Gold rose to settle near $1,540 on Friday, notching its biggest one-day gain in three weeks, as weakness in the dollar gave the precious metal a boost.
Gold
Boris Engelberg | Stock4B | Getty Images
Bullion also drew support from economic uncertainty as EU powers Germany and France scrambled to save Greece from default, and as Greece's embattled prime minister replaced his finance minister to force an unpopular austerity plan.
Gold accelerated gains after a key measure of future U.S. economic activity rose more than expected in May to a record high, while U.S. consumer sentiment worsened more than forecast in June on continued pessimism about the economy.
"We are seeing a return to risk as the equity market was up and the dollar is down. Obviously, gold is reacting to that well," said David Meger, director of metals trading at Vision Financial Markets.
Spot gold [XAU= 1538.40 -0.10 (-0.01%) ] was last up 0.8 percent, bidding around $1,540 an ounce, its strongest one-day rally since late May.
Even as gold benefits from disappointing U.S. economic outlook, the metal has failed to breach its record high $1,575 set in early MayA combination of technical selling, a firm dollar and sliding crude oil prices have kept gold from rising further.
The metal is still up nearly 5 percent in the past 30 days on debt problems in Europe, inflation fears in China following strong economic data, and worries about a U.S. economic slowdown.
On Friday, gold gained as the euro rose on hopes for a new Greek aid package and as Germany vowed to work with the European Central Bank to resolve the crisis, although the currency remained vulnerable if there was no concrete solution. .
الجمعة، 17 يونيو 2011
Gold rises as greenback slide boosts appeal
The euro gained as much as 1 per cent after Germany said private-sector creditors may be shielded from a Greek bailout. Gold has gained 23 per cent in the past year as the US dollar slumped 12 per cent against a basket of six major currencies, including the euro.
“You’ve got the euro coming back, and it’s taken some of the dollar pressure off the metals,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.
Gold futures for August delivery rose $US9.20, or 0.6 per cent, to settle at $US1,539.10 an ounce at 1:39 p.m. on the Comex in New York. The price climbed 0.6 per cent this week.
On May 2, gold rose to a record $US1,577.40 as escalating sovereign-debt woes and record-low US borrowing costs increased the appeal of the metal as an alternative to currencies. Gold priced in British pounds rose to an all-time high yesterday, and the price in euros climbed to a record on May 25.
Silver futures for July delivery rose 18.9 cents, or 0.5 per cent, to $US35.748 an ounce. The metal fell 1.6 per cent this week.
Platinum futures for July delivery fell $US8.60, or 0.5 per cent, to $US1,752.10 an ounce on the New York Mercantile Exchange. The price, down 4.4 per cent this week, declined for the sixth straight session, the longest slump since August.
Palladium futures for September delivery dropped $US18.10, or 2.4 per cent, to $US745.40 an ounce, the biggest drop since May 5. The price, down 8.8 per cent this week, declined for the sixth straight session, the longest slide since March.
Read more: http://www.brisbanetimes.com.au/business/markets/gold-rises-as-greenback-slide-boosts-appeal-20110618-1g8lx.html#ixzz1PamdTaK2
“You’ve got the euro coming back, and it’s taken some of the dollar pressure off the metals,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.
Gold futures for August delivery rose $US9.20, or 0.6 per cent, to settle at $US1,539.10 an ounce at 1:39 p.m. on the Comex in New York. The price climbed 0.6 per cent this week.
On May 2, gold rose to a record $US1,577.40 as escalating sovereign-debt woes and record-low US borrowing costs increased the appeal of the metal as an alternative to currencies. Gold priced in British pounds rose to an all-time high yesterday, and the price in euros climbed to a record on May 25.
Silver futures for July delivery rose 18.9 cents, or 0.5 per cent, to $US35.748 an ounce. The metal fell 1.6 per cent this week.
Platinum futures for July delivery fell $US8.60, or 0.5 per cent, to $US1,752.10 an ounce on the New York Mercantile Exchange. The price, down 4.4 per cent this week, declined for the sixth straight session, the longest slump since August.
Palladium futures for September delivery dropped $US18.10, or 2.4 per cent, to $US745.40 an ounce, the biggest drop since May 5. The price, down 8.8 per cent this week, declined for the sixth straight session, the longest slide since March.
Read more: http://www.brisbanetimes.com.au/business/markets/gold-rises-as-greenback-slide-boosts-appeal-20110618-1g8lx.html#ixzz1PamdTaK2
Gold & Silver Update: Waiting for August
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Precious metals investors are getting a little antsy as many newer investors and weak hands have been scared away after witnessing the first major correction since the financial crisis of 2008. While gold has only corrected 3% from its April high of $1,565, silver is down nearly 30% in the same time period. This article will focus on how I think things will play out over the next few months and into the close of 2011, with a focus on the price action in silver.
While the long-term fundamentals remain robust and I continue to expect silver to push towards $100/ounce at some point in 2012, the short-term situation is not so clear. The dollar may be the last fiat currency standing, as the sovereign debt situation in Europe deteriorates. In turn, the Euro weakness will likely provide strength for the dollar in the short term, along with the end of QE2 and continued silence from “The Bernank” regarding QE3. Throw in weak seasonality during the Summer months and we might have a recipe for lower silver and gold prices over the next month or two.
