Gold Market Radar (June 11, 2012)

Sunday, June 10th, 2012

Gold Market Radar (June 11, 2012)

For the week, spot gold closed at $1,593.45 down $30.65 per ounce, or 1.89 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, beat bullion with a slight loss of 0.59 percent. The U.S. Trade-Weighted Dollar Index fell 0.54 percent for the week.

Strengths

• The U.S. Mint reported that sales of American Eagle gold bullion coins in May rose 158 percent over the total number purchased in April. Sales of American Eagle silver bullion coins rose 89 percent in the same period. However, sales in May 2012 were down from levels attained in May 2011 for both gold and silver bullion coins. On a positive note, recent SEC filings showed George Soros has been buying gold again.
• While the gold stocks were the star performers in the prior week, silver stocks on average turned in positive gains despite a flat silver price. Lately mining stocks have been outperforming the bullion prices.
• Gold maintained its recent gains most of the week until Fed Chairman Ben Bernanke spoke before Congress on Thursday and did not affirm that the Fed was compelled to immediately start QE3, particularly in response to recent weak job numbers. Short-term traders immediately started shorting gold. Speculative interests have declined significantly over the past year with the Comex speculative open interest recently at 13.6 million ounces net long, down from 28 million ounces, so there is plenty of room for this number to grow, once the Fed or Congress is forced to scream “Uncle!”

Weaknesses

• From recent Fed statements, some of the Federal Open Market Committee (FOMC) members appear to have warmed up to another round of QE, as some economic data has been downright disturbing as of late. When Bernanke refrained from outlining steps that the central bank may take to bolster the economy amid risk from Europe’s debt crisis, gold futures tumbled the most in two months. Instead the Fed indicated it is going to assess more data before acting.
• Barrick Gold’s Board of Directors announced this week that it had replaced Aaron Regent, President and Chief Executive Officer, with Chief Financial Officer Jamie Sokalky. Barrick’s vision is to be the world’s best gold company by finding, acquiring, developing and producing quality reserves in a safe, profitable, and socially responsible manner. Analysts worry that the company may lower guidance.
• A Court of Appeals ruling orders the U.S. Forest Service to consult with wildlife agencies prior to granting Notices of Intent to weekend hobbyists using suction dredges to mine for gold in the Coho Salmon critical habitat in northern California. This could be bad news for all U.S. small miners and explorations working on Forest Service lands with critical wildlife habitat. This decision sets a major precedent across the western states and may render the Forest Service impotent to meaningfully address low impact mining without deferring to other agencies such as the EPA.

Opportunities

• Morgan Stanley conducted a survey of 2,019 urban and rural gold buyers across 16 Indian cities and eight Indian states. The survey report notes that Indians own 20,000 tons of gold worth $1 trillion. Respondents from several households said they expect gold prices to rise by 8 percent in 2012. The survey notes that gold is not the first asset that Indian households liquidate during bad times; it is equities. Gold remains an important asset class for investment, having outperformed most other asset classes over the past five years.
• In a recent address to the Committee for Monetary Research and Education, Bob Hoye noted policymakers are now getting margin calls on their massive experiment in government intrusion and it is likely coming to an end. In studying history, Bob sees a pattern in which the state spends, borrows, inflates and raises taxes until all of the wealth is consumed. Consequent hardship becomes widespread and forces folks to tighten their belts, who in turn, force local and federal governments to tighten theirs. Policymakers have an economic interest in maintaining the bubble but ultimately running the money printing presses cannot keep a mania going.
• Bob points out that typically in the year a bubble maxed out, gold’s real price set a significant low and then increased for some twenty years thereafter. If Congress does not reach agreement on several important tax and budget policy issues before the end of this year, the impending fiscal cliff could be a big hit to GDP growth and could be sufficient enough to push the economy into recession in 2013.

