Best of the Week
Most Popular
1.Dow Stock Market Trend Forecast 2015 by Nadeem Walayat - Nadeem_Walayat
2.Gold And Silver – Forget The News. Silver $12 – 14? Gold $1,000 – 1,100? 5 - Michael_Noonan
3.A TOP Formation In Apple Inc. - Crash Condition Signal Recorded - David Harris
4.Gold Gets Safe Haven Bids But COMEX Has Stopping Power - GoldSilverWorlds
5.The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy - EconMatters
6.Exponential Explosions in Debt, the S&P, Crude Oil, Silver and Consumer Prices - DeviantInvestor
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.Is Russia Planning a Gold-Based Currency? - Marcia Christoff-Kurapovna
9.Stock Market Trend Forecast 2015 Video - Nadeem_Walayat
10.Gold GDX ETF Technical Analysis - Austin_Galt
Last 5 days
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15
Wheat Commodity Price Technical Trend Forecast - 24th Feb 15
Bitcoin Price Might Stay below $250 - 24th Feb 15
Another Important Stock Market Inflection Point Approaching - 24th Feb 15
Gold: The Good, Bad, and Truly Ugly - 24th Feb 15
Eurozone Gold Holdings Increase to 10,792 Tonnes As “Reserve of Safety” Amidst Crisis - 24th Feb 15
Bird Doo; Yellen Goes to Congress - 24th Feb 15
Is Gold Investing Risk Free? - 24th Feb 15
The Bull Case For Gold Price 2015, and the Bear - 24th Feb 15
Europe - The Intersection of Three Crises - 24th Feb 15
Gold Price Just Needs More Time - 24th Feb 15
Gold Price Downtrend Looks Set to Continue - 23rd Feb
Silver Price Depressing Downtrend Will Eventually End - 23rd Feb 15
5 Reasons Why You Should Sell Amazon Stock - 23rd Feb 15
Global System Catastrophe Is Key Threat To Human Civilisation - 23rd Feb 15
Greece Crisis Yields Ideal Market Opportunities - 23rd Feb 15
Gold and Silver Stocks or General Stock Market Indices? - 23rd Feb 15
Swimming With Sharks: Goldman Sachs, Schools and Capital Appreciation Bonds - 23rd Feb 15
Stock Market - The Fed Still Has Your Back - 23rd Feb 15
Soybean Commodity Price Technical Outlook - 23rd Feb 15
Gold Weekly COTs and More - 23rd Feb 15
Stock Market New Highs With Weak Breadth - 23rd Feb 15
Greece Surrenders to Troika - 22nd Feb 15
This Greek Tragedy is a Global Farce - 22nd Feb 15
Copper Commodity Price Technical Outlook - 22nd Feb 15
U.S. Dollar and Investing in Gold Stocks - 22nd Feb 15
Is Putin's Russia Ready For Total Economic War With the West? - 22nd Feb 15
Stock Market New All Time Highs - 22nd Feb 15
Dow New Stock Market All time High as Greece Surrenders to Germany - 21st Feb 15
Gold And Silver – Banker’s Grip On Precious Metals Not Over! - 21st Feb 15
What Uber Could Teach the American Economy - 21st Feb 15
The Morris Massey Stock Market - 21st Feb 15
Are Conditions Setting The Market Up For A Summer Washout? - 21st Feb 15
The Seven Financial Indicators of Highly Successful Biotech Stocks Investing - 21st Feb 15
Varoufakis’s Revolutionary Plan for Europe - Don't Tell Anyone in Berlin - 20th Feb 15
South Korea’s Keynesian Experiment Goes Global - 20th Feb 15
How Germany Can Save Greece and the EU - 20th Feb 15
Beware the Stocks Bear Market! - 20th Feb 15
Gold Bides Time – Massive Complacency Regarding Ukraine, Greece and Debt Crisis - 20th Feb 15
The Simplest Long-Term Investment Strategy You'll Ever See - 20th Feb 15
Greece Crisis - Germany Rejects Greek Trojan Horse Bridge Financing Loan Con - 20th Feb 15
UK Political Party Funding Suggests Another ConLib General Election Outcome 2015 - 20th Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

Gold Mining Stocks Dead Cat Bounce?

