Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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