Threats

• Bernanke’s remarks pointed that action is required by Congress to set the right policies to lead the country forward. Congress cannot wait to see if a third quantitative easing sets the ship right. It seems the major central bankers have agreed to a common script, pointing to the failings of fiscal policymakers (i.e., politicians). Mario Draghi of the ECB commented, “Some of these problems in the Euro area have nothing to do with monetary policy. That is what we have to be aware of and I do not think it would be right for monetary policy to compensate for other institutions’ lack of action.” Central bankers are trying to put pressure on their political leaders to address the root causes of the crisis which are beyond the scope of monetary policy.
• With this being an election year, we may be at an impasse with little room to compromise where brinkmanship and stand your ground may be more important than doing the right thing. Gold prices have been highly sensitive to what monetary policymakers have done for much of the past year and with low visibility towards a resolution, it could be a trader’s market for the next couple of quarters with the potential for some large price moves if the stresses become acute.
• If the Fed wants to do something, it really has to be June 19-20 because the window will start to close once the election campaign moves into high gear.

Tags: American Eagle Gold, American Eagle Gold Bullion Coins, April Sales, Ben Bernanke, Bullion Prices, Federal Open Market Committee, George Soros, Gold Bullion Coins, Gold Futures, Gold Market, Gold Miners, gold stocks, India, Market Radar, Nyse Arca, Open Market Committee, Silver Bullion Coins, Silver Price, Silver Stocks, Spot Gold, U S Mint
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Gold Market Cheat Sheet (September 6, 2011)

Monday, September 5th, 2011

Gold Market Cheat Sheet (September 6, 2011)

For the week, spot gold closed at $1,882.80, up $54.93 per ounce, or 3.01 percent. The U.S. Trade-Weighted Dollar Index also rose 1.24 percent for the week.

Strengths

• Both gold and silver turned in a strong week of performance rising 3.01 percent and 5.61 percent, respectively.
• Gold and silver stocks followed the precious metal prices higher and were not held back by generally falling equity prices across the broader market.
• Precious metal investors appear to now recognize how far the mining companies’ valuations have lagged behind the price performance in bullion and are rotating more money into shares of the gold and silver producers.

Weaknesses

• Miners in Peru expressed relief that the government has decided to tax profits and not revenue.
• However, the magnitude of taxes being targeted for collection in Peru is based on how much money the government is budgeting to spend on social programs.
• In other words, when the desired spending levels are inflexible and not sensitive to economic test, taxes could again be raised to shore up the budget.

Opportunities

• AuRico Gold started the week off with a surprise bid for Northgate Minerals at a substantial premium.
• This renewed merger activity woke up investors to how attractive acquisition opportunities are right now relative to the price move in bullion we have seen this year.
• For the senior and mid-tier gold mining stocks there are few options to put two companies together and unlock significant value. However, some of the most accretive opportunities for growing the resource base of the mid-tier companies will be to acquire the junior exploration and development companies that have already identified assets of significant interest.

Threats

• According to CIBC, the cash tax per ounce of gold produced by the industry has increased 1,200 percent over the past six years.
• Many of these tax increases are based on the perception there are windfall profits being made in the mining industry and the government should rightly receive a bigger payoff.
• Gold prices still remain volatile and could be subjected to more margin hikes by the CME.

Tags: Acquisition Opportunities, Bullion, Dollar Index, Gold, Gold And Silver, Gold Market, Gold Mining Stocks, Junior Exploration, Merger Activity, mining companies, Northgate Minerals, Ounce Of Gold, Precious Metal Investors, Precious Metal Prices, Price Move, Price Performance, Resource Base, Silver Stocks, Spot Gold, Tax Profits, Windfall Profits
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Why it’s Still Buying Season for Gold and Silver Mining Stocks

Thursday, July 14th, 2011

Every Precious Metals investor knows about the typical summer doldrums that usually afflicts the Gold & Silver sector as summers are typically poor performance months. However, this summer we were hit with a steep downfall earlier than in most years in April and early May, so there is a distinct possibility that despite gold and silver mining stocks normally waiting until late August to put in a bottom, that the bottom may already be in. I expect the second half of 2011 to produce a very significant rally in PM stocks, given the ongoing disaster that is the EU, the ongoing US debt problems, and the development of new PM futures markets in Hong Kong and Shanghai. If you look at the chart below, you will see that just a couple of weeks ago, on June 16th, the HUI Gold Bugs Index fell to a level comparable to the levels that existed on October 20, 2010 and January 25, 2011. On those respective days, gold was trading at about USD $1,324 a troy oz and USD $1,339 a troy oz. On June 16, 2011, gold was trading about 15% higher than its price level as of October 20th, yet the HUI Gold Bugs mining stocks were trading at a price level that was no higher.