Commodities / Gold and Silver 2013 May 02, 2013 - 08:23 AM GMT

By: Bob_Kirtley

Commodities

In the last seven months or so we have seen the Gold Bugs index, HUI, fall from 520 in October 2012 to 283 today 01 May 2013, registering a loss of 45% in the value of its constituents. The last four weeks has seen the HUI drop 100 points followed by a bounce of 23 points. Many are of the opinion that the bottom is in and are hopeful of a decent rally from this point in order to restore some normality to this tiny sector and repair their investment accounts. The chart below depicts the plight of the gold miners and the severity of the recent carnage that has decimated the stock prices at a time when they need all the friends they can get.


The HUI Chart:

Their fortunes are predicated on the gold and silver prices and unfortunately they have been put to the sword in what might be seen as a final capitulation as disgruntled investors throw in the towel and take their hard earned cash to more favourable pastures. The stock market in general would be an obvious candidate as it heads relentlessly higher as the S&P500 flirts with the 1600 level. 

The Gold Chart:

The FOMC and the ECB

This week ushers in the FOMC meeting where policy remains pretty much unchanged as they will “increase or reduce the pace of its purchases” as necessary. We also have the latest unemployment report due, should the figures be as expected at around 150,000 new jobs then QE will continue as is, maintaining the status quo. This would do little for gold prices as it is more or less factored into analysts’ expectations. A very poor number might raise the spectre of QE being increased, but we doubt that this will happen.

We also have the European Central Bank meeting on Thursday and given that the Eurozone is up against it with rising unemployment causing great difficulties for many of its member states, a rate cut is a strong possibility. Gold prices may get a small boost should this reduction eventuate as the interest earned on the Euro becomes less attractive. Then there is the long dark shadow of a ‘bail-in’ by depositors when the next member state pleads poverty. Investors looking to avoid such events have many alternatives to consider, and the precious metals space is one of them.

Beyond these two events it is difficult to see just what will be the ignition for gold prices to go higher. The world is already a dangerous place and we are aware of the friction that exists at the pinch points and therefore the geo-political situation is already accounted for in the current price.

Physical market and the paper market

From what we understand from the dealers there is increasingly strong demand in the physical market with various mints running out of some products, however, the paper market currently determines the price so we do need to keep a watchful eye on the COMEX. Should the COMEX falter and be unable to deliver, then this could be a game changer. However, if they settled the account in cash, then the blow would be softened, after all we are living with the ABN AMRO banks decision to make cash settlements on requests for gold withdrawals. A precedent has been set and others will no doubt adopt a similar stance when investors decide to take physical delivery of their gold.

Acquisitions:

Acquisitions are good for the pipeline but not so good for the bottom line, if the newly acquired production doesn’t come on line in the next year or two. A lot can go wrong in the design/permit/construction phase and it requires an enormous amount of cash to bring a project to fruition. It’s too much to ask an investor to wait three to five years for a potential return on such an investment. Miners have to decide which the highest priority is, the interests of the investor or the expansion of their empire.

The US Dollar:

The US Dollar appears to be rolling over having formed a recent double top and it has also failed in its attempt to form a higher high. The dollar had rallied largely on the fall of other currencies such and the British Pound and the Japanese Yen, however, that rally is now fading. Should the dollar’s decline accelerate then gold prices should improve in dollar terms.

Conclusion
The producers are between a rock and a hard place; faced with falling prices and rising production costs. This squeeze on their operational ability makes it difficult for them to pay a reasonably attractive dividend; in fact many do not pay a dividend. So we have a situation whereby some producers pay no dividend and their stock price has tumbled, a recipe for disaster.
It is now more important than ever to select the quality producers in this sector, a well-managed mining company, operating in a mining friendly jurisdiction, with low cash costs, generating sufficient revenue so as not to need a loan, etc.

On the surface it looks as though the bottom is in and stock prices are cheaper now then they have been for some time. However, that does not mean that they can’t go any lower as disgruntled investors sell into any rally that presents them with an opportunity to exit their positions.

The HUI could be the next dead cat on the block so investors must exercise great caution at this juncture as the short term will continue to be volatile as this white knuckle ride gathers pace.

With gold and silver stocks being out of favor one must decide if this is a problem or an opportunity. We have steadfastly refused to buy gold and silver mining stocks for the last two years and as evidenced by the HUI we feel that our decision to hold back has been vindicated. The damage done to the mining sector may not be over yet but this demise is starting to offer up some exciting opportunities in my view.

Take care.

Bob Kirtley
Email:bob@gold-prices.biz

URL: www.silver-prices.net

URL: www.skoptionstrading.com

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. Winners of the GoldDrivers Stock Picking Competition 200

DISCLAIMER : Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.

Bob Kirtley Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014