Just when we thought we had heard the last of the dreaded, but also much maligned, Hindenburg Omen, comes yet another sighting in Wednesday's trading according to expert Robert McHugh (https://www.technicalindicatorindex.com/Default.asp). In a short email sent out to his mailing list:
"Stocks generated a new confirmed Hindenburg Omen Wednesday, December 15th, an official signal with the second H.O. observation in the past two days. This Omen has appeared before all of the stock market crashes, or panic events, of the past 25 years. All of them. No panic sell-off (greater than 15 percent) occurred over the past 25 years without the presence of a Hindenburg Omen. Another way of looking at it is, without a confirmed Hindenburg Omen, we are pretty safe. But we have an official Hindenburg Omen as of December 15th, 2010, so we are not safe."
A reasonably thorough discussion of the complexities and calculations of the omen were discussed here: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
The Nasdaq is now at a 3 year high while the Dow Jones Industrial Average, Standard & Poor's 500 and Russell 2000 are at clear 2 year highs. Yet, over the past 3 trading days, NYSE new 52 week lows have been astounding high. The exact number depends on whether you look at the Wall St. Journal or the Yahoo numbers, but new lows ran 2% to 3% of total issues traded each day. It would be normal to have 1/10th of those levels!
While we're looking at our second favorite zepplin, why not check the solar calendar? According to NASA, a partial solar eclipse occurs on January 4, 2011. The last eclipse, occuring early in the summer was total.
Whether a partial eclipse counts in the scheme of astro-harmonics remains an open question. The connection between solar eclipses, lunar cycles and stock market crashes was discussed more fully here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
So, add to that the horrible sentiment picture as described in these recent "Takes": http://markostake.blogspot.com/2010/12/psychology-of-investing-part-2.html, and one could pretty reasonably conclude that a helluva bear market is dead ahead.
As to Gold and the Gold Bugs Index (HUI), it really appears that a retracement to the 200 Day Moving Average (DMA) is upon us. That would be another 10% downside for the metal and about 15% for the precious metal stocks. Silver, if it should correct to its 200 DMA, would have about 30% exposure.
The prospect of a more significant drop in the precious metals sector is extremely remote in light of rapidly building global inflation pressures. This pullback, which ought to be quite violent but short to scare everyone, should be viewed as a terrific buying opportunity.
For now, investors ought to stay as liquid as possible, even though safe places to park money offer no return. Better no return than a sharply negative return.
Marko's Take
Showing posts with label Gold Bugs Index HUI. Show all posts
Showing posts with label Gold Bugs Index HUI. Show all posts
Thursday, December 16, 2010
Thursday, October 21, 2010
Correct Me If I'm Wrong
The long-awaited, overly-predicted correction in Gold, Silver and mining stocks has now begun. After the smash on Tuesday for 30 bucks in Gold we have what appears to be a continuation pattern with today's further drop of additional drop of another $20. What's a "continuation pattern" you ask? A highly technical term? Nah, it means a top below a top followed by a new low beneath a low. That is the initial condition for establishing a new downtrend.
The correction ought to be sharp but not very deep. Gold's 200 Day Moving Average (DMA), which ought to contain the decline, is now at $1,200, suggesting additional downside of about 10%.
The Gold Bugs Index (HUI) has now dropped back below 500, after reaching a false breakout high of 535. In just a few short days, miners have dropped by nearly 10%. The HUI's 200DMA is above 450, which ought to cap further reactions to another 10%. Therefore, the correction is half over already. Get ready for a terrific entry point!
In recent news, as predicted in this column, China has suspended exports of rare earth metals. For a great play in rare earth metals, we have discussed the merits of Avalon Rare Earth (AVARF) http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
As far as the stock market goes, the surprisingly violent bear market rally that has taken place all summer continues, but ultimately all markets must obey "The Law of Gravity". http://markostake.blogspot.com/2010/10/markets-to-obey-law-of-gravity.html.
The downside leadership in the coming stock market crash will undoubtedly be the financial sector. The Philadelphia Banking Index (BKX) has continually under-performed every market sector and with economic conditions deteriorating, an inevitable banking crisis looms directly ahead. Despite all the efforts of our friends at the Federal Reserve to pump out money, it appears that this privately held group has now been relegated to "toothless tiger" status http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
But what about those great earnings reports? What about the coming Republican take-over of Congress? Won't these matter? No! These are old news and already factored in and discounted. The markets are looking 6 months ahead and, believe me, they DON'T like what they see. Markets anticipate. Once news is understood by the masses, it's WAY too late to matter!
So while that dirigible known as Hindenburg continues to levitate on a cushion of hot air from politicians, it has sprung a whoppin' leak http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html. Of course, the Omen isn't always right, but why take a chance on getting wiped out?
What's an investor to do here? Easy. Hold cash and wait for the correction in commodities, metals and mining stocks. Then, get ready to get rich as the mother of all bull markets shifts into turbo-charged high gear.
Marko's Take
The correction ought to be sharp but not very deep. Gold's 200 Day Moving Average (DMA), which ought to contain the decline, is now at $1,200, suggesting additional downside of about 10%.
The Gold Bugs Index (HUI) has now dropped back below 500, after reaching a false breakout high of 535. In just a few short days, miners have dropped by nearly 10%. The HUI's 200DMA is above 450, which ought to cap further reactions to another 10%. Therefore, the correction is half over already. Get ready for a terrific entry point!
