"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, June 16, 2011

HUI at a crossroads

I do not need to point out to the readers the abysmal performance of the mining shares. The hedge fund ratio spread trade has destroyed their share value and most of management seems unwilling or incapable of fighting back to protect the interest of their shareholders.

The Gold and Silver ETF's are also partly to blame in that these Trojan Horses have siphoned off a huge amount of speculative money flows that otherwise would have found its way into the mining sector shares. Those products can be used to obtain LEVERAGED exposure to the precious metals without the risk normally associated with outright purchase of a particular mining company. That makes them attractive to hedge funds which can also use them as the long leg of a spread against a short leg in whatever company they have decided that they can target.

Paying out a dividend to shareholders might put a dent in this little game being played by the gold and silver share shorts as it currently costs them nothing to LATHER, RINSE and REPEAT this strategy. If something works for a money making trade, it will continue just as long as it keeps on working. That means they can short the shares at will since they have no opposition. Shareholders may bitch and complain about it, but as long as the status quo continues, the shares will lag the price of bullion.

The non-stop selling barrage has brought the HUI down into a critically significant technical support level near 492-490. This level must hold or if broken, must be recaptured by the close of trading Friday, to prevent a further drop lower.

At this point in time, the only thing that I can see which will lead to the shares outperforming bullion would be another round of monetary stimulus from the Fed. In such an environment, the share prices will outperform the metals initially with silver outperforming gold as well. Will we get one? I do not know but if the stock market continues to slide and the economic data numbers do not improve, I bet we will, impact on the US Dollar notwithstanding.


  1. Thanks Dan, as a long time reader of jsmineset I have always respected your input on the current market events. Well I just held my nose and bought some more shares of a miner who has been really beaten down and IMO not deserving of it. The angst feeling in my stomach is my indicator that it is time to be buying mining shares. Thanks for all your great posts.

  2. wrong emotion....it should be FEAR

  3. I had that same feeling starting a month ago and almost every day since. Using that feeling as a buy indicator would have resulted in dozens of purchases well above this point. As Dan just said, the selling will continue until the trade is no longer profitable for them. I can't see a bottom.

  4. Thanks Dan for all your input! It is greatly appreciated! Some of these shares seem like a great value, especially UXG which has been beaten to the ground for the last month! Maybe in a week or two they'll be on clearance!

  5. Dan,
    i posted a question and some source material under your "Gold very strong in terms of the Euro" post. Would you be able to take a look? Thank you.

  6. Hello Dan,

    It seems than even the ETFs have been underperforming the metals.

    I had been trading SLV the past few weeks as it was following silver in the range, but the past week it seems that SLV has not budged, staying in the low end of the range, while silver still seems to be moving up and down in the same range.

    Also saw an article today in Barrons mentioning the same.

    Do you have any insight on this? thanks!

  7. Derek,
    "UXG is absolutely being murdered by the naked shorts"
    You can take 95% of all gold miners: all murdered. Not all of them because of short selling. If you have some good names down the "unknown" names are down too ...pure FEAR. Fundamentals mean nothing anymore. I have been invested in gold miners for 7 years: My return is not what it should be vs the POG.
    The question to ask is the following:
    By killing gold miners (especially the juniors) and reducing future production are we not going to see higher gold price (demand vs supply)?
    Chinese gold miners are using the tremendous amount of cash available from the Chinese government and buying African gold mines...and one day NOrth American. So are hedge funds, playing the trade mentioned by Dan, helping the Chinese control the gold market in the near future (which would be understandable in order to appoint the yuan as the world currency, covered by gold holdings)?
    As I said many times here, the market is so manipulated that trying to make a buck is like playing the lottery... And it looks like Dan agrees with me.

  8. @Hubert

    Good point on the throttling of production via reduced capital flows to miners. My technique is just to follow Sprott and buy from his holdings.

  9. @Derek

    Sounds like a great idea to follow Sprott. Where do you find a list of his current holdings?

  10. @candide001

    Tickerspy has a prior quarter US holdings (disclosure: I own AUY, BRD, CGR):



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