Tag Archives: Gold Mining

Interesting Volume in Gold Juniors

Remember that heavy volume in the gold juniors ETF GDXJ?  It was a sign of commitment and it was/is bullish.

gdxj

But what’s good for the goose is now good for the bearish gander in the short term, evidently.

jdst

The (3x) bear fund JDST seems to be receiving some of that volume even as GDXJ’s volume dries up (as it should do on a corrective phase within a bullish trend).

It appears a lot of people are hedging.  It could be nothing, but that’s a lot commitment building for the gander for a mere corrective consolidation.  Would the conspiracy brigade foresee an impending hit from Team Evil?  Or maybe it is the sign of a disbelieved rally and is thus bullish.  Or maybe it’s nothing.

Just found it interesting is all.

Gold Mining is Counter Cyclical

The following is the opening segment of this week’s Notes From the Rabbit Hole, NFTRH 276:

Somewhere along the road from the 2000 bottom in gold stocks to the 2008 flame out of inflationary hysteria, the gold stock sector went from counter cyclical first mover to ‘inflation trade’ also ran.  Gold stocks put in a secular bear market bottom in 2000 just as the US and many global economies were topping out.

Then came the era that NFTRH has labeled ‘Inflation onDemand’ (IoD).  The economy was successfully* inflated by Alan Greenspan early in the decade as easy monetary policy fomented an epic credit bubble, which took over and did the heavy lifting for a cyclical bull market and buoyant economy that terminated hard in 2007/2008.

During this time of IoD ‘inflation bulls’ and commodity bulls who had all the answers for a newly inflation-phobic public emerged and took center stage.  Misperceptions were formed, cemented and driven home.  Nowhere were the misperceptions more intensely and dangerously embedded than the gold stock sector, which at its core is different than most commodity sectors and indeed, most stock sectors.  Introducing another one of our ‘busy’ charts to illustrate…

hui.mo

Okay, article over… the chart says it all.  No more words necessary!  :-)

The chart is a confusing jumble you say?  Okay then, let’s take it point by point.

Continue reading

Counter Cyclical Gold Stocks on Plan

Forget the inflationists, forget the ‘buy all resources!’ brigade and remember that at its healthiest, the gold mining sector is counter cyclical.  And for the last couple days at least, it has been acting that way.  Gold stocks benefit from economic contraction as gold out performs positively correlated assets.  Tune out much of the rest of the crap because it is not useful.

gdx.spy

 

‘Real Price of Gold’ Slowly Rises

First it bottomed vs. the stock market (lower panel).  Then the ‘real price of gold’ bottomed vs. crude oil and has just this week boinked above the 50 day moving averages.

gold.wtic

So while gold cheerleaders ready the pom poms, what we should do is keep an eye on its ratios to positively correlated things so that we can have a good read on the macro for one, and on the gold mining fundamental backdrop for another.

Morning Reading

(e) = external link

The Gold Mining Sector Breaks a Record  Steve Saville  7.2.13 (pdf)
Bad to Worse w/ the Federal Reserve  Greg Canavan  7.2.13
Uninsurable Risks  Doug Noland  7.2.13
Gold is Following in Stock Market’s 2009 Footsteps  Tom McClellan  7.2.13
We Are the Pea  James Howard Kunstler  7.2.13
Just When You Think it Can’t Get Any Worse  tBP  7.2.13 (e)
Feldstein: QE is Not ‘Printing Money’  BI  7.2.13 (e)

Market Analysis, News & Commentary

biiwii.com

(e) = external link

Gold Bullion: Neither Underpriced Nor Overpriced  Bill Bonner  4.4.13
US Interest Rates, China & the Impact on Gold  Dan Denning  4.4.13
Gold Mining: The Abysmal State of the Juniors  TGR  4.4.13
BOJ Unveils Shock & Awe Q-QE  Zero Hedge  4.4.13 (e)
RUT & SPX Divergence: April Fool’s Joke or Something Else?  B.I.G.  4.4.13 (e)
Mortgage Serious Delinquency Declined in Feb…  Calculated Risk  4.4.13 (e)
How Market Losers Think – and How to Stop Doing it  EWI  4.4.13 (video) (e)

More guest market analysis, news & commentary

Guest Market Analysis and News

biiwii.com

e = external link

The Euro/Yen Cross Rate  Tom McClellan  3.1.13

Will We See Consolidation in the Gold Mining Industry?  Jordan Roy-Byrne  3.1.13
Financial Market Articles & News  Biiwii.com/EWI  3.1.13
Key Asset Class Performance…  B.I.G.  3.1.13 e
Americans Yawn at Budge Cut Hype  ino.com  3.1.13 e
“Great Rotation” Does a 360…  Zero Hedge  3.1.13 e
This Year’s Subsidy to Wall St = Amount of Sequester Cuts  Washington’s Blog  3.1.13 e
Sequestration Cuts Crisis Makes Me Want to Strangle Both Sides  Matt Taibbi  3.1.13 e

More Guest Market Analysis

Morning Reading

biiwii.com

Germany’s Gold Repatriation Unlikely to Assuage Public Concerns  GoldCore  1.17.13
Gold Mining Groundhog Day  TGR  1.17.13
Gold & Basel III  Przemylsaw Radomski  1.17.13
It Pays to Be Contrary  Michael Ashton  1.17.13
Central Bankers: World is on the Brink of Currency War  Jesse  1.17.13
Quiet Day in Silver  Dan Norcini  1.17.13
Traders Blog  ino.com  1.17.13
S&P 500 and Sector P/E Ratio Charts  B.I.G.  1.17.13

