I’d like to report a casino patron sighting in the MSM?  Gold is in a bear market so it is not safe?  In other words, because the price of monetary insurance is down during what you claim is a crisis it should be avoided?  Hello?  Hello?  Is there anybody in there?  I said hello… can you hear me Joe?

Continue reading 4 Safe Haven Investments to Replace Swissy & Gold