Given the history of gold mining stocks’ performance being leveraged to the upside, many a commercial industry analyst declared mining stocks dead at this point, although at SmartKnowledgeU, we declared them severely undervalued, specifically because we believed Western banking interests were manipulating the PM stocks downward at this point and because fundamentally the best gold and silver mining stocks were still very sound. See our article here called The Surprising Truth About the Volatility of Gold & Silver Mining Stocks for some further analysis about the volatility of gold and silver stocks. In the below chart, you can see that we guided our CIO investment newsletter members to use this volatility for profitability as we instructed them to sell out of the gold mining stocks near a short-term high in early April and then guided them to buy back more shares of the same mining stocks at a lesser price in mid-May.

I’ve written many times in the past about the low utility of technical analysis when analyzing gold and silver assets if one does not also take into consideration Western banker manipulation of these assets. To understand this truth further, please refer to this article I wrote earlier this year called “Technical and Fundamental Analysis Fall Woefully Short When Assessing Manipulated Markets”.

Tags: Commodities, Debt Problems, Distinct Possibility, Futures Markets, Gold And Silver, Gold Bugs, Gold Mining Stocks, gold stocks, Hui Gold, Industry Analyst, Investment Newsletter, Late August, Newsletter Members, October 20th, Poor Performance, precious metals, Silver Mining, Silver Stocks, Summer Doldrums, Typical Summer, Volatility
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Silver Is Getting Too Popular… Right?

Friday, April 8th, 2011

by Jeff Clark of Casey Research

Silver Is Getting Too Popular… Right?

It’s no secret that the silver market is red-hot. As I write, silver American Eagles and Canadian Maple Leafs are sold out at their respective mints. Buying in India has gone through the roof, especially noteworthy among a people with a strong historical preference for gold. Demand in China continues unabated. Silver stocks have screamed upward.

So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we’re near the top? Have the masses finally joined the party such that we should consider exiting? After all, it’s not a profit until you take it, and you definitely want to sell near the top.

There are several ways to measure how crowded the silver market might be. I prefer to look strictly at the big picture and not get caught up in the weeds. This means I’m looking for signs of market exhaustion or the masses rushing in. Nothing says “peak” more than an investment everyone is buying.

So how crowded are silver investments right now? Let’s first look at the ETFs.

At $35 silver, all exchange-traded funds backed by the metal amount to $20.7 billion. You can see how this compares to some popular stocks. All silver ETFs combined are less than a quarter of the market cap of McDonald’s. They’re about 10% of GE, a company that still hasn’t recovered from the ’08 meltdown. Exxon Mobil is more than 20 times bigger. And this isn’t even apples-to-apples, as I’m comparing the entire silver ETF market to a few individual stocks.

This is even more interesting when you consider that it’s the ETFs where most of the public – especially those that are new to the market – first invest in silver. So while the metal has doubled in the past seven months, total investment in the funds is still far beneath many popular blue-chip stocks.

Okay, maybe all this money is instead going into silver mining stocks. How does the market cap of the silver industry compare to other industries?

While you fetch your magnifying glass, I’ll tell you thatthe market cap of the silver industry is $73.1 billion. It barely registers when compared to a number of other industries I picked mostly at random. The dying newspaper industry is over 26 times bigger. Drug manufacturers are 213 times larger. Heck, even the gold market is 19 times greater. And here’s the fun one: the market cap of the entire silver market, with all its record-setting prices and stock-screaming highs, represents just one-third of one percent of the oil and gas industry.

