“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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, March 22, 2012

Slowing Global Growth was the Theme Today

Overnight news out of China and out of Europe detailing slower than expected growth was the catalyst that served to upset the apple cart of the equity market bulls in today's trading session. It also led to further hedge fund selling of commodities in general with the result that it even took crude oil lower. Copper was clocked for nearly a 2% loss on the trading day while Silver was actually down nearly 3% at one time during the session.

Silver has broken down below both the 50 day and the 100 day moving averages on the Daily chart as the chart is decidedly bearish in this time frame.

The weekly chart shows that since 2009, either the 50 WEEK or the 100 WEEK moving average have served to provide  buying support on this time frame. Now that the 50 week has been violated, the next line of support comes in near the 100 week at the $30.15 - $30.00 level. If this does not hold, it will drop back towards the heavy blue line shown on the chart below $27.

The market has traced out a series of LOWER HIGHS with a horizontal support zone near the $26.54 - $26.00 level. No doubt many a would-be silver buyer is looking, longingly I might add, for the metal to move towards that level once again so that they can become active.





Gold has a better looking chart pattern than silver currently does in my opinion but that is due to the fact that some are still buying the metal as a safe haven out of geopolitical jitters or currency market woes and suspicions regarding the health of such. It did break down below the $1640 level in today's session dropping into the $1620's before the buyers showed up late and took it back through that support level by the close. This region has now held gold for the last two weeks so it has taken on quite a bit of significance as far as the technical analysis of this market goes. Bears would ideally love to take it through here and run the downside stops as they dream of the $1600 level. It would be helpful to the bulls' cause if India were to re-emerge down here.

You might recall that during last Friday's KWN Weekly Metals Wrap it was pointed out that the metals both look "Heavy" on the charts right now. I will not feel better about gold until I see it back ABOVE $1680 and Silver until it can climb back above $32.50 for starters.




About the only good thing that can be said about the horrific looking chart of the HUI is that it held above this week's low even on a day during which the global equity markets were experiencing some selling pressure. Yes, it closed down on the day but it apparently attracted some decent buying down at this week's lows again. If the bulls can take this thing back above 475 - 480 by tomorrow afternoon's closing bell, you might say that they have achieved a moral victory. As beat up as this sector has become, it is a marvel that anyone is left to sell the miners at these insanely undervalued levels.



If this were not bad enough to have one standing out on the window ledge by now, the following two charts might just do the trick. The HUI compared to the S&P 500 ratio, which gives us a measure of how the mining sector has been doing against the broader stock market in general, has now reached levels last seen in 2009 - nearly three years ago to be exact.



Also, the HUI to Gold ratio continues to plummet and is now within striking distance of where it was last seen all the way back at the depth of the credit crisis of 2008 just prior to the inception of the first round of Quantitative Easing. It is also at the same level it was back in February 2002.

Incidentally, for those who love inflicting further pain and discomfort upon their persons - this is the definition of a masochist - the price of gold in February 2002 was $297/ounce and the price of silver was $4.95 - $5.00. In the depth of the credit crisis in the summer of 2008, gold was trading at $680/ounce while silver was trading $9.75 - $10.00. 

While the HUI is obviously trading at higher levels than since then, those who bought gold and silver shares in an effort to provide a safe haven for their wealth from the ravages that they saw coming many years ago, would have been much better off had they simply bought the actual metals instead. To say that the mining shares have underperformed and disappointed is too mild of a word. One more apt would be that they have "crushed" their owners expectations and left a very bitter and deep wound upon them; a wound I might add that I am beginning to seriously question if it can ever be healed again.

CEOs need to somehow find a way to bring "value" to their particular shares and convince those who bought them that their investment in into the company was a worthwhile one and a desirable sector into which to park the fruits of their hard labor. They had better get busy.


6 comments:

  1. Dan,
    Thank you--those charts pretty much sum everything up.

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  2. So Dan, it appears it is finally time to start accumulating in a big way!

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  3. I still don't understand why mining companies don't hold back some of the bullion they mine and store it themselves. This could help make them compete with the gold ETFs.

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  4. RICH... you took the words right out of my mouth, if opec can control the price of thier product, then why are these minners just selling anything and everything they mine.. i

    know the share holders want to see profits, but somebody has got to talk to these people, they are playing right into the bad peoples hands, ..

    btw , dan this is the frist time i have posted, but i have been reading you for a very long time, compare you to some of those that charge money, and you come out way on top....
    but i guess you already know you could be a chargeable news letter , but it would take up more time, and giving more info.... for now, i thank you very much....

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  5. Thanks to all for the comments and kind words. Rich - you raise a very good point about these miners. They need to think outside the box and begin to get creative if they are going to retain their shareholders. I know a fair number of people who are done with the mining sector forever. They will no longer buy any miners and will only buy the ETF for investment purposes and bullion for insurance.

    Thanks also goldmelterr for your compliment.

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