More Guest Commentary

NFTRH Interim Update 1.16.13

A subscriber was confused about the post entitled The CCI-Gold Ratio Will Tell the Story as it sounds contradictory to the big picture analysis in NFTRH.  In the event others found it confusing, let me explain further…

The post was actually inspired by another subscriber who made note of Don Coxe’s current view that gold and gold stocks should be reduced in light of massive global money printing that is going on and is likely to continue to go on.  His view as best I understand it is of re-liquified banks and global economic revival as new money gets out there.

He projects the money base to rise just as we have been looking for and that would be positive for gold and thus, the miners. As for the miners, I believe they would be fine or even outstanding performers for the early part of an inflationary cycle if indeed that is what is on tap.

Remember, the post was theorizing on ‘what if’ Coxe’s theory is right and widespread economic revival takes hold in a semi-enduring way.  I by no means think that is a done deal.  I only think big inflation attempts are a done deal.  This is important.  Also important is that the fuel for any economic revival is paper… burning paper.  I believe that some assets and markets will rise, but real economic revival, especially in the US and Europe?  I am not on that bandwagon.

But the gold miners’ fundamentals by the Gold-CCI measure may have gotten ‘as good as it gets’ for a while if an interim economic pop is coming.  In the big picture we are in economic contraction.  That is what the long-term chart of the Gold-CCI ratio (a measure of gold’s real price, second chart below) says.

The gold miners are a ‘buy’ when their fundamentals are improving (during economic contractions) but their stock prices are declining (as at the ‘W’ bottom that came after the technical breakdown in early 2012), and a ‘sell’ when their fundamentals are degrading (during inflationary phases – as we saw in the run up to 2008) but their stock prices are rising.

hui and rpg

In 2010 HUI made a good rise while Au-CCI took an intermediate correction (blue shaded area). In 2012, HUI declined while Au-CCI hit new high.

The chart above shows that HUI made one of its best post-crash moves in 2010 as the real price of gold took an interim (that is important, we are talking about interim corrections to the big, secular trend of a rising ‘real’ price and economic contraction) hit, not unlike the one we are theorizing about now.

The real price of gold took a leap out of the Euro crisis and now Au-CCI is consolidating.  As counter intuitive as it sounds, a consolidating or correcting ‘real’ price of gold is often a good thing for the gold mining sector’s stock price prospects.  That is when the ‘inflation bulls’ come aboard and drive commodities of all kinds higher.

gold.cci

Gold-CCI Ratio AKA a measure of the ‘Real’ Price of Gold

The post yesterday simply showed a resistance area to the CCI-Gold ratio (corresponding with the support area shown on Gold-CCI above) that could contain any coming economic relief before a secular economic contraction bites once again.

That is because inflationary revivals never last.  They cannot last because they are dependent on things other than sustainable economic principles.

Personally, I have learned a lesson over the years and that lesson is that gold is gold and gold miners are companies (some good, many bad) that dig the stuff out of the ground, often under difficult political not to mention geographical and geological conditions.  The last time the real price of gold was under pressure for an extended period was the mid 2000’s and people touted gold stocks right along with base metals and energy stocks.

The point is that there is a difference.  A deflationary backdrop that forces economic contraction and compels the inflators to inflate is good for the gold stock sector, fundamentally.  But if – and to me it is still an ‘if’ – this is an ‘inflation up’ cycle of whatever duration, the Au-CCI ratio is likely to decline, degrading gold miner fundamentals on an interim basis.

The point is that if profits are to be had, they should be taken on an intermediate trade within the scenario noted by Don Coxe.  Gold is fine.  Gold miners are a play and they should be sold when/if the inflation touts are promoting them along with copper, oil, grains, hogs, etc.

We are all learning all the time and one thing I have learned is that the very clear cycles in the gold stocks should be traded, not held.  The sector is more confusing than most because its fundamentals are out of alignment with stock performance.  This is due to the “misperceptions game” that I often write about. As the fundamentals degrade, the inflation bulls buy more.  As the fundamentals improve, the inflation bulls sell more.

In the past I had more patience in riding out the “misperceptions game”.  But with an unstable global geopolitical backdrop and the hazards of debt and leverage everywhere in the developed world, that now seems like a quaint old notion.  This is why I have written that I plan to tighten up my game going forward.  When the turns come, market reactions are more dynamic now than they used to be.

For now, the Coxe view does nothing to change our current view.  In fact, it reinforces it from the view of an “inflation up” cycle.  There was another post promoting EWI’s viewpoints, which I have got to go read now.  We do not want to ever forget the biggest picture view, which is economic contraction with a deflationary backbone.

If the massive inflation attempt fails to result in further rebounds in commodities and economies, the precious metals may benefit on a relative basis by their decoupling from the bad sentiment structure of the broad market; if policy makers continue to fight the good fight against deflation.  But this would need to be managed on a tight time frame, if applicable.

If this update has failed to clarify anything, please do not hesitate to contact me.  I realize it is somewhat of a ramble.