Sunday, January 31, 2010
There are no two ways about it: looking at current charts of not only Gold miners but also the general stock markets is downright scary right now. Many stocks in many sectors are deeply oversold and due for a bounce, but stock market crashes happen from oversold conditions. But I use technical analysis as a complement to the fundamentals and am not a "pure" chartist.
Particularly in the Gold market, which is manipulated just as much if not more so than many other markets, technical analysis can fail just when you need it most. In the end, all we retail investors are just guessing what will happen next in any market. The only comfort is that jp whore-gan and goldmun sucks apparently don't know what's going to happen next either, since they are only still in business thanks to American taxpayers. What a joke these guys and gals are! They have all the insider information, see what orders are coming into the market before everyone else, can withhold bids and offers at a whim, and they still get wiped out during a crash. If the "smartest guys in the room" (I use this phrase very tongue-in-cheek) aren't any good at knowing what comes next, what hope do the rest of us have?
Having said this, I have strong opinions on the markets, for better or worse. These opinions are based on a study of not only technical analysis, but also of market history and cycles that seem to recur based on human nature. Unfortunately for the other life on earth, human nature has not evolved much over the past few centuries.
We are in a secular credit contraction, or the prolonged bust that follows a boom like night follows day. The stock bubble burst in 2000 and the real estate bubble burst in 2005-6. Those looking to "buy and hold" in these sectors are making a losing bet when gains are calculated on inflation-adjusted terms. Of that, I am confident (unique individual opportunities aside). As a retail investor, my best chance is to be invested in a secular bull market to make money.
Gold is in a secular bull market that shows NO SIGNS OF ENDING. I don't care what Prechter says, this chart is a bull market with no, AND I MEAN ABSOLUTELY NO, chinks in its armor so far:
The Dow to Gold ratio is in a downward swing and the prior two downward generational swings suggest it won't stop dropping until we get below a ratio of 2. Could this time be different? Yes, but only because the Dow to Gold ratio could go below 1 this cycle given the extent of the excesses of the previous boom and the extent of the misguided central planner attempts to stave off the inevitable bust.
Fundamentals are very strong for Gold stocks as a sector. I am not a fundamental analyst for individual Gold mining companies - I don't have the background to do it. But as a sector, Gold stocks are the stocks you want to be invested in right now. Choosing to stay out of the stock market entirely for the next few years and sticking with the physical metal of the elite is not a bad idea. For those like me who are seeking speculative gains in addition to safety, however, risk is high and the likelihood of losses is much more than negligible over the intermediate term.
I remain bullish on Gold stocks, however, because of both fundamental and technical factors. Where one chartist sees a bearish opportunity, another sees a bullish one. I see a heavily oversold Gold stock sector, both relative to Gold and relative to its own chart internals. I don't think this is 2008 in the Gold patch, I think it is 2007 or perhaps 2001-2. Here's the summer of 2007 in real time as it felt to those in the Gold stock sector (60 minute intraday candlestick chart of the $HUI Gold Bugs' Mining Index):
And, of course, here's what happened next (daily candlestick plot of the $HUI):
So, why am I confident that we are bottoming rather than setting up for a crash? Well, the benefit of the doubt belongs to the bulls first of all. Remember, too, that during secular Gold bull markets, stock bear markets are not an issue in the bigger picture. Fundamentals for Gold stocks are also excellent based on the "real" price of Gold or the price of Gold divided by the price of a basket of commodities (I use the $GOLD:$CCI ratio chart for this), a crude measure of Gold miner profit margins:
We are in a strong bull market for Gold and Gold stocks, fundamentals are supportive, and Gold stocks and Gold are oversold using basic momentum indicators. This is as good as it gets. No one can give you guarantees when investing, not even the inbred clods at goldmun sucks and jp whore-gan, and if they do then you should run the other way.
The other thing I like here is the behavior of platinum, which bucked ol' Uncle Buck on Friday and made a hearty attempt to re-start its powerful uptrend. Here's a 6 month daily candlestick chart of the action thru Friday's close:
I think we're due for a powerful snapback rally that should begin by the middle of this week. Don't get me wrong, I bought into this correction too early and I am down significantly over the past week in my speculative accounts. But I remain bullish here and less concerned than many "pure" chartists. Having said this, I expect Gold stocks to begin performing pronto (before the week ends for sure) and the character of the bounce will determine how long I stick around when it comes to my leveraged shorter-term option trades.
