"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, January 19, 2012

Gold attempting to fight off pressure from sagging gold stocks

Once again the weakness in the gold mining shares is leading to weakness in gold as the yellow metal fights to retain its footing above the $1650 level. This is occuring even as the US Dollar is weakening and a general bid is coming into the commodity sector overall.

The HUI is down nearly 2% at the time of this writing even as the S&P 500 is up 2/3 of a percent. Note that the HUI to Gold ratio it is currently pressing into levels which saw a low made last year, a level which I might note was commensurate with where it was trading way back nearly three years ago.

No matter how you analyze it, the gold miners are so cheap compared to the price of bullion that it is difficult for me to envision how we are NOT going to see takeovers, mergers or acquisitions. If someone wanted a fire sale, they are surely getting one on some of these firms.

One other side note, the long bond is getting whacked today (down almost a full two points) as traders apparently took the news that Spain and France were able to peddle their debt to some fool somewhere as proof that the situation in Europe is not all that dismal. In other words, even though Greece continues to lurk in the background, investors/traders are basically ignoring the problems there now as they rush back into the Euro which some now feel is undervalued. Yep, another episode of "How the Hedge Fund World Turns" is on television for us all to witness.

Note the following chart of the long bond and the weakening chart pattern. A technical breakdown (while not here YET) would signify that the market is anticipating a RISE in longer term interest rates. The bonds seem to have reached a level that they are unable to rise above ( if they do, it will herald the onset of a massive deflationary event) and are thus retreating. Still, the bears are unable to break this market down signficantly due to lingering concerns in the background of traders' minds about the potential for more bad news out of Europe.


  1. Dan,
    I am curious to your thoughts on a general Miners gold inventory increase. Withould more gold in inventory, sell less, decrease your cash holdings, scre_ the FCF model. It is killing them. I really do not believe in the dividends game. It is a loser too. It keeps the "money changers" in control on the short end. I cannot fathom if gold takes off to the 2,000 range how these miners can continue on allowing this to happen to them. Most of their stock prices are at $1,000-$1200/oz prices. Did they all dilute their stocks that much. I do not think so. I think a better plan is to "starve" the market for gold. It is a bigger weapon than the Hedgies can come up with. It then makes the Hedgies buy physical at higher prices, and makes their stock price more attractive.

  2. I mean, cannot a miner, producing a good, sell at a higher price or refuse to sell? Stop the manipulation. I think Sprott was attempting to get the silver miners to follow this plan.

  3. Spec money is simply nowhwere to be found in gold and silver right now. Maybe there will be a sector rotation and we'll play catchup, but with gold/silver selling off on even the smallest move downwards int he general markets, that's not a good sign.

    I would not be surprised to see the HUI/Gold ratio move down another 10 to 20 percent. Miners just don't get it yet, that they need a meaningful dividend to promote shareholder value - even if that means some sacrifices on the working capital side.

  4. Look, investors are seeing AEM drop from 56 to 46 in a day, HL drop from 6 to 4.25 in a day, KGC drop from 12.50 to 10.25 in a day. It has nothing to do with the gold price or manipulation, it has to do with fundamental mining issues. Investors do not want to take the risk that their mining stock will drop 30% overnight because of unforeseeable problems with politics or the mines. That is why the HUI is down. They have to actually produce gold and silver profitably. I don't get the complaining when they've already made fantastic gains on the way up. AG went from 4 to 27 in eight months. GPL 0.7 to 5.

    It's ok, there will be a mania in gold and silver and the miners will all become wildly overvalued.

  5. Xavier;

    You just repeated my comments from Tuesday's post on this topic.

    That is why the ETF is in demand versus many of the gold shares. Too much risk in the shares unless they are rock solid companies with NO surprises.

