Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Trendy Markets

Stock-Markets / Financial Markets 2009 Dec 14, 2009 - 01:39 PM GMT

By: HRA_Advisory

Stock-Markets

Best Financial Markets Analysis ArticleThe gold price has swept past the US $1200 mark - in both directions - so it’s time to check numbers against concepts and patterns.  The yellow metal’s modern history began with Western economic expansion in the 19th century.  That outstripped our ability to supply gold equivalent to economic activity, at fixed rates.  With currencies delinking from gold by the early 1970s, miners couldn’t supply enough of it at the old fixed rates.  Contrast that with copper which was in a supply glut at the time due to technological changes.  Paper currencies were already a large multiple of gold horde values by this point. 


Unfettered gold took one of the most incredible price runs in history during the 1970’s, peaking near 2500% above its old official US$ price in 1981.  That brought bulk mining technologies to gold akin to those copper miners had used since early in the century, and a big increase in supply.  That, plus selling from official hordes, pushed gold miners into the same cycle of profitable spurts sandwiched between longer red ink troughs that copper producers were already suffering.        

The last spurt was the commodities run of the mid 1990s that dashed against the Asian Tigers currency based defaults in 1997.  The long trough that followed shut down most generative work in the mining sector as a whole.  It was unready for the boom of larger growth economies.  As is typical, gold sat in the backseat while base metals lead off this “super-cycle”, but it was in the car. 

Gold’s price has, in US$ terms, been in a staged advance since 2002.  That steepened in late ’05 with a quick 40% run-up that was mostly about storing wealth in a boom period.  There after gold shifted into a “traditional” hedge role.

The gain for gold from the “start-of-US-debt-worries” base in late ‘06 to the pre “all-hell-is-breaking-loose” peak in early ‘08 was also about 40%.  An “Ok, now we’re-scared-@%#$less” reversal in mid ‘08 as instinct moved capital into the most liquid US$ market wiped out about 3/4 of that earlier gain.   The gain this year from the “play-the-bounce” base of March has again been about 40%, in US$ terms.  Is that that?

The answer to ‘that’ requires parsing the shift from “play-the-bounce” to “take-my-greenbacks-please” that has polished hard assets to a shine not seen for a century.  Keep in mind the NZ$ and Australian$ have done even better than gold this year, which hasn’t stopped Australia from replacing the USA as number two gold producer this year.  The CDN$ has done almost as well as gold despite Canada having low interest rates and important manufacturing ties to the US economy.

Gold is trading in line with a basket of mid tier currencies the market is warm on because of underlying commodity ties, and recent histories of prudent management.  Of course one major difference between gold and fiat currency is the latter are usually leveraged by trading pairs.  Gold is a counter trade, either one of two transactions or bought to store against further turmoil.   

As a commodity, gold is doing less well this year than is copper which from bottom to, well now, is up about 125%.  Silver’s percentage gain is twice that of its yellow cousin.  This of course reflects the deeper discounts the other metals suffered last year.   Copper has recovered only 70% of its peak value, and silver about 85% of its.   Gold is almost 15% above its old high.        

For some technicians it’s the last 15% (which was 20% at one point last Thursday) that really matters since it is well below the magnitude of earlier moves.  Pre-Crunch moves of 40% had established new base levels at or near the peaks of those earlier runs.  This time around gold was also coming off of a low created by Debt-Crunch selling, which we note again is the yellow metal doing its job as a crisis hedge.  On the basis of previous oversold conditions, there would be room left in this uptick.

Lows and highs aside, the pattern looks similar to a typical cycle.  Even in this atypical post-Crunch period the relative gains, and relative strengths, still has copper moving ahead of gold. However, in most cycles gold strengthens as base metals and the broader economy begin to flag on supply gains.  Therein lies the current quandary.

As we've noted for the past few months, the continued strength of copper’s price is surprising us.  Copper has better visibility than gold since the bulk of its available warehouse stocks are offered by a few markets.  Clearly there has been little interest in betting against the red metal lately.  It has been acting as a US$ hedge, and presumably with counter trades in place to dampen a market reversal.  However, its producers have been moving sideways.  That speaks to a lack of conviction about sustaining this price level, which we have agreed with and which still prompts us to look for copper price consolidation.

With gold the above ground hordes are not so visible.  The official sector holdings can be added up, and the bulk of these central bank holdings are subject to either imposed selling restrictions or required consent before selling can take place.  We doubt much of this gold is “spoken for” now that many miners have closed their hedge books and gold production loans are less prevalent, but some of it probably is already borrowed by speculators and unavailable for sale. Official sector net buying for the first time in a generation has in fact helped the gold price. 

But private sector gold holdings are of similar scale, and intended sales are hardly likely to be trumpeted.  That reality was evident when the building corporations in Dubai announced they were halting debt payments.  The emirate has a major gold market and it seemed logical enough to assume gold selling would be part of a solution there.  That abated when Abu Dhabi signaled it would work something out. 

Friday’s selling was a more straight forward reversal of the greenback’s decline on news of strong US employment numbers.  Whether that marks a trend it’s too soon to say.  It won’t of itself mean the US debt issues are cleared up, and that has been the real basis for the US$ decline.  It was time for some reversal and consolidation, and fortunately it came on good news.

