skinny

TOO MANY "LOWS"?

Here's another mathematical argument...

Here's the "once-trod path" chart for the Gold Bug's index (HUI) ... update : daily

 

 

That's a weekly chart (above).

 

Yesterday's action was:

HUI: 260.25 Change: -26.29

Open: 286.54 High: 286.54 Low: 259.52

Percent Change:

-9.17%

That huge fall brings it neatly into the once-trod-path

 

The prior high, before the OTP up was: Dec.2, 2003: 258.60

and almost touched again on Jan.6, 2004: High O.D.: 258.02

 

HUI's ALL TIME HIGH:

Monday, March 17, 2008

Closing Price: 505.76

Open: 514.89 High: 519.68 Low: 496.25

 

50% of that is: 259.84

 

HUI-260-ish looks like a great target for this move down

Bubb - this could be construed as negative, but it's really not, just seeking to clarify your method.......

Why did the Weekly [as opposed to Daily] OTPs in Gold, HUI not alert you sooner [like on the way up]

Is it because you are reviewing your methods & looking for subtlties you may have missed / new angles etc ?

Find the whole subject very interesting, as by definition any PARABOLA [thinking lots of individual commodities & the likes of the HK/Chinese Indicies] is going to be built on OTPs & likely some GAPS

>I second that - In the Big Picture [FINANCIAL SENSE NEWSHOUR], Eric King interviews British Ian MacDonald, Executive >Director - Gold & Precious Metals

>Dubai Multi Commodities Centre in Dubai. [Part 3a]"

Agree - was wonderful UNTIL King asked where he say gold going........

"Up, unless there is a world recession, which is unlikely as latest US GDP figures are encouraging [paraphrased]"

Not what I was wanting to hear.

On the other hand....

Jim Rogers [paraphrasing again] - "I am the worst trader in the world, I just like to buy when prices are declining."

He is buying silver, amongst other commodities.

http://jimrogers-investments.blogspot.com/

........makes me feel a bit more chilled

Not a lot of intellectual input to add

Just....

1. I am terrified - but that is usually a decent contrarian signal [cos all other silver holders are equally terrified & a lot will have sold]

2. i know a lot of what ted butler says is hard to prove, but think he said recently that a couple of major silver miners [Hecla, Cour de Lane ?] made a loss in Q2, and he reckoned the marginal cost of production was around $17.

So prices less than this are unsustainable LT, as it will result in lower production.

3. David Morgan rebutes "world reccession = lower industrial demand = lower prices" with....

"world reccession = lower industrial demand = true = less base metal mining = lower silver mined [byproduct of base metals]prices = lower industrial demand - balanced by lowe production"

4. Bob Hoye has called this very well so far [as has Tim Wood]

Think [he is hard to nail down] he is saying Silver may bottom [temporarily] with DOW late Oct NOv.... would appreciate Cuthbert's take on this

Thanks Quark, here are 2 CWR interviews from 2007

http://commoditywatch.podbean.com/2007/06/...a-and-aquiline/

http://commoditywatch.podbean.com/2007/10/...ichael-hampton/

One of them is absolutly wonderful [he pulls Frizzers leg nicely too], can't rember which one

Can't find the original post about Paul Van Eeden saying gold was overvalued, but here is a recent interview

http://watch.bnn.ca/trading-day/august-200...2008/#clip84424

Bubb - u dismissed his reasoning - wonder if u could flesh that out a bit

He certainly looks quite smart just now - went neutral at 1000, nibbling sub 800, as beleives fair value = 760

GOLD DOWN $17 !!

 

Looks like another "Friday mugging" is being attempted.

The volume is light, and it could be reversed quickly.

 

If it is not, and gold is still down on Monday, this could provide the "lighter volume retest" (C-wave)

that I have been talking about. That's not my base case, since I think this may just be part of a B-wave.

 

But the price move and volume of the next several hours will be interesting

Bubb - is your ABC the same as an EW ABC corrective wave, or just your own notation for a 3 point move ?