The technical chart for silver is not looking very bullish in my estimation and points to one of two scenarios. Either silver continues to be range-bound and consolidate within the $34 – $38 channel for another few months or the fundamental conditions mentioned in the previous paragraph create downward pressure and silver tests support at its 200-day moving average around $30.
I am inclined to believe that silver will test the 200-day moving average, as has occurred during every correction over the past decade. Even silver’s long consolidation of September 2009 to September 2010 eventually hit the 200-day moving average before blasting higher. I think there are plenty of buyers waiting for such an opportunity, so any dip to the $30 area is likely to be short-lived.
Getting a gauge on short-term price movements is useful, especially to traders, but it really has little impact on the longer-term view of the silver price. Whether silver stays within the consolidation range or dips to its 200-day moving average, I believe the outcome for later this year and into 2012 remains the same.
Silver is destined for much higher prices and all of the jawboning about the last move towards $50 being the top is utter nonsense. The inflation-adjusted high for silver is somewhere between $150 and $300, using conservative estimates of inflation. Furthermore, the fundamental conditions that created the previous high in 1980 are significantly worse today. The percentage move, while impressive, is also significantly less that the gain achieved during the last bull market.
So, I remain confident the silver bears that have called a top will be proven wrong (again). They will likely make the same top call when silver hits $100, $150 and $200. Eventually they will be right, just like a broken clock tells the correct time now and again, but we are a few years and a few hundred percentage points away from that moment. For those of you that have given credence to these “analysts” calling precious metals a bubble, why are you paying any attention to the people that have got it wrong so consistently? That is akin to trusting Jim Cramer or Ben Bernanke for advice on when the housing market has bottomed.
Waiting for August
So, I am currently in a holding pattern with a reasonable percentage of my portfolio in cash and short positions against overvalued stocks and ETFs. It can be boring at times and overactive investors are often frustrated by the lack of action. But I firmly believe that it is sometimes best to exercise patience and watch from the sidelines. The next opportunity will emerge soon enough, while our short positions advance and our core precious metals holdings catch any unexpected upside move.
I still hold a few junior miners which I am convinced are significantly undervalued and will play an explosive game of catch-up into the close of the year. And I am looking forward to utilizing the cash I have placed on the sidelines to pick up bargains on key mining stocks that are already oversold and will likely fall further as investors throw out the proverbial baby with the bathwater. It always happens during liquidations and the slow Summer months, but precious metals are always quick to bounce back.
Gold and silver are increasingly being viewed as money, not just an investment vehicle. This realization is huge in the face of the declining dollar and growing concern about the government’s ability to repay the mounting debt. The situation is reaching a boiling point, as they have already raided public pensions and many suspect that IRAs and 401k funds could be next. This is all under the guise of protecting us, of course.
In the meantime, I am patiently waiting until August, when the pressure will build for the next round of quantitative easing and the government will have to choose to either default on their debt obligations or push the nation one step closer to hyperinflation. Either way, I expect gold and silver to make new highs by year end and absent an all-out stock market collapse, we should see some truly incredible gains in select mining stocks that are currently trading as if gold was at $1,000 and silver at $20. The situation is out of whack and when equilibrium is restored, I believe those holding shares of quality miners are going be rewarded handsomely.
If you would like to see which mining stocks I am holding and which I am targeting to buy during the dip, sign up for the Gold Stock Bull Premium Membership. You will get the highly-rated monthly contrarian newsletter, real-time access to the model portfolio and email alerts whenever I am buying or selling. I also make myself available to premium members for questions via email.
Best of all, you can try it out for just $35/month and cancel at anytime if it doesn’t prove its value many times over. For instant access to the portfolio, newsletter, trade alerts, and much more, click here to become a Gold Stock Bull Premium Member.
Precious metals investors are getting a little antsy as many newer investors and weak hands have been scared away after witnessing the first major correction since the financial crisis of 2008. While gold has only corrected 3% from its April high of $1,565, silver is down nearly 30% in the same time period. This article will focus on how I think things will play out over the next few months and into the close of 2011, with a focus on the price action in silver.
While the long-term fundamentals remain robust and I continue to expect silver to push towards $100/ounce at some point in 2012, the short-term situation is not so clear. The dollar may be the last fiat currency standing, as the sovereign debt situation in Europe deteriorates. In turn, the Euro weakness will likely provide strength for the dollar in the short term, along with the end of QE2 and continued silence from “The Bernank” regarding QE3. Throw in weak seasonality during the Summer months and we might have a recipe for lower silver and gold prices over the next month or two.
The technical chart for silver is not looking very bullish in my estimation and points to one of two scenarios. Either silver continues to be range-bound and consolidate within the $34 – $38 channel for another few months or the fundamental conditions mentioned in the previous paragraph create downward pressure and silver tests support at its 200-day moving average around $30.
I am inclined to believe that silver will test the 200-day moving average, as has occurred during every correction over the past decade. Even silver’s long consolidation of September 2009 to September 2010 eventually hit the 200-day moving average before blasting higher. I think there are plenty of buyers waiting for such an opportunity, so any dip to the $30 area is likely to be short-lived.
Getting a gauge on short-term price movements is useful, especially to traders, but it really has little impact on the longer-term view of the silver price. Whether silver stays within the consolidation range or dips to its 200-day moving average, I believe the outcome for later this year and into 2012 remains the same.
