Posts Tagged ‘Gold Trading’
Technical Take: Gold Miners Undervalued For Now Without The Leverage Effect
Thursday, October 27th, 2011
Technical Take: Gold Miners Undervalued For Now Without The Leverage Effect
In this article, we will have a look at the so called “leverage” effect that mining companies are supposed to have to the underlying metal prices.
To explain briefly why mining companies SHOULD have a leverage effect to increasing metal prices, I will illustrate this with a simple example.
Suppose you have a mining company X.
X is mining gold, which is trading at $300 at the moment. However, the company has to pay its employees, has to pay for exploration of the mines, it takes a lot of money to build the mine, and so on. Assume it costs $500 to mine one ounce of gold. Initially, the company will make a loss of $200 for each ounce of gold mined. However, when the gold price rises to $500, the company will break even.
With a gold price of $600, the company will make $100 profit for each ounce of gold mined.
Now here is the key: if gold rises now from $600 to $700 (16.66%), the profits will rise from roughly $100 to $200, which is +100%!
So even though the price of gold rose only 16.66%, profits doubled. So each $ increase in the price of gold, will lead to more profits for the company. When profits soar, the stocks are also expected to soar.
However, of what we have seen in recent years, it looks like this is definitely not always the case.
Some examples of gold stocks that have risen substantially more than the price of gold are ANV (Allied Nevada Gold) and GOLD
(Randgold Resources), as we can see in the following charts:
Chart: Freestockcharts.com
Chart: Freestockcharts.com
The kind of companies shown above, seem to be rather an exception.
Some other gold mining companies have performed equally to GLD, such as RGLD (Royal Gold) and GG (Gold Corp.).
Chart: Freestockcharts.com
Chart: Freestockcharts.com
However, as a result of the financial crisis in 2008, most gold stocks got beaten down so much that sentiment is so bearish, that it looks like these companies will never be able to increase profits or cash flows from their operations.
Some examples are AU (AngloGold Ashanti) and NEM (Newmont Mining). However, please notice that both these stocks are currently near their long term red resistance line. If price would manage to break above these lines, these stocks could be in for one of the biggest rallies you will ever experience in your life, as money will flow into the most undervalued stocks, and when suddenly everybody starts to chase after them, they could rise at the speed of light:
Chart: Freestockcharts.com
Chart: Freestockcharts.com
When we look at the HUI index, we can see that from 2005 until 2008 (right before the financial crisis), the price of the HUI index was highly correlated with the price of Gold. However, recently, the HUI index has been lagging the price of Gold in a way that asks for a huge rally of mining stocks, or a huge drop of the Gold price, or a mixture of both. This can’t sustain in the long term, and with gold now being in a favorable position, we think the HUI index will play catch up with Gold.
Chart: Freestockcharts.com
When we measure Gold stocks in Gold, we can see that many stocks are now at or near historical low prices:
Chart courtesy stockcharts.com
To give you one particular example of a stock we mentioned above, we take NEM (Newmont Mining). NEM is now trading at about 3.8% of the price of gold. In order for the ratio to go back to its historical average of about 8%, NEM could more than double, even if Gold would stay flat.
Chart courtesy stockcharts.com
Another nice example of a stock that is trading near its lows when measured in gold is Tanzanian Royalty Exploration:
Chart courtesy stockcharts.com
Conclusion: Although the mining stocks should have a leverage effect to a rising price of the metals they have in the ground, we can see that because of the financial crisis this leverage effect has often disappeared.
However, with the crisis in Europe only worsening, and the US on the brink of financial disaster, we think it’s just a matter of time before the rating of the perceived “safe haven US Government bonds” will be lowered again.
When this happens, investors have nowhere to go but GOLD. When the mass finally realizes that the mining stocks are severely undervalued, the mining companies could start a rally like you will only see once (or maybe twice if you’re lucky enough to become old) in your life.
Courtesy Willem Weytjens at Profitimes.com (EconMatters author archive here)
The views and opinions expressed herein are the author’s own, and do not necessarily reflect those of EconMatters.
Tags: Anv, Bonds, Financial Crisis, Gg, Gold, Gold Corp, Gold Miners, Gold Mining Companies, Gold Price, Gold Rose, gold stocks, Gold Trading, Leverage Effect, Mining Company, Mining Gold, Nevada Gold, Ounce Of Gold, Price Of Gold, Profits, Royal Gold, Sentiment, Willem
Posted in Bonds, Brazil, Gold, Markets | Comments Off
Outlook for Gold and Silver (Bart Melek)
Monday, July 25th, 2011
This week’s online video features Bart Melek, Head of Commodity Strategy, TD Securities, in conversation with Patricia Lovett-Reid.
With gold trading near the $1,600 level many investors are asking if it is in bubble territory or will it continue its decade long uptrend? Bart discusses his outlook for Gold and other precious metals.
In the interview, Melek addresses the following:
- Following up on your correct call of gold at $1600, what’s your current outlook?
- Do you see the potential for a push back to the gold standard?
- What is your outlook for silver?
- Thoughts on other precious metals such as palladium?
- What role can precious metals play in an investor’s portfolio?
Click here or on the image below to view:
Copyright © TD Waterhouse
Tags: Addresses, Bart, Commodity Strategy, Current, Decade, Gold And Silver, Gold Metals, Gold Silver, Gold Standard, Gold Trading, Investor, Investors, Online Video, Outlook, Palladium, Patricia Lovett Reid, precious metals, Uptrend, Waterhouse
Posted in Markets | Comments Off
The Big Secret Behind Gold’s $100 Collapse
Thursday, January 27th, 2011
by Adam Hewison, CEO, Seasoned Trader, MarketClub/INO.com
The question many investors are asking themselves today is, just what happened to the price of gold?