The sentiment shift will be tested by the holiday shopping season amongst other issues.  We hope these too show the US economy is improving.  Though our bit of the market will mainly be governed by how well the growth economies are doing, the long process of paying for this decade’s party needs to get underway as quickly as possible.  

It is that bill paying that will continue to be the economic focus, and for years to come. It is important to recognize that the reversal on Friday, a move into the US$ on good news for its economy, is quite different than the panic driven moves that had created previous upticks for the greenback.  After a steep shift out of the US$ and into varied alternatives, the employment numbers became an event for gains taking. 

This piece was supposed to be a warning that after a long steep run it was likely there would be some trade reversals in January on profits taking.  Instead that is getting underway in time for seasonal shopping.  We didn't and don't view the profits taking as a basic change to the trend line.  Whether gold will rise enough to make this a 40% up leg we don't know.  But the gold market is trading in a fairly balanced fashion even after the move it has already had.  Perceptions about the yellow metal have changed, to its benefit. 

For all of the hand wringing and “I told you so” in some quarters the gold “crash” is all of about 8%.  The 40 day moving average has been a pretty reliable base that gold has bounced off of several times on the way up.  That
stands at about $1100 right now and hasn’t even been tested yet.  If it holds, then a resumption of the upward move would not be long in coming.  If it does not the 200 day average that has provided a floor on several larger dips in the past eight years would be the next target, at about $1000.  In short, it’s a normal correction in a rising market so far. 

The story isn’t much different for the Dollar. It has been a long one way ride down so a counter trend rally is no surprise.  So far, it has not been an impressive one given some of the economic news in the US that started it came as a surprise to virtually everyone.  Like the gold market, the greenback has had a couple of big days but doesn’t look like the longer term trend has been reversed. 

We could see a more sideways trading pattern on the Dollar.  If that happens it can’t be either praised or blamed for moves in metal prices.  We think precious metals would fare better in that scenario than base metals, in the short term at least.

The relative lack of fireworks extended to the major equity markets.  Most major indices really haven’t gone anywhere for a month or more.   There is a sense that things are again in a holding pattern.

For the remainder of the year markets will increasingly be dominated by year end book squaring and positioning.  We’ve noted several times this year that the major rally has been supported by surprisingly light volume.  Participation has not been strong, but those funds that did get long early are looking pretty smart.

How the indices fare as the year closes out will be determined by the actions of the relative few that rode this rally.  We expect funds that are long will be skittish, wanting to carry the gain through year end but ready to take profits on a moment’s notice to protect strong performance numbers.  If we get through year end relatively unscathed we expect those same funds will be profit taking to lock in gains in January.  It may take substantial good news to give the market a large lift early in the year.

In our own sector, metal prices will obviously be a factor, but we expect a smaller version of the trades described above to play out.  There have been a number of very strong stories that look like they are ahead of themselves.  Most were wise enough to use their market strength to carry out substantial financings.  As we enter the New Year we suspect there will be profit taking in a number of these deals as that financing stock becomes tradable, and that money will be spread around on newer stories in the sector.

We expect M&A activity to continue ramping up.  Mid sized companies that didn’t buy when the getting was cheap seem to be holding off waiting for a better ratio between their and their target’s share prices.  Short of gold having a large move that is more than matched by the producer indices, we don’t think they will get their wish.  At some point we expect them to just give up and bid.  This will free up more capital in the space to pursue newer stories. 

We’ll spend more time on the big picture items and what next year’s market may look like in the next issue. One last item we want to touch on here is year end tax loss selling.

There is concern that this years selling will be heavy, but we think it will be both light and quite selective.  A look at last year’s chart of the TSX Venture makes it clear how vicious that selling was.  Volumes were huge, as was the bounce the index had (20% in a week, more or less) as soon as the last day for tax selling passed. 

We expect traders will be more interested in carrying gains through year end this time.  The exception will be companies that had bad or no results this year.  Look at the chart for your stock.  If it goes upper left to lower right, than there may be more “lower right” before the month is over.  

 


    Gain access to potential gains of hundreds or even thousands of percent! From March to June, HRA introduced four new gold explorers to subscribers. Those four companies have generated an average gain of 205%, to date! SPECIAL HRA OFFER: For a limited time only, HRA is offering free reports and a subscription savings. Click here for more information: http://www.hraadvisory.com/sh2009.html

    By David Coffin and Eric Coffin
    http://www.hraadvisory.com

      David Coffin and Eric Coffin are the editors of the HRA Journal, HRA Dispatch and HRA Special Delivery; a family of publications that are focused on metals exploration, development and production companies. Combined mining industry and market experience of over 50 years has made them among the most trusted independent analysts in the sector since they began publication of The Hard Rock Analyst in 1995. They were among the first to draw attention to the current commodities super cycle and the disastrous effects of massive forward gold hedging backed up by low grade mining in the 1990's. They have generated one of the best track records in the business thanks to decades of experience and contacts throughout the industry that help them get the story to their readers first. Please visit their website at www.hraadvisory.com for more information.

      © 2009 Copyright HRA Advisory - All Rights Reserved
      Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

      HRA Advisory 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