Silver is destined for much higher prices and all of the jawboning about the last move towards $50 being the top is utter nonsense. The inflation-adjusted high for silver is somewhere between $150 and $300, using conservative estimates of inflation. Furthermore, the fundamental conditions that created the previous high in 1980 are significantly worse today. The percentage move, while impressive, is also significantly less that the gain achieved during the last bull market.
So, I remain confident the silver bears that have called a top will be proven wrong (again). They will likely make the same top call when silver hits $100, $150 and $200. Eventually they will be right, just like a broken clock tells the correct time now and again, but we are a few years and a few hundred percentage points away from that moment. For those of you that have given credence to these “analysts” calling precious metals a bubble, why are you paying any attention to the people that have got it wrong so consistently? That is akin to trusting Jim Cramer or Ben Bernanke for advice on when the housing market has bottomed.
Waiting for August
So, I am currently in a holding pattern with a reasonable percentage of my portfolio in cash and short positions against overvalued stocks and ETFs. It can be boring at times and overactive investors are often frustrated by the lack of action. But I firmly believe that it is sometimes best to exercise patience and watch from the sidelines. The next opportunity will emerge soon enough, while our short positions advance and our core precious metals holdings catch any unexpected upside move.
I still hold a few junior miners which I am convinced are significantly undervalued and will play an explosive game of catch-up into the close of the year. And I am looking forward to utilizing the cash I have placed on the sidelines to pick up bargains on key mining stocks that are already oversold and will likely fall further as investors throw out the proverbial baby with the bathwater. It always happens during liquidations and the slow Summer months, but precious metals are always quick to bounce back.
Gold and silver are increasingly being viewed as money, not just an investment vehicle. This realization is huge in the face of the declining dollar and growing concern about the government’s ability to repay the mounting debt. The situation is reaching a boiling point, as they have already raided public pensions and many suspect that IRAs and 401k funds could be next. This is all under the guise of protecting us, of course.
In the meantime, I am patiently waiting until August, when the pressure will build for the next round of quantitative easing and the government will have to choose to either default on their debt obligations or push the nation one step closer to hyperinflation. Either way, I expect gold and silver to make new highs by year end and absent an all-out stock market collapse, we should see some truly incredible gains in select mining stocks that are currently trading as if gold was at $1,000 and silver at $20. The situation is out of whack and when equilibrium is restored, I believe those holding shares of quality miners are going be rewarded handsomely.
If you would like to see which mining stocks I am holding and which I am targeting to buy during the dip, sign up for the Gold Stock Bull Premium Membership. You will get the highly-rated monthly contrarian newsletter, real-time access to the model portfolio and email alerts whenever I am buying or selling. I also make myself available to premium members for questions via email.
Best of all, you can try it out for just $35/month and cancel at anytime if it doesn’t prove its value many times over. For instant access to the portfolio, newsletter, trade alerts, and much more, click here to become a Gold Stock Bull Premium Member.
What Is the Best Gold And Silver Investment?
To evaluate what is the best way to own Gold and Silver we need to look at the options. The options are Physical Gold/Silver, Gold/Silver Mining Shares or Gold/Silver Mutual Funds.
I didn’t include Gold/Silver ETFs because it tracks the physical price with a few major differences. I looked at values dating back both 1 year, and to the beginning of 2011, to calculate the results.
I used the following as true indicators of the market prices:
Spot Gold and Silver Prices,
Gold Mining Share Index (GDX)
Fidelity Select Gold Shares Mutual Fund (FSAGX)
Silver Mining Share Index (SIL)
HERE ARE THE RAW STATISTICS
6/10/2010 to Date (1 year)
Spot Gold $1,217.50 to $1,528.60, Increase of 25.55%
Gold Mining Share Index (GDX) 50.79 to 53.80 (with .40 Dividend) Increase of 5.9%
Fidelity Select Gold FUND (FSAGX) 46.50 to 49.38 (with 3.51 Dividend) Increase of 6.19%
Spot Silver $18.61 to $36.26, Increase of 94.84%
Silver Mining Share Index (SIL) 14.75 to 23.35 (with .24 Dividend) Increase of 58.30%
1/1/2011 to Date (6/10/2011)
Spot Gold $1,421.40 to $1,528.60, Increase of 7.54%
Gold Mining Share Index (GDX) 61.47 to 53.40, Decrease of -13.13%
Fidelity Select Gold FUND (FSAGX) 53.11 to 47.62 (with 1.75 Dividend) Decrease of -10.34%
Spot Silver $30.50 to $36.26, Increase of 18.88%
Silver Mining Share Index (SIL) 27.13 to 23.11, Decrease of -14.82%
It is clear from the above statistics that physical gold has increased over 400% more than stocks and funds did in the past year. Physical Silver increased 60% higher than stocks in the past year. If you use the year to date (YTD) numbers, the results show both physical gold/silver are higher and that the mining stocks and funds have decreased substantially, showing that this trend has accelerated.
What is causing that trend to develop and, more importantly, WHY?
