Gold and Mining Shares Part Way

Once again we are being treated to the sad spectacle of watching the ancient metal of kings soar higher today while the shares of companies that explore or mine it went lower. It is becoming a like a bad play or drama or to quote from Shakespeare:

"A tale told by an Idiot, full of sound and fury, signifying nothing."

Although, in our case, it does signify something, namely, that the mining shares continue to attract selling seemingly no matter what comes their way. First we were told that they were heading lower because miners were unprofitable and had not gotten expenses under control. Then we were told that they were selling off as investors were putting money to work in other sectors and the miners had fallen out of favor as gold saw no immediate threat of inflation. Now we are told that they are falling further out of favor because stocks in general are falling out of favor. Need I say any more? There always seems to be an excuse to see another move lower in the mining sector. Quite frankly, until I see some signs of solid, sustained buying that comes in to take this index through some overhead chart resistance levels, I expect rallies to be sold.

I am not rooting for this; I am merely stating the situation from a technical analysis perspective and attempting to stay as objective as possible. The current situation is that the miners seem to have lost all sponsorship except for the most stubborn of bulls. Value based buying is certainly occurring as the shares are shifting into the possession of strong hands but we need more than value based buying to ignite a fire in the shares. When will that come is the question that we all want to know and the simple truth is that no one, and I mean, no one, knows at this point.

Here we had a day in which gold is up over 1.6% while the HUI is down. This further exacerbates the already way out of whack HUI/Gold ratio which had recovered somewhat in yesterday's blip higher but has now given back most of its gains. At this point I almost shudder to think what might happen were the US equity markets to finally rollover to the downside in earnest.

Remember, it took the announcement of QE1 back in late 2008 to turn the gold shares, as well as gold and the broader equity markets to the upside. We have had 4 bouts of QE already and they are still sinking. What do we need - a new round of QE - the sort of US version of the recent Bank of Japan, "Let's throw everything but the kitchen sink at the problem" and hope that this will work? Will that finally do the trick of getting the mining shares moving higher?

If you look at a chart of the Nikkei you can see that the Bank of Japan has been successful in getting the Nikkei moving higher but at what great cost to their currency and eventually to their bond markets?

The CCI was higher today but that was no thanks to crude oil or to the rest of the commodity complex. Were it not for this nice big up day in gold and some strength in silver, we would have been lower in the CCI also. Crude oil to me continues to defy gravity given the general weakness in the US economy but it has retreated away from $98 and is now well off that mark. I am surprised it is sitting above $90 to be honest especially with the stark weakness in many of the other commodity complexes and today's pathetic payroll's report. Someone is intent on driving that market higher even in spite of the negative news in the economy, not only here but globally. I am not sure who is trying to squeeze the shorts but they are playing with fire in my view, not with clear signs of stagnating growth everywhere one looks with perhaps the exception of the housing market that is being fed an IV containing an abundance of liquidity drugs compliments of the Fed.

Take a look at the Russell 2000, a very broad basket of small cap stocks which has been a good gauge of investor sentiment towards risk. It led the larger cap stocks higher as the liquidity party commenced but now has shown definite signs of becoming "tired". It is trading below its 50 day moving average, something that it has not done since the beginning of December of last year. While the Plunge Protection Team is no doubt out in full force today continuing their meddling in our financial markets, this particular index is revealing a genuine flight away from risk on the part of the investment crowd. Throw in the fact that the bond market is soaring today with the yield on the Ten Year Note sinking below 1.7%, and it is difficult to see whether the market rigging by the authorities is going to be able to shove the US stock markets higher in defiance of gravity. 

Don't worry however - if they do, rest assured you will have the roosters crowing about how resilient this US stock market is and how it shows a vote of confidence by investors... right.... and elephants also roost in trees at night.

Archimedes was once said to have stated" "Give me a place upon which to rest a lever, and I will move the earth". The Fed and the Bank of Japan are apparently putting his Lever Theory to a test because they are attempting to move the entire financial system of the world with their level of QE.

My view on this is that they are destroying capitalism. Remember when former President George W. Bush stated that as much as he was reluctant to employ TARP to bail out the banks that "we had to do it to save capitalism"? HUH? Yep, free market capitalism, meaning markets function smoothly when left to themselves as they are efficient allocators of capital. Apparently that died a long time ago. I do not recall seeing the funeral but I know for sure that it happened.


All that these people manage to do is to blow enormous bubbles and then spend the rest of their days here on the earth managing the disastrous results that result from the bursting thereof.