"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


Wednesday, April 4, 2012

Today's comments

The mining shares continue being pummelled to the point where one wonders who is left in the sector to sell them at these levels.

Take a look at the following chart and marvel:

How many of us who were trading the shares can forget what happened to them back in the summer of 2008 when the credit crisis erupted causing an avalanche of selling across the paper and hard asset sectors. When the S&P 500 was crushed  ( it lost over 50% of its value plunging from over 1500 to down under 750) the mining shares were unceremoniously trampled under the feet of men.

During that stage, the shares seriously underperformed against gold bullion losing value at a much faster rate than did the metal itself. The result was to take the HUI/Gold ratio down to levels not seen since the very early stages of the bull market in gold.

Look at where these same shares are now in relation to gold bullion again! Yep - you guessed it - down nearly to the exact same level that they had fallen against gold back in 2008.

Yet, today's finishing quote for the S&P 500 was at 1393; a far cry from near the 740 level to which it had fallen back then.

Compare this to the monthly chart of the HUI and note their abysmal performance with the index now closing at levels last seen back in July 2010!

Looks like the guys who bought Apple were the smart ones and those who bought the shares expecting them to match the performance of gold have now ended up looking foolish. Investing is an art that demands a great deal of patience (at least it used to before the Fed perfected the art of creating funny money) but the patience of most of the gold mining share owners is about exhausted. The only ones left in the shares are the very strongest of hands at this point.

Gold is seeing a bit of buying across Asia this evening but the damage on the technical price charts has been done. We are now seeing hedge funds becoming active shorters of the Comex gold contract. They still remain net long (even with the liquidation) but a growing percentage of this category of traders is playing gold from the short side. This means that rallies are going to be sold UNLESS gold can clearly get back above $1680. A trip back towards $1660 will flush a few of the weaker handed shorts out but not until and unless gold proves that it has what it takes to stay above $1680 will some of the stronger shorts begin getting squeezed out.

We now have a boatload of brand, new fresh short positions by this category, all of which were put on below $1660. Keep an eye on how it behaves should it make it back to that level.

Downside support near $1600 is now in play with a breach of that setting the stage for an even deeper drop down towards $1570.


  1. I guess that I am a strong hand then.... It is pretty easy when you established your miner position in late 2008. Some of my positions are up close to 1000%. On the other hand, GDXJ is now near the lows of February 2010. Remarkable.

  2. I am also with you Frank. I bought Great Panther at 49 cents and I am still buying it at today's price! Go long with no margin is the only way to survive this BS.

  3. I too am Going to continue accumulating slowly. I am in at loss levels of 8 percent. I am not selling rather buying. It is now a fixed long term objective.

  4. I disagree with the "strong hands" argument.

    I think there are a lot of "stupid hands" which are still clutching onto these shares that need to be waylayed with a huge flush down before there can be a significant recovery.

    That means a huge red candle with a capitulative volume characteristic, which we have not seen yet.

    Kind of need to see something similar to the June low, with lower prices and less volume, that will probably be the buy, even though it may only be a vicious bear market rally for now.


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