Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold, Silver And The Mining Sector: Prepare For A Severe Fall

Commodities / Gold and Silver Stocks 2014 Apr 17, 2014 - 02:26 PM GMT

By: Bob_Kirtley

Commodities

Background
This is a distressing time for gold and silver bulls like me who are constantly on the lookout for a turnaround in the precious metals sector. I’m confident that it will come but not just yet, as a final capitulation has not taken place. On 18th November we wrote the following:


This sector is to some extent in the hands of Janet Yellen and The Federal Reserve. If the economy takes a turn for the worse and she behaves as dovishly as she is portrayed then we could see an increase in QE. However, if the employment figures continue to show slow but steady progress, then there will be no increase in QE and then the outlook for these metals will look less attractive. Should tapering be introduced the US dollar will appreciate and gold, having an inverse relationship with the dollar will suffer. 

The Fed appear to be satisfied that the economy is making steady, if slow progress and is on the road to recovery, hence the introduction of tapering. This programme of reducing QE possibly to zero looks set to continue and be completed towards the end of this year, barring any sudden reversal in the employment/inflation data for the US.

The perma-bulls among us are confident that the lows formed in June 2013 for gold prices represent the bottom for gold and their enthusiasm for higher prices is indeed infectious. However, we view this stance with some trepidation as we are still of the opinion that this gold bull market remains in a bear phase for now. The bears won’t always have the upper hand, but until this bear phase exhausts itself completely there is little chance of a sustainable rally in this tiny sector.

To maximise our profits we need to time our entry and exit points to the best of our ability. We all know that finding the exact bottom or top of a market is almost impossible to do, but this does not preclude us from trying to get as close as possible to these major directional changes, in this case from the bear phase to the resumption of the bull market.

As we write Gold is trading around $120/oz above the June lows, silver is about $1.50/oz above its low point and the mining sector as evidenced by the Gold Bugs Index, the HUI, is sitting about 20 points higher. This is not the picture of a runaway success story, on the contrary it depicts a sector struggling to gain any traction and lacking in conviction.

Retail investors and fund managers a-like need to have a clear view of the big picture before committing hard earned cash to any investment opportunity, failure to do so will render success as elusive as the Scarlet Pimpernel.

Gold and Silver
The sparkling days when gold hit $1900/oz are now a distant memory as gold has fallen back, rallied and fallen back again. A number of head fakes and false dawns have placed gold prices in the precarious position of approaching the summer doldrums in a state of weakness. Gold is unloved and to some extent forgotten as its current bear phase has dominated for close on 3 years now, driving the weaker hands out of the market and putting a dent in the portfolios of those brave enough to stick it out.

Silver prices have enjoyed a brief flirtation with the $22.00/oz level but failed to hold onto those gains. It is now trading at $19.58/oz which puts it back to where it was in December 2013, in a sideways trading channel.

The HUI
The performance of the precious metals mining sector is predicated on the performance of the underlying asset, along with the ability to produce the metal at a price lower than the selling price. Mining costs have accelerated over recent years with some costs now standing at $1200/oz, which has to be achieved before we can talk about profits. However, when these costs have been covered every dollar earned above these levels goes straight to the bottom line. This then becomes an exciting time to be invested in the mining sector as stocks can rise, in percentage terms, 2 and 3 times more than the metal itself.

Taking a quick look at a chart of the HUI we can see just what a difficult time the miners are experiencing. A re-test of the June lows looks to be on the cards and should that support level fail to hold then we could see a re-test of the old ‘150’ level which was formed in 2008.

A certain amount of euphoria was generated in the first quarter of 2014 when the miners came out all guns blazing. This rally was short lived and as of today the overall gain for this year is about 10%. When we take into consideration that these stocks had their values halved in 2013, then we can see that this move upwards is hardly a cause for celebration.

Conclusion
Among the many factors that we can point to as being influential for precious metals the following are just a few;

Mints around the world occasionally run out of coins and bars and are unable to meet demand.

China and India remain huge purchasers of physical gold.

Iraq bought 36 metric tons of gold last month valued at about $1.56 billion, one of the largest purchases by a country in the last three years.

The printing and debasement of paper currencies by a number of nations continues unabated.

The supply of gold to the market is said to be dwindling.

The situation in the Ukraine would appear to be getting worse despite the efforts of our political leaders and their negotiators, increasing geo-political tensions and fear.

As logical and sensible as these arguments are the fact remains that gold and silver are not heading to the moon just yet.

There could be one or a combination of reasons for this lack of progress, but the two that get our attention are the lack of a final capitulation in gold and silver prices and the reduction of QE via the Fed’s tapering programme.

Gold’s progress was characterized by a sudden steepening of the curve leading to a final blow off when the price had gotten ahead of itself. We now need to see a similar occurrence take place during a sell off. However, this sell off, as torrid as it has been lacks that final spike down which occurs when even the most ardent bulls have had a guts full and finally throw the towel in.

Gold and silver’s inability to sustain a decent rally suggests that it could re-visit and test its old June lows. Should this support fail to hold we could then experience a rather disorderly sell off taking gold back to the $1000/oz level.

The ‘sell in May and go away’ strategy may be adopted in the coming weeks which may add additional selling pressure to the mining stocks.

Also take note of the Federal Reserve Meeting planned for April 29/30th for any changes to monetary policy regarding tapering/QE/Rate changes, etc.

Finally we need to see more in the way of all around strength in this sector before we can implement an aggressive acquisitions strategy, and so we have the lion's share of our portfolio in cash.

Got a comment, fire it in, the more opinions that we have, the more we share, the more enlightened we become and hopefully our ‘well informed’ trades will generate some decent profits.

From the small team here we wish you and yours a very Happy Easter. 

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

© 2005-2019 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

6 Critical Money Making Rules