Disconnect Between Bullion and Mining Stocks
Many market analysts who discuss the disconnect between Bullion and Stock/Mutual Fund pricing believe that it’s an anomaly in the market and it will self-correct quickly. Many market gurus mentioned the fact that some mining companies have hedged future production and are not benefitting from the recent high prices. A popular excuse is that the relationship between physical gold and mining stocks got disrupted when the financial markets went haywire in 2008, and equities tumbled while physical metal increased.
The most recent statement in an article by Peter Koven in May 2011 stated:
“that the analysts themselves are pricing in numbers that are much too low when they calculate what these companies are worth. While most analysts are using a gold price of roughly US$1,500 an ounce for 2011, their long-term targets are closer to US$1,000, which affects their earnings estimates.”
Although many of these market analysts are highly respected, my research leads me to say, “None of the above.”
I believe that the problem is the increasing risk of labor costs and third world producing countries hiking their export fees, along with the strong possibilities of union strikes and government nationalization. This will cause physical precious metals to increase, while stocks continue to drop.
Let me provide a few examples of what is concerning me….
We start with Peru, the World’s No. 1 exporter of Silver and the No. 6 exporter of Gold.
On June 7, 2011, President elect Ollanta Humala provoked widespread fears he would lead a wave of nationalizations and higher taxes on foreign companies. Incoming President Humala has suggested Peru could impose a windfall tax of up to 40 per cent on mining companies, and also raise the 30 per cent rate that miners currently pay. Humala has stated that mining companies whose profits have swollen on lofty global commodities prices should fund social programs in a country where a third of the people are poor despite a decade-long economic boom. This feeling is shared by many under-developed countries with natural resources.
Chile has recently increased its mining tax from 4-5% of operating profit to 4-9% on precious metal mines. Chile plans to tighten its safety laws after the collapsed mine at San Jose that highlighted the lack of regulation in the mining sector in the country. This will add additional cost to all gold and silver mining operations.
Bolivia, In April some mining companies with operations in Bolivia sold off on concerns from President Morales stating that Bolivia was planning to nationalize mines owned by Pan American Silver. The unions demanded increases in compensation and requested that the government not take control of the mines.
Tanzania, one of Africa's top gold producers, is considering a "super profit" tax on earnings from minerals as one of the ways to fund its five-year development plan, according to documents seen by Reuters. The move follows similar steps in other producer countries that have sought to increase fiscal revenue from the mining industry and to take advantage of rising prices.
Australia was among the first to consider a hefty resource tax, but it had to climb down from initial proposals for a headline tax of 40 percent after pre-election talks with mining giants like BHP Billiton and Rio Tinto
The risk of continued wage inflation for miners is a Global problem.
The reasons for cost inflation vary by region, but top precious and base metals producer nations South Africa, Australia, Chile and Canada all have strong domestic currencies, rising labor costs, and surging energy costs in common.
Barclays Capital analyst, Gayle Berry, said that one of the top causes of inflation has been labor, with an acute shortage of skilled manpower looming in some countries. Canada's mining sector, she said, is forecast to have a shortfall of almost 100,000 workers in the next decade, with 65 percent of the hiring requirement simply to replace retired workers. Plugging that hole will be tough and expensive. "The first impact is on mine production costs, which are going to continue rising, and the second impact is the potential for delays to new projects, or at the very least a slower realization of projects in the pipeline," Berry said.
Western Australia is a flashpoint for labor costs, with mining companies competing for skilled labor with several large natural gas projects.
"Investors are wary of investing in new gold mining projects in Australia because of the high cost of achieving production in that region," said John Meyer, a mining analyst at Fairfax.
In South Africa, the National Union of Mineworkers is demanding an above-inflation 14 percent rise in wages this year.
At the same time, the currencies of producer countries (including South Africa, Australia, Canada and Chile) have risen, eating into profits of companies that sell their metals in dollars and pay their costs in local currencies. The South African rand has gained 14 percent in the past 12 months, while the Australian dollar is up around 30 percent compared with one year ago.
Another fear of owners of mining shares was just announced today. The U.S. Department of Justice announced that Hecla Mining has agreed to pay more than $263 million to settle environment claims. Just add this to my list.
I continue to read more and more reports in mining publications and global newspapers of precious metal mining companies lowering production targets and seeing increases in production and labor costs. Add these negatives to the governmental risks, and the picture for the value of mining shares isn’t looking good.
Conclusion:
I am recommending selling stocks and funds with mining operations in the many countries mentioned above and switching into physical gold and silver. Physical Gold and Silver ownership will increase should there be nationalization of mining, or as costs increase and production decreases.
I didn’t include Gold/Silver ETFs because it tracks the physical price with a few major differences. I looked at values dating back both 1 year, and to the beginning of 2011, to calculate the results.
