"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


Wednesday, October 22, 2014

Gold Mining Stocks Continue to Sink

Please review the following two charts.

The first is an index of the junior mining stocks, the GDXJ. Note well that it has completely given up all of its gains for the year and is essentially where it began the year on the first trading day of January 2014.

The second chart is one of the HUI. Notice that this chart is even worse than the former! The index is off 6.6% from its starting level at the beginning of this year.
As we are approaching the end of the month, I thought it might benefit the reader to take a long term view of this sector's performance. To say it has been, "poor" would be a huge understatement.
Notice that at its current level, the index is on course for the LOWEST MONTHLY CLOSE since May 2005! That is NINE YEARS AGO! As it now stands, the index is at levels last seen 6 years ago, during the height of the credit crisis.
The reason for the charts is simple - the mining shares still tend to lead the price of gold. They did it on the way up during the bull market phase of gold, and they did it on the way down during the current bear market in the metal.
So far gold has been able to stay above $1240, which is constructive for the bullish cause but failure to hold this key level will embolden bears, especially given the abysmal charts of the mining shares, not to mention the plunge in reported holdings of GLD ( more on that later).
As mentioned yesterday, if the price falls through $1240 and cannot immediately recover, it will moves towards $1220. Below that is $1200.
Here is an updated chart of GLD. Once again, the reported holdings dropped. This time it was a reduction of 2.11 tons, bringing the total reported holdings to 749.87 tons, down 48.35 tons since the beginning of the year.
This is the lowest level since November 2008.
Bulls - fear not however since we are assured that this gold is being "drained" to head to meet soaring Asian demand.
Let's add this new bullish spin to our long list of bullish theories propounded by the gold permabull crowd.
To refresh your memory, here are some of them.
1.) Backwardation - Bullish for gold prices
2.) Negative GOFO rates - Bullish for gold prices
3.) J P Morgan long side corner on gold - Bullish for gold prices
4.) Chinese warehouse doubling counting of gold - Bullish for gold prices
5.) Big hedge fund short position - Bullish for gold prices
6.) False Taper - Treasury buying US bonds out of Belgium - Bullish for gold prices.
7.) Big gold buying underneath the market as reported by "Mr. gold insider/whistleblower" - Bullish for gold prices
8.) GLD being drained to meet Asian demand - Bullish for gold prices.
Here is my response and that which any objective trader/investor should greet these fabrications with:
With crude oil plunging to near $80 this week ( it actually put a "7" handle in front of it last week for a brief moment) and with the TIPS spread showing deflation is the fear of the market, not inflation, not hyperinflation, gold is going to need some very strong fundamental spark to keep it afloat.
I am especially interested in what the VIX is doing this week as gold will draw support if the VIX moves higher. It is the "fear trade" that is supporting the metal at the moment.
Incidentally, the Dollar had a nice move higher today with the Euro continuing to move lower once more.

As long as the Dollar can maintain a weekly close above the bottom of its short term range ( 87 - 85), it looks like it is basing for another leg higher. A failure to hold 85 on the downside by the end of this week, will negate that view. For the next leg higher to commence, 87 needs to fall to the bulls.
Switching a bit to the ags - Feeder cattle finally had a day in which they did NOT make a limit move. Packers have been able to push the beef higher to end users and that caused bulls to rush back in to buy back what they were throwing away in that complex yesterday. Perhaps the falling unleaded gasoline prices are allowing consumers to afford that insanely high beef for the moment but cheap pork and cheap chicken are going to soon undercut that in my view.
Meal looks like it might have run out of upside steam in today's session. If so, the beans will follow as it is the meal which has been dragging the beans, and the corn I might add, higher.
Expect to start seeing stories dealing with the difficulty in moving/storing this year's harvest surfacing soon.


  1. Great charts again. If the GDXJ or HUI break this support level they could go quite a way. While the miners have not been leading gold these last few days it is more than likely that they will resume their leadership position IMHO.

    The overflowing storage and saturated transportation situation could cost farmers a lot of this crop. I hate waste and I hate to see farmers loose out for something like this. They work to darn hard and risk way too much.

    1. They would continue to be at better & better "bargain" prices for Alex Gianotas to continue buying has he tries to become an expert at catching falling knives.

  2. 9.) JPM caught in an inescapeable massive short silver position. :-0

    Thanks for the write-up TD.
    I was looking at my old miner watchlist yesterday and thinking at some point I might dabble in the miners in a small way.

