By Steve Saville
Ignore per-ounce valuations for gold deposits
During 2001-2011, buying exploration-stage gold stocks with large in-ground resources at low per-ounce valuations worked well. It worked well because ‘the market’ was often more concerned about leverage and quantity than economic viability and quality. Since 2012, however, buying an exploration-stage gold-mining stock on the sole basis that owning the stock gave you relatively low-cost exposure to a lot of in-ground gold has generally not worked well, to put it mildly. For the past three years, one of the most important rules to be followed by value-oriented speculators in gold-mining stocks has been: if it ain’t economic, it ain’t worth anything. This rule will probably apply for at least two more years.
Here’s a specific example to illustrate how the per-ounce market value of an exploration-stage gold-mining stock can be very misleading.
Continue reading Gold Deposit Valuations…
How to promo… how to promo? NFTRH 329 took a hard look at the realities of what happened last week and despite an end of week reversal (below SPX key resistance of 2165) it found that at week’s end the bulls and the risk ‘ON’ contingent regained their footing.
Going the other way, the rise in short-term yields vs. long-term yields was gold bearish and not friendly to Team Risk ‘OFF’.
A really good market report doing the work it has to do every step of the way. Of course we are in the volatile ‘swing baby, swing’ market so we’ll be ready to adjust as always over the coming week. The key is to be in proper position for when the ‘swing’ phase consolidation ends.
Another solid report this week. I know that because it helped me out yet again in trying to understand all the components in play across markets; all the tops spinning around on the table.
Stock market sentiment is an issue as markets continue at an important technical decision point. The precious metals have short-term technical parameters but more importantly, they have some pretty important long-term signals coming in. Well, gold and even more so, gold miners. Silver is not something I am personally excited about on the big picture.
The biggest picture view, which has been an uninterrupted global economic contraction is intact and getting stronger. From that spring so many other items for extrapolation and strategy.
They tell me you are supposed to take profits and so that is what I have done with another gold miner, Klondex Mines, because no matter how positive I am on the company a chart like this is vulnerable, too far above the EMA 10, let alone the SMA 50, which is around where I originally bought it.
We had previously advised that traders consider taking profits as GDX hit 23 and HUI hit 210. I did that with some positions, but had wanted to hold this one indefinitely. Well, so much for that. Meanwhile, I’ll get dinged on the ones I decided to hold but with lots of cash am in a position to either take advantage of this pullback or in the less likely (IMO) event it violates certain parameters, avoid most of its damage.
NFTRH analysis fully anticipated the disturbance in the sector and advised profit taking for traders and a probabilities based view of what this pullback is and is not.
Improving Macro Backdrop
In light of a shifting global macro backdrop that we can finally sink our teeth into with respect to a bullish orientation on the gold stock sector, I thought it might be a good idea to publicly post some bottom line thoughts from this week’s NFTRH report.
The report went into great detail to explain why more fundamentals that matter are starting to come in line, after the chart below refused to make a signal against our big picture view of global economic contraction, which has been the biggest key for the counter-cyclical gold mining sector.
During the worst of the gold sector cyclical bear market we used Gold vs. Commodities to gauge a higher low to the 2011 low, which despite perceptions of the time, kept our longest-term macro view intact (as noted to subscribers several times, if Au-CCI had broken down we’d have had to admit that the view had failed, no if’s and’s or but’s).
The moving averages have triggered, a higher low has been made and the long-term thesis is being confirmed.
Hence, a bullish stance on quality gold mining operations (a unique counter-cyclical sector) has finally come about and the relevance of this chart of HUI vs. the S&P 500 now means more than simply one market crashing in terms of the other. It means RISK vs. REWARD is on the side of the counter-cyclical gold mining industry vs. the cyclical broad US stock market.
Continue reading Bottom Line Thoughts on the Gold Sector
Guest Post by Steve Saville
The historical record indicates that the gold-mining sector performs very well during the first 18-24 months of a general equity bear market as long as the average gold-mining stock is not ‘overbought’ and over-valued at the beginning of the bear market. Unfortunately, the historical sample size is small. In fact, since the birth of the current monetary system there have been only two relevant cases.