I used the following as true indicators of the market prices:
Spot Gold and Silver Prices,
Gold Mining Share Index (GDX)
Fidelity Select Gold Shares Mutual Fund (FSAGX)
Silver Mining Share Index (SIL)
HERE ARE THE RAW STATISTICS
6/10/2010 to Date (1 year)
Spot Gold $1,217.50 to $1,528.60, Increase of 25.55%
Gold Mining Share Index (GDX) 50.79 to 53.80 (with .40 Dividend) Increase of 5.9%
Fidelity Select Gold FUND (FSAGX) 46.50 to 49.38 (with 3.51 Dividend) Increase of 6.19%
Spot Silver $18.61 to $36.26, Increase of 94.84%
Silver Mining Share Index (SIL) 14.75 to 23.35 (with .24 Dividend) Increase of 58.30%
1/1/2011 to Date (6/10/2011)
Spot Gold $1,421.40 to $1,528.60, Increase of 7.54%
Gold Mining Share Index (GDX) 61.47 to 53.40, Decrease of -13.13%
Fidelity Select Gold FUND (FSAGX) 53.11 to 47.62 (with 1.75 Dividend) Decrease of -10.34%
Spot Silver $30.50 to $36.26, Increase of 18.88%
Silver Mining Share Index (SIL) 27.13 to 23.11, Decrease of -14.82%
It is clear from the above statistics that physical gold has increased over 400% more than stocks and funds did in the past year. Physical Silver increased 60% higher than stocks in the past year. If you use the year to date (YTD) numbers, the results show both physical gold/silver are higher and that the mining stocks and funds have decreased substantially, showing that this trend has accelerated.
What is causing that trend to develop and, more importantly, WHY?
Disconnect Between Bullion and Mining Stocks
Many market analysts who discuss the disconnect between Bullion and Stock/Mutual Fund pricing believe that it’s an anomaly in the market and it will self-correct quickly. Many market gurus mentioned the fact that some mining companies have hedged future production and are not benefitting from the recent high prices. A popular excuse is that the relationship between physical gold and mining stocks got disrupted when the financial markets went haywire in 2008, and equities tumbled while physical metal increased.
The most recent statement in an article by Peter Koven in May 2011 stated:
“that the analysts themselves are pricing in numbers that are much too low when they calculate what these companies are worth. While most analysts are using a gold price of roughly US$1,500 an ounce for 2011, their long-term targets are closer to US$1,000, which affects their earnings estimates.”
Although many of these market analysts are highly respected, my research leads me to say, “None of the above.”
I believe that the problem is the increasing risk of labor costs and third world producing countries hiking their export fees, along with the strong possibilities of union strikes and government nationalization. This will cause physical precious metals to increase, while stocks continue to drop.
Let me provide a few examples of what is concerning me….
We start with Peru, the World’s No. 1 exporter of Silver and the No. 6 exporter of Gold.
On June 7, 2011, President elect Ollanta Humala provoked widespread fears he would lead a wave of nationalizations and higher taxes on foreign companies. Incoming President Humala has suggested Peru could impose a windfall tax of up to 40 per cent on mining companies, and also raise the 30 per cent rate that miners currently pay. Humala has stated that mining companies whose profits have swollen on lofty global commodities prices should fund social programs in a country where a third of the people are poor despite a decade-long economic boom. This feeling is shared by many under-developed countries with natural resources.
Chile has recently increased its mining tax from 4-5% of operating profit to 4-9% on precious metal mines. Chile plans to tighten its safety laws after the collapsed mine at San Jose that highlighted the lack of regulation in the mining sector in the country. This will add additional cost to all gold and silver mining operations.
Bolivia, In April some mining companies with operations in Bolivia sold off on concerns from President Morales stating that Bolivia was planning to nationalize mines owned by Pan American Silver. The unions demanded increases in compensation and requested that the government not take control of the mines.
Tanzania, one of Africa's top gold producers, is considering a "super profit" tax on earnings from minerals as one of the ways to fund its five-year development plan, according to documents seen by Reuters. The move follows similar steps in other producer countries that have sought to increase fiscal revenue from the mining industry and to take advantage of rising prices.
Australia was among the first to consider a hefty resource tax, but it had to climb down from initial proposals for a headline tax of 40 percent after pre-election talks with mining giants like BHP Billiton and Rio Tinto
The risk of continued wage inflation for miners is a Global problem.
The reasons for cost inflation vary by region, but top precious and base metals producer nations South Africa, Australia, Chile and Canada all have strong domestic currencies, rising labor costs, and surging energy costs in common.
Barclays Capital analyst, Gayle Berry, said that one of the top causes of inflation has been labor, with an acute shortage of skilled manpower looming in some countries. Canada's mining sector, she said, is forecast to have a shortfall of almost 100,000 workers in the next decade, with 65 percent of the hiring requirement simply to replace retired workers. Plugging that hole will be tough and expensive. "The first impact is on mine production costs, which are going to continue rising, and the second impact is the potential for delays to new projects, or at the very least a slower realization of projects in the pipeline," Berry said.
Western Australia is a flashpoint for labor costs, with mining companies competing for skilled labor with several large natural gas projects.
"Investors are wary of investing in new gold mining projects in Australia because of the high cost of achieving production in that region," said John Meyer, a mining analyst at Fairfax.
In South Africa, the National Union of Mineworkers is demanding an above-inflation 14 percent rise in wages this year.
At the same time, the currencies of producer countries (including South Africa, Australia, Canada and Chile) have risen, eating into profits of companies that sell their metals in dollars and pay their costs in local currencies. The South African rand has gained 14 percent in the past 12 months, while the Australian dollar is up around 30 percent compared with one year ago.
Another fear of owners of mining shares was just announced today. The U.S. Department of Justice announced that Hecla Mining has agreed to pay more than $263 million to settle environment claims. Just add this to my list.
I continue to read more and more reports in mining publications and global newspapers of precious metal mining companies lowering production targets and seeing increases in production and labor costs. Add these negatives to the governmental risks, and the picture for the value of mining shares isn’t looking good.