Friday, January 29, 2010
For newbies, that means I bought some 1 oz. Gold coins minted by the South African government aka Krugerrands. When we dipped below $1080 this morning, I couldn't help myself. I dipped into savings held in U.S. Dollars because I sensed value. I came to realize that I cannot go back to the other side of the Matrix.
I did a google search of "Krugerrand" and came up with 107,000 hits. I did a search of "Eurodollar" and came up with 198,000 hits. For those who don't know what Eurodollar means, check here. Our paper debt is more popular worldwide than the first government-sanctioned and minted Gold coin with no face value if Google is a reliable guide. This, of course, is pure paperbug insanity and now that I know what I know, I can't go back with the herd.
It is not anti-American to be pro-Gold. It is basic recognition of unsustainable trends and problems that are not going away. Our evolving fascist government (call it "corporatist" if you can't handle reality) will not stop until they are hung from trees. There is no end game except to screw the public and get as rich as possible. It's like 50 Cent and the G-Unit on heroin and steroids are running the country but with 5000 times the amount of firepower available to quell any dissent. The "average Joe" doesn't stand a chance unless they want to give up their job (if they still have one) and family and risk their life and liberty to rebel against the treason being committed at the highest levels of government.
The "free" markets always find a way to spank the guilty and weak. The unsustainable paper regime that began in 1971 when Nixon defaulted on the promises America made to the world is entering its terminal stages. The current international monetary system collapse will take longer than bears like me anticipate but it is inevitable. This does not mean the U.S. is screwed in the long term and it does not mean the end of the world. This is not doom and gloom for the prepared - it is opportunity.
The ideals of the U.S. have been subverted to a large degree (i.e. a central bank has impoverished the nation as Jefferson predicted, the Constitution is now routinely ignored, corporate lobbyists now write the bills pushed thru Congress, individual rights are no longer respected, etc., etc.). However, much like relative currency values are a reverse beauty contest, the U.S. still has a huge advantage over most of the world. We have one of the most vibrant and entrepreneurial populations on the planet, an abundance of natural resources, and a good heterogeneous mix of cultures. There is still a good chance for a renaissance in the United States.
I am not into the Armageddon scenario. I don't want to buy a log cabin, ammo to protect it and some freeze dried rations to eat in case the system breaks down. I consider myself a realist, not a pessimist. The Dow to Gold ratio is a pendulum, not a machete.
The American system needs to be fixed, but it won't be until things get worse - much worse. Complacency reigns despite the anger bubbling under the surface. I predict things will get worse for America and the rest of the world before good things can happen. America no longer deserves to print the world's currency, so the secular bear market in U.S. financial assets won't stop until the global market corrects this problem.
I realized today when Gold went under $1080 again that I no longer trust America to do the right thing to fix its problems. This is not a democrat or republican issue - a corporate whore is a corporate whore regardless of which corporation(s) he or she supports. Welfare, warfare or both is not a choice I am interested in making (I choose "none of the above" or "Ron Paul," whichever is available). Our government and its federal reserve keiretsu partner are the problem, not the solution.
Government can create jobs just like widdle tax cheat Timmy Geithner can tell the truth. Government can "stimulate" the economy just like a drug dealer can stimulate an addict, but why would we want such an unhealthy situation? Government can regulate the corporations who pay their campaign bills just like CNBC can be bearish on the corporations who pay to advertise on their network.
Gold is money and nothing else. It is a reality check on the insane clown posse that prints our funny green debt tickets. Our society is now literally dependent on further paper debt ticket issuance to prevent an economic collapse. A few people "at the top" can either turn off or on the monopoly money spigots and create "Prechterville" (i.e. hyperdeflation) or "Sinclairville" (i.e. hyperinflation) at their own whim and none of us has a say! Talk about "command and control"...
I choose Gold. I choose to opt out with a large portion of my savings until sanity returns. Now money market fund redemptions can be halted at the whim of any private company. The U.S. government (no, not Venezuela or Argentina) is now considering "helping" U.S. workers by switching their retirement money in 401(k)s and IRAs into government bonds "for their own good."
We are now at war with two Middle East countries that have never harmed us or done anything to provoke a military response against a sovereign nation. Before so called "patriots" get riled up, do they remember that most of the people on the "terrorist" list after 9/11 were from Saudi Arabia? Do they remember that we sponsored Bin Laden when he was fighting the Soviets? Do they really think that Bin Laden is something other than a government-sponsored boogie man feeding the military-industrial complex or do they think that a dialysis patient can survive in caves in the middle of nowhere for years on end?