Ask as wondering if u think pentration of 900 on big volume would imply an EW Wave 3 of 5 down - and hence your wanings to watch 900 and volume VERY closely [as Wave 5 might terminate sub-800]

Hope it's ok to put this here - reason is Bubb says he regards it now the main commentary thread.

Obviously nice bounce for the SPX Bulls yesterday.

And China bounced nicely off it's summer lows this morning [EXCELLENT sentiment for all the Far East markets ]

But Hong Kong's [HSI / HCSE] & other Asian markets were pretty feeble - gains smaller than SPX, when twice the SPX % gains might have been expected, especially as they have been sold off much more.

Maybe, just maybe they don't beleive it is over yet.

BIS valuation of world's derivatives back in 2002 was about $100 trillion

*

BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion

 

= =

 

I think it is the worst sort of deception to pump out figures like that, without explaining something.

 

These derivatives figures include loads of double, triple, and even ten-fold counting,

because of the nature of Over-the-counter markets.

 

To explain what I mean in a few words, those figures count footprints, as well as the positions

that people are actually standing in.

 

If you want a longer explanation, ask and if I have time, I will give one ... again

I'll have a go for you if you like, using my [poor] memory of one of your old podcasts

A derivitive may be repackaged and sold on many times [say 10 times], just like "pass the parcel"?

BIS valuations count all 10 of those transactions when it should just be the last, as that party is the only one holding the "parcel"?

Frank Barbera is BEARISH on Gold stocks (including Juniors)

 

Next 4-5 months, "we could see gold moving down to $675-700 area"

 

(Personally, I think he will be throwing in the towel. But let's see,

and let's keep open minds on what might happen.)

That should certainly "fix" one problem that was concerning you.......

The bullish concenus [less Faber, TOB]

675 is very low [think TOB gave a similar number] - did he detail why that level was on his mind ?

Do YOU see anything troubling in the HUI / GDX chart ?

Most of them are much better values now than they were at the end of July 07 or Oct. 07! But, generally speaking, the gold juniors didn't sell off nearly as hard as the base metal juniors.

 

I think GORO is a slam dunk for a double here once they reach full production in a year and a half or so. Possibly a triple if drill results keep coming in good.

 

My base metal favorites (SRZ.to, GMC.to) got beat into the ground over the last few months, but I still think they're both good buys. Also, I like Victory Nickel (Ni.to) at current prices even though it didn't fall much.

 

I guess my feeling is that the Fed is going to try to inflate its way out of this financial crisis. Thus, I'm not too concerned about holding base metal stocks. At some point, they will need to be sold when the fed no longer has the tools or the political mandate to continue devaluing the dollar, but I don't think we're there yet.

 

What we really need are some acquisitions by the majors to reignite the market in base metals. Ni.to and GMC.to are excellent takeover prospects, in my opinion.

Thanks AceofKY - very helpful to have your take on things - will take a look at these shares

1. I think most gold stocks were valued very highly until August 07. I assemble discounted cash flow models on every miner that I research, and prior to August it was impossible to find a gold miner in a safe country that traded at NAV or lower. Most, in fact, traded at prices at least 2 times NAV. The market was already pricing in a big jump in gold price.

 

2. I know I've been beating this like a dead horse, but the mining companies haven't been increasing their profits during this period of high prices. Construction costs and operating costs are rising as fast (or faster) than the gold price. Since corporations are valued based on expected future profits (rather than a simple proportional relationship to gold price), there has not yet been sufficient justification to bid up the already high valuations. Even things such as the acid used in heap leach operations are experiencing significant cost increases.

 

If/when the U.S. goes into a recession, this may relieve the pressure on the cost side of the equation and allow the miners' margins to increase.

Well done AceofKY.

What is your take on the value of the junoirs now ?

Thnx, Fr.

We can see in that chart, that Gold is running and running fast ahead of the Juniors.

 

At some point, the rising Gold price pught to drag upwards the value of Gold deposits

within the Junior companies. We need to stay patient.