    Looking at today's carnage reminded me to just stay away for awhile longer...much longer.
    GC/Gold Corp always appealed to me due to the size and variation of their resources internationally and the stock price has hung in there around $20. I liked AUY/Yamana for it's gold reserves but holy cow...AUY's been beaten up these past few months.
    And then there's Cours/CDE sporting a $4 handle today!

    How the once mighty have fallen...and falling...and falling.

  3. Guys, wonder what our favorite billionaire been thinking lately ?

    "SPROTT BATS ONE RIGHT OUT OF THE PARK: you won't believe what he said. No really you won'tsaid.Seriously, pour yourself several stiff drinks.

    In fact, tell you what: I'll wait here while you dash out to the LCBO and fill up your liquor cabinet. Look for the cheapest, most powerful axle grease remover you can find.

    Don't bother being posh, don't bother worrying about what it's going to do to your brain. A 24-litre keg of cheap Uzbekistani red wine laced with wood alcohol and mercury is perfectly okay, if you can find it.

    Click through when you're done, but be warned this is NSFW even for me: You ready? Bottles opened?

    OK, here goes:The Gold Report - an Ebola armageddon could trigger a rebirth in gold and silver prices: Eric Sprott.

    Here, let me type that out again to make sure I haven't just made an insane typing mistake:

    The Gold Report - no really, he said it, an EBOLA ARMAGEDDON could trigger a rebirth in gold and silver prices: AAUGH AAUGH AAUGH Eric Sprott.

    OK look, I know how internet "reporting" works. Maybe this is just JT Long at the Gold Report being an asshat and writing a hyperbolic article title that puts silly words into Sprott's mouth, making the former boss at Sprottcorp look like a raving lunatic?

    Because we know that is exactly what passes for internet journalism in many high-traffic parts of the webtubes.

    Is that it? Is JT Long just making this up?Nope.

    Here are some quotes:
    [Eric:]I'm really focusing on the impact of Ebola on the demand side. The numbers suggest that Ebola will be difficult to contain. The death rate is incredibly high and it is highly contagious. It has already spread to Spain and the U.S. Unfortunately, the powers that be at the Centers for Disease Control (CDC) and the World Health Organization (WHO) have totally misunderstood and understated what's going on.
    Yeah, really. We need Eric Sprott in charge of the world response to Ebola, because the epidemiologists and infectious disease specialists at the Centers for Disease Control aren't as smart as him.

  4. Way to graduate from criticizing the Federal Reserve's understanding of economics, Eric.
    Hey Eric, any comment on recent estimates of the R-naught for this Ebola strain? Apparently Dr. Miroslav Lovric wrote a paper recently that's caused quite a stir - what's your take?

    Ha ha, just joking, Eric! We don't care what your take is, because epidemiologists don't get demoted from their position at Sprottcorp for losing a fortune on shitty miners. They don't have what it takes to do that.

    But wait! There's more!:
    [Eric:]Unfortunately, recent events have suggested that travel protocols, monitoring programs and hospital procedures are not working. It's a mess of incompetence, and it goes back to central planners focusing on the economy and the stock markets and bond yields. They forget about people and their response is wholly ineffective.
    Yes, yes, Eric. Wholly ineffective, because all those infectious disease specialists and epidemiologists spent the past 5 years working for the Plunge Protection Team. That's definitely it.

    Oh, and also your buddies in the Republican Party blocking Barack Obama from appointing a new surgeon gener - wait - sorry, that's not it, that's not the reason, you're right, it's all down to the PPT and Bohemian Grove.

    It continues:[Eric:]We have certainly lost control in Sierra Leone and Liberia. The Ebola virus doesn't know where the border is and the likelihood of it spreading to Ivory Coast and Ghana is very high. The jury is still out on how the developed countries will do.
    Wait for it....
    [Eric:]Fear of travel and business disruption is definitely going to have an impact on a fragile economy already weakened by recessions in Europe and Japan. An event like this could have serious negative repercussions because it changes people's behaviors.
    Wait for it....
    [Eric:]If people worried about the security of bank deposits start pulling their money out, they would logically want to shift to gold and silver. All of a sudden, investors would come back into these markets and push the price up. No one is considering that. The natural Armageddon of disease could cause a financial Armageddon and precious metals are the natural comfort play.
    Boo-ya! That's the payoff! Joe Carter reaches the endzone and spikes the ball, and the Toronto Maple Leafs win the FIFA World Cup! Checkmate!

    So, basically, the idea is that if a million people in West Africa die from Ebola, we'll be able to make a whole pile of money on shitty junior miners. That's Eric Sprott's investment thesis for the next little bit.