I am now asked to remove my shoes and turn in my water when I go to a domestic airport, and I am not asked nicely. Do you see where I'm going with this? If you don't, read a few Martin Armstrong article that were written while he was (and still is) in prison for some vague financial crime that hasn't yet been proved (did you know America now has the HIGHEST PER-CAPITA INCARCERATION RATE IN THE WORLD?!).
As Armstrong says, capital goes where it is treated the best. Capital flows are an important part of the argument that make the deflation-inflation debate a little more nuanced than it seems at first glance. Will global capital rush into the U.S. during the next crisis or will it flow East? The answer is probably "yes and yes."
Paper currency volatility is set to increase, just as in the 1930s when the international monetary system last broke down. Last time it was Britain that sent the world into a tail-spin when it suspended its Gold standard. This time, we hold the reserve currency privilege and are doing everything in our power to abuse, exploit and essentially make sure we lose this honor. I think we can succeed.
When the storm is over and the Dow to Gold ratio is back below 2, I will start looking for opportunities to invest outside the Gold patch. I have given up trying to short the market for now, as shorting rules are changed on a whim and the printing press ensures that those with the power to manipulate markets in the short term (i.e. goldmun sucks and jp whore-gan) are given all the freshly printed money to paper over the rot in our system.
Much like the last time Gold dipped below $1080, I remain steadfastly bullish on all things precious and metal. Are you taking advantage of the buying opportunity before us in the Gold patch? If so, how? If not, why not?
Wednesday, January 27, 2010
Sentiment is terrible in the Gold patch right now, which is what's usually needed to form a lasting bottom. It's so bad that people are actually concerned about what Prechter is saying is going to happen to the Gold price right now (in case you don't know Prechter's track record on Gold, it's simple: he's been "big picture" bearish on Gold for the past ten years).
Watching each tick lower is frustrating when you pay too much attention to the daily tape (the author is guilty as charged). To give fellow Gold and Gold stock bulls a little taste of what may be coming, let's take a walk down memory lane to an earlier stage in the current secular Gold stock bull market. Here's a current 6 month chart of the $HUI unhedged Gold Bugs Mining Index thru today's close:
Now, here's what I think is a similar point in time from late 2001 (daily candlestick $HUI chart):
And here's what happened next in the $HUI back in late 2001:
And then, here's what happened next in 2002 after this massive spike higher completed:
Now, since I already know the paperbugs are going to counter with "bear market means Gold stocks go lower," here's what the NASDAQ (main candlestick plot) and S&P 500 (black linear plot below) did during the 158% gain in the $HUI:
And, for the curious, here's what the Gold price (main linear plot) and U.S. Dollar Index (lower plot) did during this historic bull run:
I remain bullish on Gold and Gold stocks. I think 2010 is going to be a banner year for Gold stocks based on fundamentals (i.e. "real" price of Gold at multi-decade highs), and I think times like these are when Gold bulls should be buying hand over fist. The secular Gold and Gold stock bull market will not end until the Dow to Gold ratio gets to 2 and we could even go below 1 this cycle.
Tuesday, January 26, 2010
I posted earlier today how I thought Gold stocks were a very strong buy here for a trade if nothing else. An 8 week correction has occurred and been sharp. This is more than enough to launch a powerful countertrend rally/bounce or a new leg higher. I favor the latter, but we'll see.
Following are the technical charting points that make me bullish in the short term for Gold stock indices like GDX, $HUI and $XAU.
First is time and RSI. Most even major Gold stock corrections don't last more than 8 weeks without a major countertrend bounce. I will use some of the nastiest corrections in the Gold stock sector to show how this has been true. RSI is generally less than 40 on a daily chart when a correction stops and ideally near 30. Starting off with recent history and working backwards, here's some $HUI action from 2007-8 on a daily chart:
Here's some $HUI action on a daily candlestick chart from the 2005-2007 time frame:
And here's some action from way back in the 2001-3 time frame:
And here's the current $HUI 6 month daily chart thru today's close:
Another bullish factor supporting at least a significant short-term bounce is the Gold to Gold stock ratio. Using the GDX ETF as a proxy, we are due for a bounce in this ratio back the other way from Gold outperformance to Gold stock outperformance. Following is a 3.5 year daily chart of the GDX divided by the Gold price (GDX:$GOLD ratio chart):
The biggest risk to Gold stocks is a stock market crash. Gold stocks can rise during a bear market and have in every secular Gold stock bull market, but all stocks go down during a crash. I think it's quite possible we could have another stock market crash, but I don't think it is time just yet and we may very well have a slower bleed back to the March 2009 panic lows instead of a crash.
