Tag Archives: gold stocks

GDX: Steep Declines & Buying Go Together

By Steve Saville

Steep Price Declines and Increased Buying Often Go Together

In numerous TSI commentaries over the years I’ve written about the confusion in the minds of many analysts regarding what constitutes gold supply and the relationship between supply, demand and price in the gold market. I’ve also covered the issue several times at the TSI Blog, most recently on 24th June in the post titled “More confusion about gold demand“. I’m not going to delve into this subject matter again today other than to use the example of last Monday’s trading in GDX (Gold Miners ETF) shares to further explain a point made in the past.

On Monday 20th July the GDX price fell by about 10% on record volume of 170M shares. Since every transaction involves both a purchase and a sale, more GDX shares were bought last Monday than on any other single day in this ETF’s history. And yet, this massive increase in buying occurred in parallel with a large price decline. How could this be?

Obviously, the large price decline CAUSED the massive increase in buying. Many holders of GDX shares were eager to get out and the price had to fall as far as it did to attract sufficient new buying to restore the supply-demand balance.

It’s normal for large and fast price declines in the major financial markets to be accompanied by unusually-high trading volumes, meaning that it’s normal for large and fast price declines in the major financial markets to be accompanied by increased BUYING. Most people understand this. So why is it held up as evidence that something nefarious is happening whenever an increase in gold buying accompanies a large decline in the gold price?

I can only come up with two plausible explanations. One is that many analysts and commentators switch off their brains before pontificating about gold. The other is that the relationship between gold supply, demand and price is deliberately presented in a misleading way to promote an agenda. I suspect that the former explanation applies in most cases, meaning that in most cases there’s probably more ignorance than malice involved.

Q4 2008 for Gold Stocks?

By Biiwii

The title’s hyperbole aside, back in Q4, 2008 we had what may be the biggest table pounding opportunity ever, as gold stocks outright crashed even as sector and macro fundamentals sky rocketed.  For years now I have written in NFTRH that I would love to see such a combo again.

While it is not yet engaged to even a ‘buy’ yet, let alone a table pounding situation, the combo is progressing as our indicators seem to be falling in line, one-by-one (with a couple holdouts).

While this is just a general post, I will say that it is time to be glad you tuned out the easy Indian Wedding→China Demand→Strong US jobs = inflation = institutional panic into gold style promotions in favor of the old boring view that it is only going to be an oncoming economic issue and attendant loss of confidence that will do the trick.

GDX and GDXJ

By Biiwii

While remaining bearish based on incomplete sector and macro fundamentals and technicals, I only pressed the short side the other day after making this GDXJ bounce post.  GDXJ was do or die and I thought it was worth a shot since, as was noted in the post “Gold stocks (as a sector) are bearish until initial resistance is cleared and then bigger picture bearish until the declining 200 day moving averages are cleared (and held).”

And that was not even including the incomplete fundamental picture.

At that point I added a short against 3x Junior Miner bull JNUG, to go with the existing short against Senior Miner 3x bull NUGT.  Today I covered the NUGT short quite profitably and continue to hold short against JNUG.

Don’t get me wrong, NFTRH’s stance has been to leave the sector the hell alone because I am not a day trader and will not pretend to be one, potentially to other peoples’ harm.  I am just a risk-o-phobe trying to call the turns in the markets, short and long-term.  Traders can do what they wish off of the analysis.

So the NUGT short, which was leveraged against the likes of GDX is covered right at the next support level we have been tracking since way back before the “drop dead gorgeous bull wedge” (that wasn’t) was even a glint in its promoter’s eye.  When this thing lost the MA 50’s in May it was cooked, especially after retesting the EMA 50 and failing on a bear flag at the beginning of June.  GDX had better bounce here or the decline is going to wipe out those who buy promotions instead of reality.

gdx

As for the Junior ETF, it looks much worse as the breakdown continues, but support is well lower.  Since my area of interest in buying the washout is in the junior and exploration space, I retained the JNUG short without as much worry about its profitability, which is good now, could get much better or could put a hurt on with the next sector hype operation.  It does not matter because barring an outright crash to our most bearish levels for the sector, in which case I’d book a great profit, short positions may well be there to oversee a coming acquisition process, assuming fundamentals look like they will come in line. *

gdxj

Regardless, those in cash and looking to buy the sector may finally get the chance fairly soon.  However, it may come from well below the support levels shown above.  Only week-to-week development of the plan will provide answers on that.

* Funda are not nearly all in line, but using the Palladium-Gold ratio as one example, something is beginning to happen on the macro and while the summer can get woogley for bulls and bears (regular stock market bulls and bears, that is), it now seems to be a matter of months before changes will be apparent. 