Conclusion:
I am recommending selling stocks and funds with mining operations in the many countries mentioned above and switching into physical gold and silver. Physical Gold and Silver ownership will increase should there be nationalization of mining, or as costs increase and production decreases.
Will Gold Price Decline Soon or Is This Summer Really Different?
Recently, we had received a question from one of our Subscribers and we consider it to be of most importance at this market juncture. The question was:
Do you see a sharp pullback coming for commodities in general over the summer months?
In short – yes, we believe that the commodities move lower during the summer months. We would expect the precious metals to decline and enter a period which could be termed the “summer doldrums”. This appears likely to last through the month of August but this is simply our best guess at this time. The exact timing is truly unknown. The problems surrounding the coming significant declines do, however, appear to be quite profound.
The seasonal tendencies appear to play out in a way that is very similar to what we’ve seen many times in the previous years. Naturally, these are just “tendencies” not sure bets, but it seems that other signals from the market support them.
Let’s have more insight on the bearish trend by analyzing the current market technicals. We will begin with the gold charts (charts courtesy by http://stockcharts.com.)
In the very long-term chart for gold, we have seen yet another attempt to move above the rising trend channel. This will probably not succeed and will likely be quite similar to what was seen in late 2010. At that time, a period of sideways price movement near the upper border of the trading channel was followed by declining prices.
Let’s zoom in for more details.
Last week GLD ETF has moved rather insignificantly higher (until Thursday that is). On Thursday, gold’s price moved up 0.5% on very low volume. This very low volume during a rally normally indicates that buying power is drying up and it seems that this interpretation is correct at this time, as it’s being seen after a few-week rally. It could be a sign that many will be exiting the market soon which will lead to lower prices.
We have seen no evidence of a strong bounce from the support line now in play. There was a rather weak attempt with insignificant success to move higher. Right after that gold price broke below the rising trend channel on strong volume, which a bearish indication. This tendency held on Monday, which means that we have most likely seen an end of the contra-trend rally. Please note that another move up on low volume would be a bearish signal, not a bullish one.
Consequently, the outlook overall is bearish for gold with numerous signs pointing to lower prices and few, if any which could be read as signs to the contrary.
Let’s have a look at gold and silver mining stocks too.
In the very long-term XAU gold and silver mining stocks index chart, we see a move below the level of the 2008 intra-day highs down to the level of monthly closing prices. It appears that the previous upswing was just a verification of the breakdown below the 2008 intra-day highs. Since May index levels have declined, moved back to the level of 2008 highs after having bottomed at highs based on monthly closing prices, and then declined again. In sum, it seems that the move below 2008 intra-day highs has just been confirmed, which is very bearish news for the whole sector.
In HUI Index (gold stocks) chart, the signs are even more bearish. One of the key support level has been broken and the move has been verified. Namely, the rising dotted line in our chart provided support numerous times in the past but has been broken and this breakdown was verified as resistance several days ago.
Moreover, gold stocks appear to be completing the bearish head-and-shoulders pattern and if the index level moves below the level of previous lows, the completion of this pattern could lead to a considerable decline in the HUI Gold Bugs Index. It appears that the index could in fact move below the 450 level, which has not happened for nearly a year. Naturally, that would have profound negative effects for the underlying metals as well.
The above chart shows the ratio of gold stocks to gold itself. In our Gold Price Direction Based on Investor’s Sentiment essay, we discussed the underperformance of gold stocks and suggested that the rally was close to being over. At that time we stated the following:
We can clearly see the underperformance of gold’s stocks in recent days without using this ratio, but a look at the chart of the ratio shows that the gold mining stocks underperformance is significant. Investors with holdings in gold at this time should be concerned with its medium-term rally in light of the poor performance seen recently for gold mining stocks.
The patterns seen at that time were actually less profound than what we have seen since. This seems to infer that another move lower for precious metals is likely just around the corner.
Summing up, in our view, the technical analysis suggests a downturn in the precious metal sector. The situation for gold and silver mining stocks appears bearish overall as well as individually even without negative influences from the underlying metals. It seems that if the head-and-shoulders pattern is completed in the HUI Index (gold stocks) chart, the whole precious metals sector could decline significantly in the near-term.
To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.
Do you see a sharp pullback coming for commodities in general over the summer months?
In short – yes, we believe that the commodities move lower during the summer months. We would expect the precious metals to decline and enter a period which could be termed the “summer doldrums”. This appears likely to last through the month of August but this is simply our best guess at this time. The exact timing is truly unknown. The problems surrounding the coming significant declines do, however, appear to be quite profound.
The seasonal tendencies appear to play out in a way that is very similar to what we’ve seen many times in the previous years. Naturally, these are just “tendencies” not sure bets, but it seems that other signals from the market support them.
Let’s have more insight on the bearish trend by analyzing the current market technicals. We will begin with the gold charts (charts courtesy by http://stockcharts.com.)
In the very long-term chart for gold, we have seen yet another attempt to move above the rising trend channel. This will probably not succeed and will likely be quite similar to what was seen in late 2010. At that time, a period of sideways price movement near the upper border of the trading channel was followed by declining prices.
Let’s zoom in for more details.
