"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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Saturday, December 7, 2013

Barrick Gold

This chart is in response to a query from a reader....

The intermediate term shows the bears still in control of this issue. The downtrend was interrupted in late July. Since then ABX has been moving in a sideways or consolidation pattern. Price remains well below the key 50 week moving average.

The ADX is beginning to turn higher indicating the possibility that this stock could be resuming its bearish trend lower. Bulls cannot allow the price to fall below the July low or further losses will be seen.

If the bulls can take price past $22.50, they will regain control of the stock.



14 comments:

  1. Dan,

    Barrick is in the news again regarding hedging and we can see evidence of that in the COTs you've talked about a couple of times.

    As I'm unfamiliar of this happening in the past how do you see mining companies who are going long to hedge affect the gold futures market when the price has dropped so much? When this happens is that usually contrarian and has history shown that this provides a decent floor for the market?

    Thanks!

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    1. Jesse Livermore -

      that is some handle you have there.. just make sure you do not end up like him! :o)

      About the hedging... the miners should have done this once the bullish trend was broken on that violation of support at $1530. The trend changed in gold at that point and they needed to secure downside protection. Most did not because they were intimidated by shareholders who wanted upside exposure to the gold price. That is understandable but mining companies should not be in the business of price speculation. That is for people like me. What they should be in business for is to SECURE PROFITS. If they can do that by digging gold out of the ground then hedging that production, that is what they need to do. Such hedges should of course be managed to allow for ever-changing market conditions.

      Any mining companies going LONG gold are not hedging. they are engaging in what we politely refer to as a "Texas hedge". In other words, they are long the futures and the long the physical commodity at the same time. There is NO HEDGE whatsoever with that sort of tactic. They are then completely exposed to downside price risk with losses actually compounding if the price falls further. Not only do they lose when they dig the gold out of the ground, but they also lose on the futures market positions. That is insane.

      A proper hedge attempts to lock in a profitable selling price while protecting against downside price risk if one is a producer.

      If one is a user or a buyer, then a Long hedge makes sense as long as that is properly managed. Such entities need to protect against UPSIDE price risk.

      Hope this makes some sense....

      Dan

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  2. Price action in this sector can be characterized as:

    - Terrifying Collapse

    - Utterly Horrific

    - Frightening Problem

    I mean really, no sector in history has seen such a massive meltdown in such a fast period of time.

    Dan should enlist a mathematician to describe how many standard deviations the GDX/GLD ratio is away from the mean, I bet its 7 or greater.

    Truly a meltdown of historic proportions.

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  3. I have been scouring the jungles for days and cannot find ANY BULLS left (with the exception of a couple of diehards on KWN, like Sprott, who have a business axe to grind). BEARS abound and there is a scarcity of bear food in the jungle.The bearish glue is so thick now that I cannot even slice it with Box Knife !

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  4. The gold bears hibernating is not good enough, you need renewed interest and buying no matter what the cause. My fear when the bottom arrives, the climb back up will be slow and arduous because capitulation will linger as selling continues into each higher high, slowing a recovery or the bottoming becomes basing for a long period of time.

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    Replies
    1. @anonymous - you have some good comments...keep them flying! I think we need to distinguish 'capitulation' between the different groups. Retail investors...you and l...will probably be capitulating/shorting on rallies (after the bottom has been made), while the other groups will likely take the correct side of the trade. Also, if the Dow is soaring again, l find it hard to image gold bouncing back rapidly as capital (retail and hedge funds) will concentrate where the pickings are most visible.
      My biggest fear is that miners will hedge production at the bottom, so the HUI will not outpace gold when the metal starts rising again. However, l suspect that there will come a point when miners stop hedging (maybe around $2300 - when the previous high has been trumped) and then their shares should rocket.

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    2. Didn't we just go through this routine before? Bottom falling out of the spot gold price and miners begin hedging to protect at least their production prices, selling into the future at rock bottom prices then the high arrives and they buy back contracts at the highs with the ensuing crash/correction. Now again about to wash, rinse and repeat.

      ABX has a changing of the guard with a swap of a to-big-to-fail bank executive. Compensation, about 3+ mil a year, almost the same with the second in command at ABX. Nothing to see here, move along. Except their share price and chart is most telling, either they have no clue what they are doing or are a ploy (scam) for the big banks to play in. RGLD preforms better without owning any shovels but not by much.

      Don't really care as long as volatility continues personified in price swings...I like it.

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  5. I actually think we have a chance of a intermediate bottom here. There are a few positives emerging on both dsily and weekly time frames.
    I'm a buyer of PM stocks here and will add on strength in gold.

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  6. I am just owning gold on the next rally. If gold's upside catalyst will be from economic undoing, then owning shares, and economically-sensitive silver would be question marks. Own gold in bullion form (US Eagles) and hold it personally. You can own a few hundred thousand worth in the palms of your hands. You will be able to sleep at night and capture the upside without being fancy. The next rally in gold is at least a couple years away. Things need to heal. I always see the miners as being the worst timers and they will hedge here and lower, just retail traders. The bullion banks will snooker the miners and will work out hedging deals with them. I was begging them to hedge when gold first broke down in February. They will be long in the futures and private forward markets. But the miners are clueless. It is just about always the case. They see risk management as a cost center.

    These factors will always be. I guess it is necessary to see this cycle of stupidity. The professionals are the ones who see the wind of change first. Always has, always will be. There are no exceptions.

    It is going to get bad on this next leg down. Just because the large bullion banks are going long here, doesn't mean that some large move up is imminent. They average cost and hope to pick up more fuel at lower prices. We should hope for this and act accordingly as traders and accumulators. I will finally buy more as gold touches 1,000.

    No shares. That theory of leverage with share price is bunk. The only thing most got was levered losses, mismanaged firms and extreme volatility.

    A warning about the gold price is that after January, gold's weak season comes upon us, so a long holder has to fight historic trends. Not impossible to overcome given the beating, but less probable.

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  7. Add up miners+central bankers+bullion dealers, and what have you? Yes, a glorified rockpile of misguided thought. If and when the summer lows give way in the yellow metal, I would say that we will put a 9 in front sometime in '2014, and that is all from sparks

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    1. Steve, here is the problem with that kind of post. I could just as easily have written, If and when the highs of april are taken out, I would say we will put a 19 in front of the yellow metal sometime in 2014. I dont know if that will happen or not. But it doesnt add anything to this site. Your scenario is probably right, but you have nothing to lose by saying if. And if it doesnt happen that way, what have you added? Lets say this about Sinclair. There are no ifs. Thats pretty powerful. I could send out 10 newletters, and on half I say gold will go down and on the other half I say gold will go up. In other words I have said nothing.

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    2. Steve, I hope you're better at forecasting the price of gold than you are at forecasting the outcome of football games. :o)

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