The first case involves the general equity bear market that began in January of 1973 and continued until late-1974. This bear market resulted in peak-to-trough losses of around 50% for the senior US stock indices.
The following chart comparison of the Barrons Gold Mining Index (BGMI) and the S&P500 Index shows that the gold-mining sector commenced a strong upward trend near the start of the general equity bear market. During the bear market’s first 20 months, the BGMI gained about 300%.
Continue reading Gold Stocks During an Equity Bear Market
Guest Post by the Fine Folks at NFTRH
With all the hype and noise built in to daily and weekly market management, sometimes it is worthwhile to dial out, calm things down and touch base with markets on the big picture. Here are views on various markets (with limited commentary) by way of some NFTRH monthly charts.
Let’s start with currencies, since they are a reflection upon global policy making, which has been unprecedented in its direct market interference over the last few years.
Nominal Charts – Currency
We noted the hot air patch in the Canada dollar last year. I had thought CDW might stop and find support at 85, which is a measurement from the topping pattern; but so far, no dice.
Fellow commodity currency Aussie is at what should be a strong support zone.
 evidently my uninformed use of stockcharts.com’s symbol for the Rupee is incorrect. I have had input that this chart is an inverted view of Rupee-USD. Looking into this.
Continue reading Big Picture View
The last post was a little perspective on gold over the long-term. This post calls attention to a post at NFTRH where the writer pops off a bit on the gold bears in light of today’s… what ever it is. Festivities?
I would normally be pretty cautious about a short-covering event like this, but coming off of a gold-negative hype event as it did, driving silver down to the low-end depths of my 14-16 target in pre-market, I find it notable.
Anyway, the post linked above goes into the need to use not only technicals in the gold sector, but importantly sector and macro fundamentals along with other indicators. You don’t friggin’ chart in a vacuum! Especially in the precious metals.
I swear this sector is filled with hyperbole both from the Pom Pom brigade and their evil twins managing what has become an ‘everybody knows’ situation with respect to how bearish gold is. Just ask that weirdo, Willem Buiter over at Citi.
Below is a summary of some of the aspects we follow in NFTRH to gauge a future investment stance on the gold sector. It is much more complex than simply hearing dogma that seems to make sense and then holding on for dear life…
The hype is dying. 10 years of inflation hysterics have gone down the drain even as global policy makers pull out inflationary bazookas and use them at the slightest hint of economic trouble. The BoJ’s recent action was just the latest and most striking in its timing. Global markets were bouncing within correction mode and the Yen had just pinged a key resistance level. The BoJ then blew the Yen up with policy designed to at once reward risk takers and asset holders and mercilessly punish the Japanese people, renowned for the ethic of saving.
But the global inflation is dying despite these periodic bazooka blasts. The US Fed as much as admits it wants inflation. More accurately, it will do anything to stave off the next deflationary impulse because when that takes hold it is going to unwind the system, and they know it. Why on earth do you think noted Hawk James Bullard was trotted out the moment the stock market took a routine correction in October? Here Jim, get out there and eat that mic and calm them down.
Gold is not about inflation and in this cycle it, as a squarely risk ‘OFF’ asset, is about the opposite, the deflationary unwinding of the inflated excesses which now are no longer clustered in commodities and global markets, but in US stocks and the balance sheets of certain corporations set up to benefit.
In a dis-inflationary environment, which is the preferable one for the gold stock sector, the pain comes first and the rewards for those left standing come second. We have not exited the pain phase for gold bugs and most people still think ‘no inflation, bad for gold’ when they should be thinking ‘no inflation… that means eventual deflationary impulse… bad for the economy and stock markets and one day, from the ashes good for the gold sector when and only when gold out performs other assets positively correlated to the economy’.
Goldilocks has been in play in the US as the global dis-inflationary pull has dropped the TIP-TLT ‘inflationary expectations’ gauge lower. At some point Goldlilocks will morph to something less benign for the economy and for stock bulls. But it has not yet.
Continue reading Gold Sector Review
Some guy over at some website who we know pretty well just opened up this morning’s premium update for anyone who is interested.
The discussion was meant to indicate caution about yesterday’s bounce, but there is much more there as well. General game plans should be worked up now so would-be players are 100% prepared.
NFTRH (Public): Gold, Gold Stock Parameters, Discussion