Last week GLD ETF has moved rather insignificantly higher (until Thursday that is). On Thursday, gold’s price moved up 0.5% on very low volume. This very low volume during a rally normally indicates that buying power is drying up and it seems that this interpretation is correct at this time, as it’s being seen after a few-week rally. It could be a sign that many will be exiting the market soon which will lead to lower prices.
We have seen no evidence of a strong bounce from the support line now in play. There was a rather weak attempt with insignificant success to move higher. Right after that gold price broke below the rising trend channel on strong volume, which a bearish indication. This tendency held on Monday, which means that we have most likely seen an end of the contra-trend rally. Please note that another move up on low volume would be a bearish signal, not a bullish one.
Consequently, the outlook overall is bearish for gold with numerous signs pointing to lower prices and few, if any which could be read as signs to the contrary.
Let’s have a look at gold and silver mining stocks too.
In the very long-term XAU gold and silver mining stocks index chart, we see a move below the level of the 2008 intra-day highs down to the level of monthly closing prices. It appears that the previous upswing was just a verification of the breakdown below the 2008 intra-day highs. Since May index levels have declined, moved back to the level of 2008 highs after having bottomed at highs based on monthly closing prices, and then declined again. In sum, it seems that the move below 2008 intra-day highs has just been confirmed, which is very bearish news for the whole sector.
In HUI Index (gold stocks) chart, the signs are even more bearish. One of the key support level has been broken and the move has been verified. Namely, the rising dotted line in our chart provided support numerous times in the past but has been broken and this breakdown was verified as resistance several days ago.
Moreover, gold stocks appear to be completing the bearish head-and-shoulders pattern and if the index level moves below the level of previous lows, the completion of this pattern could lead to a considerable decline in the HUI Gold Bugs Index. It appears that the index could in fact move below the 450 level, which has not happened for nearly a year. Naturally, that would have profound negative effects for the underlying metals as well.
The above chart shows the ratio of gold stocks to gold itself. In our Gold Price Direction Based on Investor’s Sentiment essay, we discussed the underperformance of gold stocks and suggested that the rally was close to being over. At that time we stated the following:
We can clearly see the underperformance of gold’s stocks in recent days without using this ratio, but a look at the chart of the ratio shows that the gold mining stocks underperformance is significant. Investors with holdings in gold at this time should be concerned with its medium-term rally in light of the poor performance seen recently for gold mining stocks.
The patterns seen at that time were actually less profound than what we have seen since. This seems to infer that another move lower for precious metals is likely just around the corner.
Summing up, in our view, the technical analysis suggests a downturn in the precious metal sector. The situation for gold and silver mining stocks appears bearish overall as well as individually even without negative influences from the underlying metals. It seems that if the head-and-shoulders pattern is completed in the HUI Index (gold stocks) chart, the whole precious metals sector could decline significantly in the near-term.
To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.
Are the Charts Screaming Trouble for Gold and Silver?
Monday was a rough day for energy and precious metals. Oil has now closed lower 9 out of the past 10 Mondays. As mentioned yesterday, energy markets were hit by Goldman Sachs saying natural gas is a short. Besides energy, gold and silver demand your attention.
The chart below shows a possible scary situation for gold. After reaching a daily high of $1532, the spot price of gold closed at $1517. As you can see, recent action in gold prices have caused the uptrend to be broken. Further cause for concern, is the possible head and shoulders formation that has developed in June. Although we still recommend holding some gold in your portfolio, it looks as if gold is getting ready to test support levels, and become rangebound for the summer. Gold becoming rangebound is nothing new for our Gold & Silver Newsletter subscribers.
The chart below also shows a concern for silver mounting. Silver had trouble gaining any steam on Monday, and even reached a low of $34.56. Although silver bounced back to close at $35.07, the chart shows a possible tipping point coming soon. The price action in silver is breaking below the bottom pennant line, which can be very bearish. It will be important for investors to monitor this situation and see if silver can keep bouncing off support levels.
ETFs such as the EFTS Physical Silver Shares iShares Silver Trust and ProShares Ultra Silver fell. Miners such as First Majestic Silver, Endeavour Silver, Goldcorp, and Barrick Gold also failed to shine on Monday.
However, Great Panther Silver managed to jump nearly 8% on Monday as The Monthly Fool classified the miner in its “Poised to Pop” category.
The chart below shows a possible scary situation for gold. After reaching a daily high of $1532, the spot price of gold closed at $1517. As you can see, recent action in gold prices have caused the uptrend to be broken. Further cause for concern, is the possible head and shoulders formation that has developed in June. Although we still recommend holding some gold in your portfolio, it looks as if gold is getting ready to test support levels, and become rangebound for the summer. Gold becoming rangebound is nothing new for our Gold & Silver Newsletter subscribers.
The chart below also shows a concern for silver mounting. Silver had trouble gaining any steam on Monday, and even reached a low of $34.56. Although silver bounced back to close at $35.07, the chart shows a possible tipping point coming soon. The price action in silver is breaking below the bottom pennant line, which can be very bearish. It will be important for investors to monitor this situation and see if silver can keep bouncing off support levels.
ETFs such as the EFTS Physical Silver Shares iShares Silver Trust and ProShares Ultra Silver fell. Miners such as First Majestic Silver, Endeavour Silver, Goldcorp, and Barrick Gold also failed to shine on Monday.