    I guess.

    In fact, lemme reprint that last sentence:
    [Eric:]The natural Armageddon of disease could cause a financial Armageddon and precious metals are the natural comfort play.
    My god

    1. Mr. Sprott is a huge embarrassment. Don't forget, according to this self-anointed prophet of predictions, gold goes north of $2000 this year ( because China and INdia are cornering the gold market) and silver goes north of $50.

      Why people pay the least bit of attention to a man who is obviously a huckster escapes me.

    2. Man, some people just gobble that stuff up.
      I mean, some people can say or or claim just about anything and because of their pumped up reputation they can make these wild fear based assertions that other PM pundits just fawn over like some star struck groupie or jock sniffer.

      And Sprott, Maguire, Sinclair, Butler, Rickards etc count on it to further their own cause while tolerating the lampreys that have attached themselves to their bandwagon.
      The one thing they all have in common is the high opinion they hold their colleagues in...like some sappy mutual admiration society among themselves that seems kind of phony.
      They prop each other up which in turn gives the perception of wide spread credibility within a relatively small community.

      How far has Sprott and others sunk that they're basically grasping at fear based straws at this point and giving the time of day to two-bit sensationalist sites like KWN or the doomer sites that permeate the PM basement?

      No shortage of absurd assertions out there by the "experts" that totally depend on fearful, gullible people that won't question their Dear Leader(s) pontifications to their cults.

  5. Speaking of Sprott, every day I hear a dumb commercial with his name in it. Goes like this:

    Host: “John, I see you are back from your trip to China, so what did you learn?”

    John: “ During my trip to China, I discovered that they are building a giant vault.”

    Host: “That is interesting, what do you suppose they are building this giant vault for”

    John: “Well, my sources tell me that they are building this giant vault in order to store all of the gold they plan to buy.”

    Host: “Wow, that is incredible news, what do you suppose that would do to the price of gold?”

    John: “Well, According to Eric Sprott, filling this giant vault would move the price of gold to $2K within a few months.”

    Host: “Well, there you have it folks, now is a once in a lifetime opportunity to buy gold and set yourself up for a nice comfortable retirement”

    1. Eric Webber;

      I wonder if that is the same vault that Jack stashed his magic beans in? I bet that certain goose that lays the golden eggs is also living in that vault. I also wouldn't be surprised if Humpty Dumpty is in there somewhere.

    2. Or maybe the vault in the bunker in Kigosi in which TRX was storing the gold they were producing at Kigosi in 2012!

    3. And maybe the "gold vaults are empty!" meme is from personal experience?

      Sorry, could not resist.

    4. LOL...not to mention that I heard somewhere (not sure if it is true) that all the gold bars in the world would fit inside of an Olympic swimming pool. So, why would china need a "giant" vault? Are they planning to somehow buy everyone's gold? Or is this vault not really that large? Or, is this commercial attempting to feed us a whoooole bunch of BS? We know which it is.

  6. Aside from the obvious ... it is true miners normally lead , except during a bottoming process , usually gold leads , miners lag

  7. Energy stocks (particularly the Canadian oil juniors) got smoked again today - not a good sign for commodities. I'm long silver for a swing trade though.

    Maybe there will be no more sharp bear market rallies in the gold mining stocks. Perhaps these things really need to get bombed out (with multiple bankruptcies), then base for a few years before we get anything remotely resembling a new bull market.

    If you want to see a real horror show, check out charts of the uranium stocks.

  8. Dan:

    I enjoy reading your pertinent analysis. I really do. However your crusade against those idiots that predict sky high prices for the PMs is dull IMO. Now you have attracted the gold haters crowd and the comments are not adding anything to your analysis. A waste. :(

    1. Homonculus;

      There are NO GOLD HATERS here at this site. Most of us hold physical metal as insurance. I have forgotten how many times I have posted this or written this over the last few years and yet there are some like you who keep willingly overlooking that for some bizarre reason.

      My disgust is reserved for the same crowd of charlatans, hucksters and frauds who keep at the same crap, week after week after week saying the same crap over and over and over again as if somehow that will make it come true. I would dare say that is true for most of the posters here.

      My advice to you is to try being a bit more objective when reading here.

      Thank you

    2. Hate gold, try mining certificates.

      Sell the pension and GOTS!

      Magooooooo strikes again!

    3. Well, how many Goldbug charlatan versus Gold-bear charlatans are there in the world? The ratio would be so large, the gold-bear charlatans are nearly negligent ........


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