"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

Trader Dan's free work will soon be available at www.traderdan.biz

Thursday, August 8, 2013

HUI rebounds off of chart support

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.


  1. GDX and many of the shares showed high trading volume at the end of the day last half hour on red bars. Looks like a pumt and dump to me. I dont think the lows will be violated but if Turd Fergusson got it right well see another delivery months dump after thee weekend. Same pattern as in december februari april june delivery months and now again.

  2. Check Trader Garrett guys, hes very good - Dan links to his site. This analysis rhymes with Martin Armstrong's and Jim Rogers opinion and the 8 year cycle in gold weve seen since decades ago. http://marketpendulum.blogspot.nl/2013/08/breakpoint.html

  3. Dan,

    Is there varying term hedging, 6 month, 1 year and they can do this for portions of their deliverables correct? Seems to be a good idea if they can manage these hedges.

  4. We should all realize that today, in comparison to about 5 years ago, there are no distinct gold access markets such as New york, Asia, Europe etc. That used to be the case but now the NY Globex spans the globe about 23 hours per day. So saying the Asians are buying or selling the market down is impossible to say with accuracy because it may just be the cartel doing their dirty deeds in the wee hours. Paper raids are common overnight but seems to have cartel fingerprints IMHO.

  5. GDX/GLD ratio just missed hitting new, world record lows, and rebounded today on the highest volume ever recorded.

    That is the most positive reversal sign I've witnessed in 5 years.


  6. Here's the most bullish news for gold:

    The wrong way guys over at EWI in Gainesville, who missed the biggest, steepest rally in consumer stocks in world history are now saying that the gold bull market is not over yet:


    Gold Bear Market Is Not Over Yet: Elliott Wave’s Hochberg

    It's been a great month, but a bad year that's about to get worse.

    That's the short version of the outlook from Elliott Wave International's chief market analyst Steve Hochberg, who thinks any b0unce in gold will prove to be short-lived.

    "The one thing we can say is that gold's bear market is not over yet," he says in the attached video, confidently predicting the precious metal's continued demise.

    "We're two years into (gold's) bear market," he explains. "I think gold is setting itself up for another leg down in this ongoing bear market to correct the prior rally we had from the 1999 low."

    As he sees it, the extreme pessimism that took gold to nearly a three-year low in late June is not done yet, and admits that he would "not be surprised to see gold under $1,000 sometime in the next year or two."

    1. I can also go to my nearest local bar, have a good beer and speak about where gold will be in 6 months with the bartender, along with the weather. That would give the same kind of conversation, not built on any facts.
      I would not be surprised if it rained tomorrow or within the next few days.
      ok...based on what? :)
      actually, makes me think it would be nice if we could all meet around a nice beer somehow someday :)
      Have a nice weekend,

  7. all I know about Prechter is my own experience with his hot line back in the early 80's, and he had one of the first, is, that he was wrong HUGE on stocks, bonds, and gold. it is beginning to feel like we are at a kind of inflection point here in several mkts; steve in sparks

  8. Steve, it does appear that Wall Street is going to beat people out of the market again first. Nothing changes but the laws, systems, and speeds at which we are put at disadvantage. Going to get very tough on independent small traders when volatility shoots to the moon. I am staying small with an eye at when to go larger.

    1. White Wolf; Discipline, money management, fundamental conviction == success; gotta trade small and not get shaken out every other day; short term technicals are all worthless because all new guys use them and algorythmic monsters know it and blow them out time after time ; steve in hot august nights sparks, nv

  9. Realized a small gain today after holding for awhile. Will see what Monday brings prior to going in for some more. Yes, I have learned after getting "scalped" will scale slowly take 10% gains now and run for the hills.

    Gotcha loud and clear Steve.

  10. Since October of last year, the bullion banks got out of their net future short position and are now net long the future. To do so they had to lease and sell into the physical market a significant quantity of physical gold. The result is that the bullion banks are now long the future but short the physical. So what is the answer? Use forward selling by miners to lock in future gold production at rock bottom prices to cover their physical short in the next months/years. The bullion banks are once again milking the miners to get out of their short physical position. And big mining companies like Barrick Gold are once again just too complacently happy to serve the interest of the bullion banks. By the way, didn’t I read in Bloomberg a few months ago that an Ex-President of Goldman Sachs was to be named as the new Barrick Gold’s CEO?... Just to prove how incestuous the whole gold market really is. The truth is that the bullion banks own several mining companies and actively use them to further enhance their gold price manipulation.

  11. These are interesting points to which I agree. Whats your opinion on silver, could it be that silver is leading gold in this game?

  12. 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.
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