Seasonal factors are also lining up well for Gold stocks and a top in the March thru May time frame would be the most likely scenario if history is a reliable guide. I have already put my money where my electronic pen is, so I am VERY BIASED, but I remain bullish on all things Gold. This is analysis is basic and rather simplistic, but Gold is in a long-term bull market, so weakness is for buying. Besides, as Gold bull GG has pointed out, the Prechter Gold "buy" signal has been triggered...
Even if you are worried about how Gold stocks will fare during a market downturn, an amazing buying opportunity in Gold stocks is here. I bought too early last week. Don't forget how fast Gold stocks can move up after a steep plunge like that of the last 8 weeks or so.
Producing gold stocks are a strong buy here for a 2-8 week bounce/trade higher, regardless of your longer-term outlook on Gold stocks. Gold stocks are certainly not showing strength relative to the Gold price here, and this is not ideal.
The character of the pending bounce higher over the next 2-8 weeks in the Gold stock sector will tell me all I need to know about the strength of this sector. If Gold stocks don't recover quickly and significantly outperform the Gold price on the bounce, then I am more than willing to get out of the trade to scalp a small profit and preserve capital.
Blue chip Gold stocks, including the GDX ETF, are a VERY STRONG BUY AT CURRENT LEVELS, even if it's only for a trade. I remain optimistic that Gold stocks will turn around and begin to outperform, but remain a (somewhat) humble student of Mr. Market and remain married only to physical Gold, while Gold stocks remain a tempestuous mistress. I will post some charts later.
Monday, January 25, 2010
I don't need to tell anyone who concentrates on the daily squiggles that things have not been outstanding in the Gold patch the last month. If you are a true trader or investor, this is good news, since you should be adding more to your core positions on weakness. It is one thing to say "buy low and sell high," but it is not easy for most market participants to actually do it.
I am all in again from the long side and not worried about a thing. If the market moves against me on my call option trades, I'll take my lumps and move on. But I am patient here in all things Gold, as I know where the true bull market is right now.
Rather than review all the technical and sentiment reasons for why you should be buying Gold and Gold stocks here, instead, here's a few small rays of sunshine I saw in the Gold patch to end the week.
First up, Tanzanian Royalty (ticker: TRE) - [Disclosure: still long a big chunk of this stock and in my opinion only a fool would bet against Jim Sinclair during a secular Gold bull market]:
Next up, Everton Resources (ticker: EVR.V) - [Disclosure: still long this stock]:
Finally, Seabridge Gold (ticker: SA) - [Disclosure: no position, but still kicking myself for not buying this stock on weakness in late October]:
Keep in mind that these moves were supported by heavy volume and occurred on a nasty down day in the general markets. The GDX ETF managed to squeak out a tiny gain on Friday as well despite a slightly down day for Gold.
The Golden gloom is palpable out there in Gold land and totally misplaced in my opinion, but that's what makes a market. I am all in on Gold stocks and my physical Gold is still not for sale.
Wednesday, January 20, 2010
Back into leveraged positions in GDXJ on today's weakness. Posting will continue to be light due to lousy internet connection currently available. Good buy point here for Gold and Gold stocks IMO. Back into all things blogging next week.
Thursday, January 14, 2010
Major Gold stock indices are acting poorly right now despite a strong Gold price. This is not what I expected and not healthy. Though this may well be a short-term fake out, I have locked in some good profits on leveraged positions/options in GDXJ and some small losses in options on GG. Can't post charts or further comments right now. Remain long physical Gold and many different Gold stocks in non-leveraged positions. I hope to re-enter option positions in GDXJ and GG at better prices. I may regret this decision but I have learned the hard way how fast losses can pile up in neglected option positions.
Tuesday, January 12, 2010
Nice little mini-sell-off today ongoing as I am typing this. Against my "gut instinct" I held Richmont Mines (ticker: RIC) overnight with a 3% trailing stop loss instead of selling it outright yesterday. Needless to say for those who follow the stock, the stop loss triggered. Bought at $2.90 a few months ago, so happy with the trade (though always seeking to do even better...).
I plowed the capital back into GDXJ just now, as I liked the short-term chart on what I again think is going to be a BIG upward move in this ETF and the Gold stock sector in general. Here's a 15 minute intraday chart of the recent action in GDXJ:
Sorry I can't draw on charts right now, but you can see the markedly oversold RSI and dip below the 200 moving average on this 15 minute intraday chart. I remain wildly bullish on all things Gold.
Monday, January 11, 2010
The United States is rather rapidly sliding into a fascist-type state (you can use the "corporatism" euphemism if the truth is too difficult to swallow). The government and their corporate oligarchy are stealing from the people and no longer care if the people have any cake to eat. The process was gradual at first, then accelerated during George Bush Jr's tenure.
