“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


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Thursday, May 3, 2012

Mining Shares Continue being Pummeled

No matter which way you measure it, the mining shares are systematically being destroyed as the HUI just made a new 52 week low in today's session.

What else can be said about these shares that has not already been said - their performance against the price of gold bullion has been atrocious while they have seriously underperformed the broader market since September of last year.

Management needs to get out in front of this and where possible, cash profits should be returned in a much larger percentage to the shareholders in the form of a stronger and higher dividend. They have to give the owners of these shares some incentive to continue to hold them and with zero to mere meager dividends, there simply is not enough to keep the longsuffering holders hanging in there.

In an interest rate environment as low as this one, a 2% dividend is a joke considering the fact that there has been a huge capital loss in so many of the shares. That sort of dividend does little to compensate the holders for these paper losses that so many are accruing. Only those who for the most part bought into the shares at the end of 2008 or into the first part of 2009 have some cushion to work with.



Note the HUI-Gold ratio chart using the closing monthly prices only. It is now at levels last seen at the end of 2001! We are talking more than a decade ago as far as valuation against an ounce of gold.



Here is one more look (as if to add insult to injury at this point) the HUI in a monthly chart all by itself.

Note that unless it can recover the 420 level very quickly and move back above 440 so as to indicate a bottom has been put in, there seems to be little chart support until one gets to the 400 - 390 level. That is both a horizontal support level as well as the 50% retracement of the entire rally from the bottom formed after the first round of QE was announced way back in 2008.

If the index does not hold at that point, the shares could then be technically vulnerable to a final washout all the way back to 350. At that point, one would expect to see the final end to this mauling. After all, the discounted value to gold bullion would make it irresistible to sovereign wealth funds not to mention a huge wave of buyouts and takeovers by majors of juniors and exploration companies.

One thing to note here - the S&P 500 is once again flirting dangerously with its 50 day moving average which is a mere 6 points below it current level as I write this. If tomorrow's employment numbers are the stinker that many expect them to be, it will probably initially fall through this level. if it then rebounds, it will do so on hopes or expectations that the Fed will not be able to avoid another round of QE. After all, they have managed to smash the commodity sector down and even gotten gasoline to move lower. They have plenty of room now to play if they want to.

The big question is, will Bernanke save his boss Obama or will he let the stock market implode by standing by if the economic data has traders selling equities during an election year? I doubt it because he is out of his job as Master of the Universe if Romney wins and believe me, he damn well knows it.


5 comments:

  1. You know its gonna be a bad day when:
    http://www.denaliguidesummit.blogspot.ca/

    ReplyDelete
  2. What's the advantage of using $HUI instead of $GDM? $GDM has nice simple ratios with gold (like 0.5 and 1.5) at major tops and bottoms.

    The $GDM formed a massive H&S top; no surprise that it's crashing.

    The $GOLD:$GDM ascending triangle started at 0.8222 (exactly like 2008) in April 2011. 0.92 broke on 1 May 2011. Then 1.16 broke after 29 Feb 2012. Technical target seems like 1.5 if 1.35 fails. That's 2000 and 2008 levels. Buy it then. #NUGT

    ReplyDelete
  3. What if the other side of the ratio is wrong?

    ReplyDelete
  4. This is not much of a consolation, but it's not just the PM mining stocks that are underperforming, though the $HUI is pretty much one of the worst performing sectors. Check out the ratio of OIH or any of the oil companies or oil equipments compared to the price of oil. Or FCX, the copper company. It's pretty similar. The long commodity/short commodity stock trade is across the board.

    ReplyDelete
  5. Primero Mining is finally popping today after yesterday's excellent q1 report. Getting some decent volume finally as well. I was starting to think I was the only one buying shares.

    ReplyDelete

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