  6. Hi everybody,
    Thanks again Dan for this continuous useful insight.
    Further to my previous posts, based on technical analysis focused on the daily 150 ma, I'm not surprised with the behaviour of gold, which is acting as so many other indices. Let's forget the fundamentals for one moment, as with the current volatility, fundamentals can be watched only long term (and in this case, gold has been going up for 11 years and is starting the 12th year with a nice +6%. Who is going to say the trend is dead??).
    We broke the daily 150 ma, so we broke a 2 year old uptrend based on this support. Trend became neutral for many who followed this indicator, with a lot of selling when it went through it (which showss many stop losses were set under this dynamic support).
    Now gold is performing a standard pullback towards this daily ma (which luckily is going up 1$ per day, today at 1670), but can't get above it.
    I've seen this scenario hundredth's of times on SP or FCE or whatever during intraday sessions for example. So gold is simply acting normal, for a change.
    I see it rangebound as long as it can't overwhelm that dynamic resistance, and I'm keeping an eye at the downwards resistance weekly joining the previous tops and which is pretty close).
    I think gold is still looking for an easily identifiable support and bull trend on which traders can feel comfortable to trade on with a secure risk reward ratio.
    It is difficult to say where gold is going from this point. So why should I trade it everyday? I'm just sitting back in my chair and waiting for the next opportunity.
    For the eurodollar, I think it was just oversold and at the junction of many support lines. But is the US economy in a better shape than the european? I don't think so. Is the Fed going to let the euro fall too far when they want a weak dollar? I doubt it a bit. I'd rather bet we are going to see this eurodollar in this range between 1,20 and 1,40 for quite a time.
    Hope my english is not too bad.

  7. Dan, I see your point of mining companies that are rock solid with no surprises. So let me ask you these questions. Did Agnico Eagle know there was a problem with the stability of ground structures, did they make a miscalculation? Did Hecla know the Fed would shut them down for safety concerns? Did Kinross delaying capital deployment for further consideration warrant the market reaction? Did Great Basin gold having to go around geological problems cause a share price reaction that severe? I have been noticing a pattern of any operation, misguidance or anything less than perfect resulting in a hugh negative reaction against whoevers mining companies share price in a BIG way. I firmly believe there are forces who want to cripple any kind of bullish sentiment in precios metal miners, bullion accumulation and steer it to the precious metal ETFs or other kind of equities. The problem with the miners is not so much that they can't be perfect in their business but is more that they are being suppressed because someone doesn't want there to be bullish sentiment toward this sector! Call this whatever but this is my intuitive understanding.

  8. at the end of this week, gold is still watching its daily ma150.
    But it's getting through a resistance on its MACD 9 20 7 which could be considered as slightly good sign.
    I'm waiting to see what happens on a weekly level, as the MACD here is going to show whether it can cross (positive) or not (very negative) soon.
    1660 gold is right under the ema15, a level I use for my objectives of retracement. So, I'm still neutral on gold, which I think is just under important resistances, i.e not the best time to buy.
    Have a good weekend,

  9. DOW 1,000
    GOLD 4,000

    Listened to a conversation Jay Taylor had with Ian Gordon. Ian is calling for 3,995 Gold in 2012 while Dow hits 2,500 by November.

    If anything like that happens, there is no way that gold stocks can do well, is there? I'm going to be using any profits I get from equities to buy physical.

    The program is archived at VoiceofAmerica.com Jan 17,2012 (hour 2) "Turning hard times into Good Times" every Tuesday.

  10. spot on analysis as always, dan.

    if the dow ever hits 1000 there will be zombies in the streets, food would be more important than gold and we would be trading 'lead'......cold or hot, depending......

    more like a 2:1 possibly 1:1 dow/gold ratio.

    Kondratief winter peaks oct '13.

  11. I discovered your web site via Google while looking for a related subject, lucky for me your web site came up, its a great website. I have bookmarked it in my Google bookmarks. You really are a phenomenal person with a brilliant mind!utah cash for gold


Note: Only a member of this blog may post a comment.