A very strong day in the mining universe today with some nice upside moves among the various miners. For once, instead of acting as a drag on gold, the shares helped lift it higher.
That being said, nothing much has yet changed from a technical chart perspective. The bulls have made a valiant effort here and have prevented the bears from kicking off another leg lower in price but all they have managed to do, thus far, is to secure that downside support level and keep price contained within a well-defined range.
For a trending move of any magnitude to develop, one side or the other needs to violate the range and take control of price. It is difficult for me to see the mining shares undergoing another leg lower in price unless gold were to violate that spike low back at $1180. Thus the bulls have held the range but they cannot yet prove that they are in control of the market. That they will not do unless or until they take the index conclusively through 260, preferably on a weekly closing basis.
I think that there are two things going on in the gold mining world that could be engendering this buying. First, is the fact that the vicious beating the shares have undertaken have finally got the attention of management. For way too long these guys have not run a tight ship but have let costs get out of control and done little if anything to mitigate that. The result of poor cost control in combination with a sinking gold price had investors shirking the entire sector with the result that some of the better managed companies were taken down in a sort of "throw the baby out with the bath water" mentality.
Now, that the sector looks to be getting serious about controlling costs and getting lean and mean, value-based investors are taking a second look at them.
Second - and I think this is important - I have been mentioning of late that any serious miner would, by necessity, be forced to re-examine its view towards hedging or locking in prices for some forward production. TO NOT DO SO, in an environment which is so confusing for so many investors, with so many cross currents, with so many conflicting data points, and with so much uncertainty regarding Federal Reserve actions or lack thereof, is fraught with danger. Only the most foolhardy would turn their company's profits into a slot machine and bet the wad on the farm.
Look, you can be bullish gold for the longer term and still be realistic enough to understand that there is no guarantee that the price is going to rise sharply in the near term. If you can dig the metal out of the ground at a profit, it only makes sense to lock in a reasonable profit and leave the risk to someone else, namely a speculator. After all, that is what a properly designed hedge is supposed to do, eliminate or at the very least, mitigate price risk for your finished product.
That some miners are doing both; cutting costs, getting leaner and meaner, and eliminating the uncertainty of effervescent profits by instituting some reasonable and sound hedges, has some investors feeling more comfortable about holding them for the long term. This is good for the industry.
"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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