 

It is amazing to see these "development stage" companies sliding ...

 

...while Gold powers ahead !

 

Here's what Frank Barbera says:

 

"On a relative strength basis, Juniors Gold’s remain in a solid downtrend which now dates back to a peak last March 15th. Certainly, a mature and extended period of relative under-performance, there is quite a mystery as to why these stocks are not moving up aggressively in light of record, multi-year highs for all metals. While no one explanation is readily apparent, perhaps the only explanation may be that of diminished risk appetite as the broader trend for stocks has entered a bear phase and financial institutions are pairing back risk rather then becoming more aggressive. With so many of these companies engaged in rigorous drilling programs, --- programs that enhance shareholder and property value, the inherent ‘value’ proposition illustrated in most quality juniors seems to be getting better and better with each passing month. Who knows, perhaps these are the key ingredients for a mania style bull market once more broad based confidence returns to the global markets."

 

I have chosen to draw my own lines on a chart in Barbera's article:

This shows the FS Index of Junior Golds vs. XAU

 

/see: http://www.financialsense.com/metals/FSJG/2008/0128.html

 

= =

 

My own optimstic interpretation is this:

From 2002 to early 2007, the Juniors ran ahead too fast, and the companies became too expensive for the Majors to continue making acquisitions. In their enthusiasm, the buyers of the smaller mining and exploration stocks had temporarily forgotten that many Junior co's are like "burning matches." They have to keep coming back to the market to raise money to finance their exploration and development efforts. As the credit crisis spread into stock markets, and finance became harder to raise, the risk-of-refinancing was brought back home to the markets, and risk premiums got larger so that the mining Juniors have lagged for months.

 

Now we are waiting from some takeover action (by Majors of Juniors) to confirm that they have gone back to being relatively inexpensive. Soon, I think, we will see from takeover activity, and some huge gains from discoveries, that the Juniors are cheap enough to start buying them aggressively again.

 

(I plan to contact Frank Barbera, and ask him to look at the argument in this posting.)

>From 2002 to early 2007, the Juniors ran ahead too fast, and the companies became too expensive for the Majors to >continue making acquisitions.

Intersting - think this is what AceofKY was saying earlier, but from his own fundamental analysis....

"1. I think most gold stocks were valued very highly until August 07. I assemble discounted cash flow models on every miner that I research, and prior to August it was impossible to find a gold miner in a safe country that traded at NAV or lower. Most, in fact, traded at prices at least 2 times NAV. The market was already pricing in a big jump in gold price.

2. I know I've been beating this like a dead horse, but the mining companies haven't been increasing their profits during this period of high prices. Construction costs and operating costs are rising as fast (or faster) than the gold price. Since corporations are valued based on expected future profits (rather than a simple proportional relationship to gold price), there has not yet been sufficient justification to bid up the already high valuations. Even things such as the acid used in heap leach operations are experiencing significant cost increases."

Wonder what his take on the value of them is now - I'll ask....

Bad news is I didn't buy till at $15, as I had to open a new account [selftrade] just to get access to the Sterling versionof the etf

 

 

Did you want to access the sterling version purely for ease of use ore there other gains?

Sorry for delay NabCom - work shifts

Wanted to keep things as simple as posible, with no currency risk to worry about

Of course I would have done much better just getting the GTX etf as frizzers says

I'm green

I think a great deal of the money that would previously have gone into juniors has instead gone into ETFs, so there is less capital available for juniors.

 

Perhaps people have been hurt so badly in previous corrections that they would rather find other ways of playing the sector.

Not exactly what you are saying Frizzers, but along the same lines....

I bought the Silver ETF as a way [hopefully] of getting similar action to the gold miners, but in a simpler [single sterling transaction], cheaper way [just one dealing charge].

I just have a small stake, so is ideal for me.

Bad news is I didn't buy till at $15, as I had to open a new account [selftrade] just to get access to the Sterling versionof the etf