Did the world change? Did the problems in Europe go away? Did all the states manage to find funding to cover their deficits?
No, none of that happened, but gold still dropped $100.
It’s all about market perception and timing, two things we’ve talked about many times before on the Trader’s Blog. I don’t know about you, but I remember when gold was over $1,400 an ounce and all I could see on TV where ads from gold companies extolling the virtues of buying gold as it is real money. Since the fall, I expect we’ll see fewer of these advertisements on TV and in print.
So what did happen to gold?
Well, for starters there were some key technical levels broken. If you’re a gold trader, but not a technical trader, you really need to learn how to read charts and see what other traders are doing.
Secondly, there did not appear to be any other news to drive this market higher. When that happens, markets tend to fall under their own weight, and as many retail investors purchased gold, there was nobody on the other side of the market to support gold.So the question is, is the move over in gold? That’s a tricky one. I want to show you in today’s video exactly how we’re looking at this very emotional market. Every time we have created a video indicating that there would be some pullback in gold, we were bombarded by the gold bugs saying that we’re crazy. When you see a market pullback as much as gold has, you have to have some respect for the market itself.
If we look at the price of gold today at approximately $1,330, it pretty much equates to what happened in the last 30 years when gold was trading at a high of $850 an ounce. If you factor in inflation over the last 30 years, gold is probably lower now than it was 30 years ago. So how good an investment is gold? I think gold is more of a barometer of fear than anything else. Clearly there are other investments in the marketplace that have better returns.
Let’s get back to gold and what we think will happen. In this short video we analyze the market using our “Trade Triangles,” the Williams%R, and the MACD indicator.
I think there’s an important takeaway message in this video – what goes up, must come down.
Enjoy the video.
If the video does not play here, you can also watch it here.
All the best,
Adam Hewison
President of INO.com
Co-founder of MarketClub
Tags: Advertisements, Barometer, Buying Gold, Ceo, Collapse, Fear, Gold, Gold Bugs, Gold Companies, Gold Trading, inflation, Investment, Market Perception, Ounce, Price Of Gold, Pullback, Real Money, Retail Investors, Starters, Technical Trader, Virtues
Posted in Gold, Markets | Comments Off
Embry: Why Gold Will Keep Going Up
Wednesday, February 3rd, 2010
Below is the link to a recent speech by John Embry, Chief Investment Strategist of Sprott Asset Management, on the outlook for gold bullion (courtesy of GATA).
Embry concludes his address as follows:
“I now firmly believe the chances of gold ever trading below $1,000 per ounce are remote. The only caveat I would offer is that if the world suffered a catastrophic deflationary collapse, gold could briefly be swept under but would then re-emerge with even greater relative strength as the only true safe haven. However, in a world of pure fiat currency, I think a near-term deflationary outcome is highly unlikely. In fact, I strongly suspect gold is going to stage a parabolic rise from current levels in the not-too-distant future, a development that will come as a shock to the many detractors of the world’s only real money.
“Gold is the only real money because it isn’t someone else’s liability.
“This remains one of the best supply-demand imbalance stories I have encountered in my long career and it will only be enhanced by the existence of massive short positions that will be impossible to cover amid myriad paper claims on gold that dwarf the physical supply, which, by the way, is a subject for another day.”
Click here to read Embry’s interesting and educational speech.
Source: GATA, February 29, 2010.
Tags: Asset Management, Caveat, Chief Investment Strategist, Deflationary Collapse, Detractors, Distant Future, Existence, fiat, Fiat Currency, Gold, Gold Bullion, Gold Trading, John Embry, Money Gold, Ounce, Real Gold, Real Money, Relative Strength, Safe Haven, Shock, Speech Source
Posted in Markets, Outlook | Comments Off
Adam Hewison: Near-Term Technical Outlook – Dow, Nasdaq, Dollar, Gold, Oil
Sunday, December 20th, 2009
I often refer to the technical analysis of Adam Hewison (INO.com) to provide insight into the most likely near-term movements of financial markets. He has just produced five short presentations on various markets.
Dow Jones Industrial Index: Is the market at a crossroad? Click here.
Nasdaq Composite Index: Waning strength? Click here.
US dollar: Has the greenback bottomed out? Click here.
Gold bullion: Choppy trading in thin “silly season” markets? Click here.
Crude oil: Lower levels ahead? Click here.
Tags: Advertisement, Ahead, Crude Oil, Dollar Gold, Dow Index, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Index, Financial Markets, Gold, Gold Bullion, Gold Trading, Greenback, Ino, Insight, Nasdaq Composite Index, Nasdaq Index, oil, Silly Season, Technical Outlook
Posted in Energy & Natural Resources, Markets, Outlook | Comments Off
Webcast: What’s driving gold?
Thursday, March 12th, 2009
Much attention has been given to gold’s movements in recent weeks, leading investors to wonder what current factors are driving gold prices. What is gold’s role in the credit crisis? How will this environment affect gold miners?
US Global Investors has just produced a very informative webcast, featuring Frank Holmes, CEO of US Global Investors and co-author of The Goldwatcher: Demystifying Gold Investing, Gregory Weldon, founder of Weldon Financial and author of Gold Trading Boot Camp: How to Master the Basics and Become a Successful Commodities Investor, and David Galland, managing editor of The Casey Report and author of “The Room”, a weekly column from Casey Research.
Click here to view the presentation.
Source: US Global Investors, March 5, 2009.
Tags: Boot Camp, Casey, Ceo, Co Author, Commodities, Credit Crisis, Environment, Frank Holmes, Galland, Global Investors, Gold Investing, Gold Miners, Gold Prices, Gold Trading, Investor, Managing Editor, Presentation Source, Webcast, Weekly Column, Weldon
Posted in Commodities, Gold, Markets | Comments Off