Socialism does not describe what has been happening to the United States at all over the past decade. The military industrial complex, Homeland Security, war against a military tactic (i.e. the "War on Terror"), and unusually aggressive unprovoked invasions into tiny third world countries with no real military are the hallmarks of a more aggressive form of developing collectivism than socialism.
Couple this with the raping of the American taxpayer by corporate bail-outs that were unwarranted and unnecessary, government take-overs of corporations and industries, and the unprecedented infiltration of government ranks by corporate whores and felons like Hanky Pank Paulson and widdle Timmy Geithner (paid your taxes yet this year, widdle Timmy?). Add it up and we now essentially meet the traditional definition of a fascist state, which is a union of the government and large corporations that run the country with military/imperialist overtones. Because our aggressive and out-of-control government is broke and desperate, more measures to steal from the public and debase the currency are coming.
News of a recent major and intentional government-sponsored currency devaluation by Venezuela should send shivers down the spine of anyone paying attention who has their savings in U.S. Dollars. No, I am not saying we are Venezuela, but we are heading in that direction awful fast. Yes, a currency crisis can happen here and it almost certainly will, whether via capital flight or some new currency scheme. The timing is the only real issue.
Now, your retirement savings are at risk. I first commented on the likelihood of a 401(k) confiscation about a year ago. Because the government and Wall Street prefer to trick people and prey on the ignorance that has crept into our once great country, this confiscation it appears is progressing on schedule in a not very subtle form that should pass muster with most of the sheeple.
This article highlights how 401(k) distributions may be "structured" to provide "steady income" for retirees, as Obama and his dedicated administration are concerned over those who are interested, struggling and able to actually save money for retirement. Once introduced to the Congress, these proposals will provide an irresistable source of revenue to the government - just ask Argentina. For those who don't understand what this means, it means that the U.S. government is going to steal your retirement money and put it into government bonds to finance the deficit that they created by giving out money to their corporate friends in the defense, finance, housing and pharmaceutical industries (among others) and promising things to the populace that they couldn't possibly deliver.
Not only will the money in your 401(k)s, IRAs and/or other tax-sheltered investment vehicles be forced into government bonds (i.e. stolen and misappropriated), but this will occur at a time when government bond yields are near historical lows and can only move higher, which means this government lifeline and "guaranteed" income will be a wicked curse on those who "do the right thing." Couple this with the almost guaranteed further devaluation of the U.S. Dollar and you have a recipe for disaster.
If you think this proposal and this "exploration" of the annuity concept to "save" retirees from the volatile stock market are going to go away, then sleep well. Just don't say you weren't warned when your IRA is converted to "something better" that will "protect you." Who do you think will stand up for your rights when the time comes? Do you think that the 50% of the people in the U.S. who pay no federal income tax will come to your aid? Do you think the large percentage of the U.S. population that works for the federal government will come to your aid when their salaries and pensions will be at risk if this money is not stolen from you? Do you think Congress cares what you think when they passed the Wall Street bailout packages despite a deluge of calls, faxes and letters 90:1 against the measure? If you have savings, you are wealthy, and we all know the rich are evil.
The slope is getting steeper and more slippery. Now that the entire U.S. mortgage market is on the taxpayer's balance sheet waiting to explode like a nuclear bomb, now that the baby boomers are needing their Medicare and Social Security in rapidly increasing numbers, now that we have military bases all over the world and are destroying tiny defenseless countries and then paying to rebuild them, and now that the government is heavily involved in the auto, insurance, banking, and mortgage industries (health care is next), our economic future is guaranteed to be grim for the next several years and worse than it needs to be.
Additionally, taxes and fees will be raised significantly at all levels of government. Those who play by the rules are going to get screwed the worst and thus the middle class will continue to evaporate, exactly what is needed to clear the way for more aggressive government policies. The moral hazard has risen to the boiling point for those who play by the "old school" American rules and understand what is happening. Why not walk away from your mortgage? Why not stop paying your credit card? Why not stop paying taxes? Why not ignore the conventional social and/or "moral" constructs of our society when everyone who plays by the rules gets screwed while white collar criminals are rewarded and promoted? How else can you get back at "the system" for leaving you holding the bag short of outright rioting?
Physical Gold held outside the financial system is a good investment during such times because it can be hidden from the insane clown posse that poses as our leadership and the mistaken masses who continue to believe that they can get something for nothing from their government and fellow citizens. The tipping point is getting very close and one can only hope that there are enough motivated and educated patriots available to stop the process at this point. America is no longer very close to a free capitalist society and to think otherwise is ridiculous in my opinion.
