Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
Bifurcated US Stock Market - 29th Apr 17
Damn the Deficits, Huge Trump Tax Cuts Ahead! - 29th Apr 17
Gold Hostage to Stocks - 29th Apr 17
Warren Buffett Hates Gold… But Here’s Five Reasons You Need To Own It - 29th Apr 17
Stock Market Sentiment, Re-Fueled Along the Way - 28th Apr 17
Calling out the Central Bankers - 28th Apr 17
Fed's Third Inetrest Rate Hike and Gold - 28th Apr 17
USD/CAD - Invalidation of Breakout or Further Rally? - 28th Apr 17
What Happened to the Stock Market Crash Experts Were Predicting - 28th Apr 17
Earth Overshoot Day - Human Population Growth - 28th Apr 17
Misunderstanding GDXJ: Why It’s Actually Great News For Junior Miners - 28th Apr 17
What Makes Bitcoin Casinos So Remarkable? - 28th Apr 17
Financial Markets Improvised Explosives - 27th Apr 17
More Stock Market Short-Term Uncertainty As Stocks Get Close To Record High - 27th Apr 17
Elliott Wave Theory: Is Elliott’s Theory Enough? - 27th Apr 17
Billionaire Investor Paul Tudor Jones Says Stock Market Valuation Is “Terrifying” And He Is Right - 26th Apr 17
The Great BrExit Divides - Britain, USA and France - 26th Apr 17
10 Facts That Show Our Taxes Are Worse Than You Thought - 26th Apr 17
What Trump’s Next 100 Days Will Look Like - 26th Apr 17
G20: SURPASSING THE 2nd GLOBAL STEEL CRISIS - 26th Apr 17
What A War With North Korea Would Look Like - 25th Apr 17
Pensions Are On The Way Out But Retirement Funds Are Not Working Either - 25th Apr 17
Frank Holmes : Gold Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply - 25th Apr 17
3 Reasons Why “Spring Forward, Fall Back” Also Applies To Gold - 25th Apr 17
SPX may be Aiming at the Cycle Top Resistance - 25th Apr 17
Walmart Stock Extending Higher - Elliott Wave Trend Forecast - 25th Apr 17
Google Panics and KILLS YouTube to Appease Mainstream Media and Corporate Advertisers - 25th Apr 17
Gold Price Is 1% Shy of Ripping Higher - 25th Apr 17
Exchange-Traded Funds Make Decisions Easy - 25th Apr 17
Trump Is Among The Institutionally Weakest National Leaders In The World - 25th Apr 17
3 Maps That Explain the Geopolitics of Nuclear Weapons - 25th Apr 17
Risk on Stock Market French Election Euphoria - 24th Apr 17
Fear Campaign Against Americans Continues Nuclear Attack Drills in New York City - 24th Apr 17
Is the Stock Market Bounce Over? - 24th Apr 17
This Could Be One Of the Biggest Winners Of The Electric Car Boom - 24th Apr 17
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

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

© 2005-2016 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

Catching a Falling Financial Knife