Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14
Bullish Silver Stealth Buying - 24th Oct 14
Blood in the Streets to Create the Gold Stocks Investor Opportunity of the Decade - 24th Oct 14
Swiss ‘Yes’ and ‘No’ Gold Initiative Campaigns Compete at Launches in Bern - 24th Oct 14
War And The Law Of Unintended Consequences - 24th Oct 14
Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - 24th Oct 14
Saudi Move to Cut Oil Prices Is Now Russia's Biggest Economic Threat - 24th Oct 14
US Stock Market Top Is Now In Sight - 24th Oct 14
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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

© 2005-2014 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