Things are going to get darker in America before a new dawn can (hopefully) begin and few are prepared for it. And if you think this is a Democrat or Republican issue, you haven't got a clue what's actually going on right now. Look out for yourself and your friends and family, as those who were paid to do these things for you have done the opposite and they are going to leave you holding the bag.
Sunday, January 10, 2010
Every trader is familiar with the concept of "buy low and sell high," but it is easier said than done at first. When stocks are plunging, psychology is poor and looking at basic technical indicators suggests the trend will continue in that direction. People don't like stocks that are moving down. But in the volatile Gold stock sector, I have found great success in buying the panic spikes down and waiting for the recovery. I don't momentum chase Gold stocks, I buy them on weakness/corrections.
Greed and fear are powerful emotions that make trading hazardous for most people, myself included. People are scared of buying stocks that are getting crushed, because the news is always worst at this point in time and too many novice traders focus on the news coming out at the time of the plunge rather than focusing on the future potential and seeing a stock being sold at a discount to its future potential. Similarly, a rapidly rising stock generates positive news and people fear missing "the big one," so they hop aboard at the highs and lose money on the inevitable subsequent correction.
Volatile sectors like the Gold and silver mining patch particularly benefit from a strategy of waiting for a steep correction to buy. Demonstrated in the charts below are links to previous buying opportunities I pointed out using this principle and what happened after that point in time:
Durban Roodeport Deep Gold/DRDGold (ticker: DROOY) - link to buying opportunity post here:
Agnico Eagle (ticker: AEM) - link to buying opportunity post here:
Kinross Gold (ticker: KGC) - link to buying opportunity post here:
Goldcorp (ticker: GG) - link to buying opportunity post here:
I try to do the same thing with junior miners, which are even more volatile and higher risk. I tend to buy them after a lengthy or steep correction and sell them when they get significantly overbought, then rotate profits into other junior miners. Wash. Rinse. Repeat. It doesn't always work, but when it does, it's sweet. Here's what I sold this past week:
Luna Gold Corp (ticker: LGC.V):
Paramount Gold and Silver Corp (ticker: PZG):
And here's the juniors I'm looking to buy based on the same principle of "bottom feeding":
Apollo Gold (ticker: AGT):
Timberline Resources (ticker: TLR):
Minco Silver (ticker: MSV.TO):
Trading isn't for everyone and some are more suited to a buy and hold mentality. I still have much to learn when trading. I am starting to get pretty good at figuring out when to buy but am not so good at figuring out the best time to sell in order to capture maximum profits. "Letting profits run and cutting losses short" is a time tested adage most traders swear by and something I need to learn to do better. But this is a marathon for me, not a sprint, and every expensive lesson learned can provide potential profit opportunities in the future.
Happy speculating and posting will be light over the next few weeks. Gold, silver and Gold and silver stocks are about to enter the "sweet spot" in my opinion. I remain long and wildly bullish on all things metallic and precious.
Saturday, January 9, 2010
I think silver looks VERY bullish here and this is good for Gold and Gold stocks as well as for silver bulls. Watching corporate bond funds (e.g., the HYG and JNK ETFs) blow out into highs above their 2007 highs tells me the speculative juices are running into overdrive. Sector rotation of this "hot" money suggests that the imminent rotation out of equities and corporate bonds into precious metals is going to be lots o' fun.
Recent history is all that is needed to suggest a template for how this may play out. Here's a chart of the S&P 500 ($SPX, the candlestick plot) versus the U.S. Dollar price of Gold ($GOLD, the black linear plot) in the mid-2007 to March of 2008:
I think we are headed for a similar situation. The Hong Kong Hang Seng Index ($HSI) to me is an interesting chart suggesting a resumption of the bear market in this index is imminent (4 year daily linear scale chart):
Palladium and platinum have broken out short term and are getting overheated. I think silver and Gold are about to get overheated as well. The silver chart looks particularly potent to me and seems set to outperform given an early break-out in the silver to Gold ratio. Here's a 1 year chart of the silver:Gold ratio (i.e. $SILVER:$GOLD):
Here's a 10 year weekly chart of the U.S. Dollar price of silver in log scale to show where I think we are in this silver bull run:
I think we could easily be at $25 silver before March is over. Even if the stock market is going to start going down soon, this does not mean Gold, silver or Gold and silver stocks are going to go down. Even if the U.S. Dollar Index goes up, this does not mean Gold, silver or Gold and silver stocks will automatically go down. The precious metals bull is snorting and pawing the ground, getting ready to gore the paperbug metal bears into submission. Still strongly long all things Gold (and still long a little physical silver, too).