GDXJ Bounces

By Biiwii

For all you gold stock sports fans…

GDXJ is bouncing, but has a lot of work to do.  I have marked that neckline as resistance, but actually it is support to a very not bullish looking pattern.

gdxj

GDX is similar.  Gold stocks (as a sector) are bearish until initial resistance is cleared and then bigger picture bearish until the declining 200 day moving averages are cleared (and held).

I continue to look for some combination of sector funda, macro funda and technicals as a buy signal.  Alternatively, if the gold stock sector tanks badly and the macro funda come in line (ala Q4 2008), that’s a buy opportunity as well.  Patience my friends.

Hype in the “Community” is Always Punished

By Biiwii

IKN has been pointing out the stupidity of some Apple Watch gold consumption hype and most recently, the non-flight to quality amidst Greece blah blah blah… He is at least as sensitive as I am to this stuff.  More so, maybe.

While I have personally tried to tone down the criticism of the cartoons in the gold “community”, I find it difficult with one writer in particular leading the naive into the GDX (with its “drop dead gorgeous bull wedge”), into the Indian Wedding and China demand stories and as a topping on the cartoonish cake, the ‘US jobs will drive inflation so make like the smart money and BUY GOLD before the big institutions do!’ garbage.

I get irritated by this stuff.  Some people call me sanctimonious (while cherry picking and misinterpreting a chart I put up) and I call myself judgmental, for sure.  That is not really a great trait to have, but at least I know who and how I am.  Speaking for the defense, this is mostly applied when I think that people are being misled to their potential harm by stuff that they are reading and assuming is authoritative.

News flash:  Nobody writing on the internet in general and the financial media in particular, is authoritative.  Present company included.

Last year at this time Ukraine, Russia and eventually Ebola were stoking up.  NFTRH kept a constant warning in force that the rally in the precious metals complex was happening for the wrong reasons (i.e. trade it, but don’t bite on the b/s).  Right out front beating the bull drum were some of these entities about which I am highly critical today.  The result for last summer’s unsuspecting true believers?  New freaking lows in gold, silver and the miners.

It was interesting because last summer NFTRH experienced a temporary net decline in subscribership.  I thought it was just a typical summer drop off, but I also could just feel certain gold aficionados in the base getting fed up with me.  You can always sense when gold bugs start dropping off.  It tends to happen when I don’t tell them enough of what they want to hear.

This summer (so far, anyway) there has been no drop off and indeed there has been a slight increase in net subscribership.  The only way I can explain it is that we have been fully prepared every step of the way for the bearish things happening to gold, silver and the average* miner.  That along with the fact that we have been bullishly managing markets that have deserved to be managed, unlike the precious metals to this point.

In other words this summer I am not being punished for being negative because precious metals prices are not running upward, making charlatans with nicer things to say look like gurus.  People are valuing what is, as opposed to what they ideally might want to be.  Oh and also I think that the last several years have been a process of winnowing the real hard ass gold bugs out of the base and leaving a group of well rounded market participants.  I like that.

This is not a ‘trash the precious metals’ post.  Changes are coming, but first you need to be intact, have several macro fundmental and technical indicators cross referenced and in line and be prepared to be brave when the sheep (funny how the most dogmatic “community” on earth calls regular people “sheeple”, isn’t it?) are being sheared.

* I am fully aware that there are standout exceptions, which is why I currently hold 3 junior gold stocks (alongside a short against NUGT).

GDX-GLD Ratio

By Biiwii

Well here is what GDX-GLD (equiv. to HUI-Gold ratio) did out of the gate this morning, which is interesting, considering HUI-Gold has been making historic long-term lows lately.

gdx.gld

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 Sector Weakness on Cue

By Biiwii

Fundamentally, the gold stock rally was labeled a “bounce only” because it was just another item rising anti-USD in an ‘inflation trade’ revival.  Right along with Oil, Copper and the outliers like REE, Lithium, Uranium, etc.

If we are disinterested in commodities (I am and have been), then we were cautious on the precious metals for this reason.

Like it or not, we are in a process of eliminating the inflationist gold bugs, and a lot of ‘inflation trade’ promoters while we’re at it.  I guess that is me being “sanctimonious” as one blog described me recently.  I prefer ‘overly judgmental’, but whatever.

Moving on, one indicator of the coming problem in the gold sector was the tried and true HUI-Gold ratio (HUI-GLD used here, while NFTRH used a very similar HUI-Gold chart to note the early caution signal on May 17).

hgr

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.