To be fair, there are a number of sectors that are smaller than silver. Radio broadcasters ($43.2B), video stores ($10.9B), and sporting goods stores ($2.5B) have puny market caps, too. But then again, who’s buying DVDs or baseball mitts to protect their wealth from a coming inflation?

Silver hardly resembles the picture of an investment that is too crowded.

I’m not saying one should rush to buy silver right now. After all, it has doubled in seven months. Unless this is the beginning of the mania, prudence would certainly be called for at this juncture. The price will always ebb and flow in a bull market, and an ebb is overdue.

The question, of course, is from what price level it occurs. What if a correction doesn’t ensue until, say, a month from now, and the price falls back to… where it is now? I remember some articles in January that insisted silver would fall to as low as $22, and, well, they’re still waiting and have in the meantime missed out on some huge gains. For silver to fall back to $22 now would require a 40% drop; not impossible, but I wouldn’t hold my breath.

Fixating on market timing takes your focus off the ultimate goal. In my opinion, instead of worrying about what will happen next week or even next month, focus on how many ounces you have, and then buy at regular intervals until you reach your desired allocation. This has the added benefit of smoothing out your cost basis. And don’t forget to buy more as your assets and income increase.

This is a market where you’ll want to be well ahead of the pack. Someday in the not-too-distant future, average investors will be tripping over themselves to join in. That will make the market caps of our silver investments look more like some of the others in the charts above. And that will do wonderful things to our portfolio.

Copyright © ZeroHedge.com

Tags: Apples To Apples, Blue Chip Stocks, Canadian, Canadian Maple Leafs, China, ETF, ETFs, Exchange Traded Funds, Exxon Mobil, Gold, Gold Demand, India, Market Cap, Meltdown, Mints, Natural Question, oil, Research Silver, Seven Months, Silver American Eagles, Silver Etf, Silver Etfs, Silver Investments, Silver Market, Silver Mining, Silver Stocks, Silver Trade
Posted in Canadian Market, Energy & Natural Resources, ETFs, Gold, India, Markets, Oil and Gas, Silver | Comments Off

Gold Stocks Reverse Downtrend

Monday, February 7th, 2011

I published a post a week ago, posing the question “Gold bullion – is a cycle low imminent?” I concluded the post as follows: “Although it is difficult to pinpoint short-term bottoms, I am of the opinion that the gold bull market remains intact, especially with inflation blowing up all around the world. Meanwhile, China and a number of other Asian countries keep adding gold to their reserves. These purchases should provide a floor to price declines – an “Asian put” so to speak.” Gold bullion was $1,335 at the time of writing and has since moved up to $1,349.

Gold shares recorded a so-called upward dynamic on Thursday, underpinning the view that the pullback from the December high has been a normal downwards reaction within a bull trend.

John Murphy of StockCharts.com on Friday said: “My Tuesday message showed the Market Vectors Gold Miners ETF (GDX) testing long-term support at its 200-day moving average, and suggested watching it closely for signs of an upturn. Today’s strong rally in precious metals assets may be the start of that upturn. The chart below shows the GDX surging more than 2% today and clearing its 20-day moving average (green line) for the first time this year. In addition, its 14-day RSI line (top of chart) has turned back up. The daily MACD histogram (below chart) has also turned positive (see circle) for the first time in two months. In my view, these signs of improvement increase the odds that the pullback in precious metal stocks is over. Gold and silver stocks are rallying on the backs of their respective commodities.”

Source: StockCharts.com

Separately, Adam Hewison (INO.com) also provided a brief video analysis on the technical outlook for gold. When the video was produced earlier in the week he argued that a buy signal had not yet been given, but this has just happened by means of a daily trade triangle signal and a pop to the upside appears likely. Click here to access the presentation.

Tags: Asian Countries, Bottoms, China, Commodities, ETF, Gold, Gold And Silver, Gold Bullion, Gold Shares, gold stocks, Market Vectors Gold Miners, Moving Average, Precious Metal Stocks, precious metals, Price Declines, Pullback, Silver, Silver Stocks, Technical Outlook, Trade Triangle, Upturn, Vectors Gold Miners, Video Analysis
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