Friday, January 8, 2010
Still all in on Gold and the Gold sector. My Gold is not for sale or trading, it is my cash and cash is king in a secular bear market. My Gold stocks are speculative vehicles with significant inherent risk that I largely trade in and out of, for better or for worse. I remain rabidly bullish on Gold and Gold stocks at current levels.
My horizon on Gold stock trades tends to be a few weeks to several months (i.e. sort of a "swing" trader if you will) - I plan on months when the trade begins but will take profits on any Gold stock that gets significantly overbought even if it is only a week after I buy it. Volatility can be a friend or enemy in the Gold stock sector. I am not married to any one Gold stock and I am not qualified to accurately analyze the fundamentals of any one firm as I lack a mining background. The Gold stock sector is a fundamental and cyclical play for me based on the macroeconomic picture, but I lack the needed skills to be a guru stock picker in the sector. It won't be me that discovers the next "can't lose," "ten bagger" Gold stock unless it is by dumb luck.
However, I am also aware that even turkeys are going to fly in the Gold sector, much as in the internet mania of the 1990s. And make no mistake about it, we will have a Gold stock mania before this decade long secular Gold bull market is over. The secular Gold bull has a long ways to go and the wall of worry is intact. The monetary storms remain with us and aren't going away any time soon, whether you are an inflationist, deflationist, both, or don't care.
But back to get rich or die tryin' - why am I so bullish right now on Gold stocks and how will I know it is time to take some money off the table? Well, first, let me say that I often book some profits along the way in big bull runs by either selling individual Gold stocks that have gotten ahead of themselves based on daily or weekly momentum indicators (and then moving profits to oversold Gold stocks) or by selling covered calls against the stocks or long-dated options I hold on Gold stocks and ETFs.
Bigger picture wise, however, there is a point in the next 5 months or so when I will likely not want to be long in the Gold stock sector at all. If you're a buy and hold investor, the following trading nonsense does not apply to you, but may provide some encouragement regarding the immediate near-term future. My need to trade may be my undoing, but c'est la vie in the speculative world and this is why I do not speculate with all of my savings.
Gold stocks typically peak in the March to May time frame when a speculative intermediate bull run cycle begins in the fall. Seasonally, we are in the sweet spot for Gold stocks after a typical correction that I believe completed in December. Seasonals don't always work, but when they line up in a particular year, they generally provide a supportive wind for Gold stocks.
Second, major Gold stock indices generally peak after a significantly overbought reading develops on the basic RSI momentum indicator using a WEEKLY chart (i.e. at the end of a 6-12 month bull "run" that Gold stocks tend to have). Here's a weekly 10 year log scale candlestick chart of the $HUI Gold Bugs Mining Index to show this concept over the entire course of the current secular Gold stock bull market, which is far from over:
Third, the move in Gold stocks is supported by fundamentals. Yes, fundamentals, those things that don't matter any more in the general stock and bond markets. If corporate junk bonds (a la the JNK and HYG ETFs) can best their 2007 nominal highs at a time of record corporate default rates, then don't talk to me about Gold miners not making any money! The "real" price of Gold, as taught to me by the writings of Bob Hoye, remains at multi-decade highs (a crude measure of Gold mining profitability obtained by dividing the nominal price of Gold by the nominal price of a basket of commodities) while Gold stock indices have yet to see new all-time nominal price highs. This is set to change as Gold stocks get set to break out to new highs.
Along the same fundamental lines, we are in an economic environment where the Dow Jones Industrial Average is declining relative to Gold. Such periods of a falling Dow to Gold ratio correspond with secular Gold stock bull markets and secular general stock bear markets. The swinging pendulum of history has not yet swung far enough away from Wall Street to complete the secular bear market in general equities.
Finally, history proves beyond a shadow of a doubt that Gold stocks can rise even if the bear market resumes, a la late 2000-2003 and the 2007-March 2008 bull run. Gold stocks have already had their crash and the fall of 2008 was the best buying opportunity for Gold stocks since the late 2000 secular lows. The stock market can go down, but Gold stocks are going to keep going up. Of course, speculating is not risk free and if a true second stock market "crash" were to occur, Gold stocks would not be immune from the down draft. If you can't stand the heat, put your money in safe physical Gold and sleep well at night.