However, Great Panther Silver managed to jump nearly 8% on Monday as The Monthly Fool classified the miner in its “Poised to Pop” category.
The onset of the summer slow season finds bulls fighting bears to determine the course for gold, with no clear winner so far
Transitional periods in investor sentiment are the times when the bulls battle the bears to determine the trend, with neither immediately winning the day.
These periods bring the greatest risk, and opportunity, in the metals markets, and we find ourselves in just such a period right now.
On the one hand, we have the typical seasonal slowdown, in which a withdrawal of Western speculative demand and Indian buying during the summer results in a period of price weakness that, historically, has lasted through late July to mid-August.
On the other hand, we have a seriously slumping U.S. economy that is attracting many investors back to gold, in anticipation of some new sort of monetary stimulus by the Fed — if not QE3, then perhaps a “QE2a.”
Also on this side of the ledger, we see extremely robust demand from China, where investors and savers are buying gold based on relatively high inflation rates in that nation, as well as growing per capita incomes and a cultural affinity for the metal. Importantly, this type of buying is not based on seasonal factors, and has the potential to overwhelm the seasonal tendency for gold-price weakness during the early summer.
But the fact remains, the single most dominant factor now determining the fate of gold and every investment market is U.S. monetary policy. And no one knows at this point whether that will turn out to be bullish or bearish.
The question is whether the current economic “slow patch” will devolve into a more significant and lasting slowdown, or even a double-dip recession. And this question raises the next one: What will the Fed do if that happens?
There seems to be little political will to support a QE3 effort, both within the Fed and on Capitol Hill. But Bernanke and Co. have demonstrated that they won’t hesitate to hit the monetary gas pedal if the situation is serious enough, and this slowdown could get dangerous very quickly. So both equities and gold are looking to monetary policy for direction.
While any Fed initiative toward further easing would immediately send gold sharply higher, I still expect gold’s seasonality to keep it drifting lower over the next six to eight weeks. Coincidentally, that would be about the time you might expect the Fed to announce some form of additional stimulus, if the economic data continues along the current downward course.
Throughout the spring, I told my Gold Newsletter readers to take profits off the table, because I expected the typical May-to-mid-Summer swoon in gold. We wanted to not only preserve profits, but have some cash on hand to take advantage of bargains in late July.
That strategy has proven correct so far. And while gold and silver have had some nice bounces to the upside over the past few weeks, it seems that the summertime slide may have already begun.
Meanwhile, junior resource stocks are continuing a slump that began in early April, and some interesting bargains are beginning to emerge. However, given my expectations of additional weakness, I’m going to wait a bit longer before making any recommendations. My trigger finger is beginning to get itchy, however.
So...we’ll sit tight for now, secure in the notion that summertime clearance sales for the metals and the junior resource equities are on the way, and that the long-term trend remains very bullish.
These periods bring the greatest risk, and opportunity, in the metals markets, and we find ourselves in just such a period right now.
On the one hand, we have the typical seasonal slowdown, in which a withdrawal of Western speculative demand and Indian buying during the summer results in a period of price weakness that, historically, has lasted through late July to mid-August.
On the other hand, we have a seriously slumping U.S. economy that is attracting many investors back to gold, in anticipation of some new sort of monetary stimulus by the Fed — if not QE3, then perhaps a “QE2a.”
Also on this side of the ledger, we see extremely robust demand from China, where investors and savers are buying gold based on relatively high inflation rates in that nation, as well as growing per capita incomes and a cultural affinity for the metal. Importantly, this type of buying is not based on seasonal factors, and has the potential to overwhelm the seasonal tendency for gold-price weakness during the early summer.
But the fact remains, the single most dominant factor now determining the fate of gold and every investment market is U.S. monetary policy. And no one knows at this point whether that will turn out to be bullish or bearish.
The question is whether the current economic “slow patch” will devolve into a more significant and lasting slowdown, or even a double-dip recession. And this question raises the next one: What will the Fed do if that happens?
There seems to be little political will to support a QE3 effort, both within the Fed and on Capitol Hill. But Bernanke and Co. have demonstrated that they won’t hesitate to hit the monetary gas pedal if the situation is serious enough, and this slowdown could get dangerous very quickly. So both equities and gold are looking to monetary policy for direction.
While any Fed initiative toward further easing would immediately send gold sharply higher, I still expect gold’s seasonality to keep it drifting lower over the next six to eight weeks. Coincidentally, that would be about the time you might expect the Fed to announce some form of additional stimulus, if the economic data continues along the current downward course.
Throughout the spring, I told my Gold Newsletter readers to take profits off the table, because I expected the typical May-to-mid-Summer swoon in gold. We wanted to not only preserve profits, but have some cash on hand to take advantage of bargains in late July.
That strategy has proven correct so far. And while gold and silver have had some nice bounces to the upside over the past few weeks, it seems that the summertime slide may have already begun.
Meanwhile, junior resource stocks are continuing a slump that began in early April, and some interesting bargains are beginning to emerge. However, given my expectations of additional weakness, I’m going to wait a bit longer before making any recommendations. My trigger finger is beginning to get itchy, however.
So...we’ll sit tight for now, secure in the notion that summertime clearance sales for the metals and the junior resource equities are on the way, and that the long-term trend remains very bullish.
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