This bullish message on Gold and Gold stocks is not gloom and doom, this is not a message of the apocalypse (at least not in my mind), you don't have to live in a log cabin or eat your barbarous relic to survive and the economy will eventually recover, like it always does. However, it is important to simply recognize where the true secular bull market lies and ride it - sometimes bull markets go up because they are going up. As an example, Gold and Gold stock bulls need to stop worrying so much about the U.S. Dollar Index in my opinion.
I think the "sweet spot" for the Gold stock indices lies dead ahead and will correspond with new nominal highs for Gold and silver. I see the GDX ETF making it to 75 or more, the GDXJ ETF at 45 or higher and the $HUI headed for 750 or higher. Gold should reach at least $1350/oz and $1750 wouldn't surprise me before the spring is over. Rational exuberance remains my theme in the Gold patch, with a mind to book some profits along the way when things get overheated on the shorter term daily charts. Paperbugs like Roubini and the staff over at bloomberg.com certainly won't agree with my current thesis, but I'm still here and still bullish on all things Gold.
Wednesday, January 6, 2010
In the Great Panic of 2008, the winners were those who held U.S. Dollars and short-term U.S. government debt (and those who shorted just about anything else). Almost every other asset class sunk in the carnage. It is felt by most market participants that the next big move down in the markets, which most who care about fundamentals know is coming at some point, that a replay of 2008 is most likely with "Dollar Up and Everything Else Down" the best template.
The complete and recently unrelenting complacency of those in the stock market is obvious based on basic factors like the Volatility Index ($VIX), put-to call-ratios (e.g., $CPC or $CPCE), sentiment figures (e.g., Investors Intelligence), insider sales and price-to-earnings ratios. General stock bears have been gored into submission (myself included) and seem foolish at this point. The risk in general equities is beyond ridiculous at this point, but that won't stop general stock market indices from going up further.
At some point, all of the gains since March of 2009 are likely to be wiped out. These lows may or may not hold, but a re-test is the most bullish scenario when looking over the longer term in my opinion. This could happen gradually or more dramatically. It is the latter that I am thinking about today.
I wanted to challenge the current wisdom, largely based on regurgitated lore and what happened in 2008, of what will happen if we experience another minor or major panic in the markets using the template of 1987. For those who want to argue that fundamentals were different then, I have no arguments. But a panic is a panic and has no relationship with fundamentals. Anyone who argues otherwise must explain how the value of stocks can change by over 30% within the course of a few weeks in the absence of a war or plague.
First, using the S&P 500 ($SPX) as a proxy, here is a daily linear scale plot of the stock market in the year 1987:
A "flight to safety" during a panic involves a rush to cash and short-term government debt according to conventional wisdom. A flight to safety did happen with 90 day T-Bills during the 1987 fall panic and they rose in price (i.e. yield dropped). But here is a daily chart of the 30 year U.S. Treasury Bond yield ($TYX) in 1987:
And here is a chart of the U.S. Dollar during 1987:
Next, a 1987 chart of the U.S. Dollar price of Gold ($GOLD) in 1987:
And now, for the bad news if you are a Gold stock bull. Here's a chart of the Philadelphia Gold and Silver Mining Index ($XAU) from 1987:
Gold stocks can move higher in the face of a stock bear market (and almost always do during secular Gold stock bull markets like the one we are in now), but are not spared in the setting of a stock market crash.
What are the lessons of 1987 for Gold bulls? First, as a cash-equivalent holding, Gold is safer than Gold stocks. Those who claim Gold was no safe haven during the Great Panic of 2008 forget to add a footnote that Gold was back at $1000/oz. (i.e. its 2008 high) by the end of February of 2009 while stocks were on their way to terrifying new lows. Gold stock indices, however, just re-tested their spring of 2008 highs for the first time last month. I remain wildly bullish on Gold stocks right now but do not intend to hold them if I "smell" a crash coming in the general stock market.
Second, the U.S. Dollar will by no means rocket insanely higher in the setting of a crash. It could, but it could just as easily crash or remain steady. I personally see a shift of a higher percentage of global assets into Gold over the Dollar this time around if another crash occurs. Because Gold is a small market, even a small shift of money flow from the Dollar to Gold would make the U.S. Dollar and Gold behave similarly to how they did in 1987. In other words, both would be fairly stable during the nasty part of the crash and then Gold would resume its bull market and the U.S. Dollar would resume its bear market.
Finally, I am by no means predicting a crash in the stock market or any other asset class. But stocks are overbought, ridiculously overvalued and sentiment is unbelievably bullish in the face of terrible economic fundamentals. Couple this with rising bond yields, particularly at the long end of the curve, and history suggests that returns in general equities over the next year are likely to be suboptimal to say the least.