In recent news, as predicted in this column, China has suspended exports of rare earth metals. For a great play in rare earth metals, we have discussed the merits of Avalon Rare Earth (AVARF) http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
As far as the stock market goes, the surprisingly violent bear market rally that has taken place all summer continues, but ultimately all markets must obey "The Law of Gravity". http://markostake.blogspot.com/2010/10/markets-to-obey-law-of-gravity.html.
The downside leadership in the coming stock market crash will undoubtedly be the financial sector. The Philadelphia Banking Index (BKX) has continually under-performed every market sector and with economic conditions deteriorating, an inevitable banking crisis looms directly ahead. Despite all the efforts of our friends at the Federal Reserve to pump out money, it appears that this privately held group has now been relegated to "toothless tiger" status http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
But what about those great earnings reports? What about the coming Republican take-over of Congress? Won't these matter? No! These are old news and already factored in and discounted. The markets are looking 6 months ahead and, believe me, they DON'T like what they see. Markets anticipate. Once news is understood by the masses, it's WAY too late to matter!
So while that dirigible known as Hindenburg continues to levitate on a cushion of hot air from politicians, it has sprung a whoppin' leak http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html. Of course, the Omen isn't always right, but why take a chance on getting wiped out?
What's an investor to do here? Easy. Hold cash and wait for the correction in commodities, metals and mining stocks. Then, get ready to get rich as the mother of all bull markets shifts into turbo-charged high gear.
Marko's Take
Wednesday, October 6, 2010
Gold And Precious Metals Miners Set To Explode
There are at least a dozen reasons why both Gold and the precious metals mining companies ought to correct, as outlined in this recent blog: http://markostake.blogspot.com/2010/10/die-hard-markets.html. But, at the end of the day, only market action itself matters, not "Marko's Take". (Gulp!)
In this morning's trading, the Gold Bugs Index (HUI) appears to have decisively broken the 525 zone that we outlined as the trigger point to begin its long awaited parabolic rise. The situation reminds me of late 1999 when the Nasdaq was severely overbought and overvalued and yet doubled in a period of just a couple of months. The difference, in this case, is that the mining sector is NOT OVERVALUED!
The kind of technical indicators discussed only handicap the race. None of them is flawless. It's important, therefore, to issue a mea culpa, accept reality as it is, not as we think it should be.
Given the increasing likelihood of an imminent upside explosion, what should investors do? Fortunately, a whole slew of junior miners are still at incredibly attractive levels. Among them are some favorites that we've written about in the past, such as ECU Silver Mining (ECUXF), Explor Resources (EXS.V), Seabridge Gold (SA), Hecla Mining Company (HL) and Avalon Rare Earth Metals (AVARF). We will update research on these firms, however, their merits can be reviewed by clicking the links, below:
http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
http://markostake.blogspot.com/2010/05/ecu-silver-mining-update-it-keeps.html.
http://markostake.blogspot.com/2010/04/exploring-explor-resources.html.
http://markostake.blogspot.com/2010/03/hecla-mining-at-119-years-old-producing.html.
http://markostake.blogspot.com/2010/03/seabridge-gold-how-to-buy-gold-for.html.
If you wish to do your own research, you may wish to review this piece, which outlines some of the key risk factors to consider in selecting any mining company: http://markostake.blogspot.com/2010/06/some-considerations-for-selecting.html.
In terms of resources, you may wish to review this piece, which outlines all the places that are available to access http://markostake.blogspot.com/2010/09/information-is-more-than-power-its-gold.html.
Honestly, there are times when one prefers to be wrong, and this is one of them.
Time to make a ton of money!
Marko's Take
In this morning's trading, the Gold Bugs Index (HUI) appears to have decisively broken the 525 zone that we outlined as the trigger point to begin its long awaited parabolic rise. The situation reminds me of late 1999 when the Nasdaq was severely overbought and overvalued and yet doubled in a period of just a couple of months. The difference, in this case, is that the mining sector is NOT OVERVALUED!
The kind of technical indicators discussed only handicap the race. None of them is flawless. It's important, therefore, to issue a mea culpa, accept reality as it is, not as we think it should be.
Given the increasing likelihood of an imminent upside explosion, what should investors do? Fortunately, a whole slew of junior miners are still at incredibly attractive levels. Among them are some favorites that we've written about in the past, such as ECU Silver Mining (ECUXF), Explor Resources (EXS.V), Seabridge Gold (SA), Hecla Mining Company (HL) and Avalon Rare Earth Metals (AVARF). We will update research on these firms, however, their merits can be reviewed by clicking the links, below:
http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
http://markostake.blogspot.com/2010/05/ecu-silver-mining-update-it-keeps.html.
http://markostake.blogspot.com/2010/04/exploring-explor-resources.html.
http://markostake.blogspot.com/2010/03/hecla-mining-at-119-years-old-producing.html.
http://markostake.blogspot.com/2010/03/seabridge-gold-how-to-buy-gold-for.html.
If you wish to do your own research, you may wish to review this piece, which outlines some of the key risk factors to consider in selecting any mining company: http://markostake.blogspot.com/2010/06/some-considerations-for-selecting.html.
In terms of resources, you may wish to review this piece, which outlines all the places that are available to access http://markostake.blogspot.com/2010/09/information-is-more-than-power-its-gold.html.
Honestly, there are times when one prefers to be wrong, and this is one of them.
Time to make a ton of money!
Marko's Take
Monday, October 4, 2010
Die Hard: The Markets
Like Officer John McClane, they continue to expend all of their nine lives. Is this life number 9?
Without a doubt, my assessment of the state of the markets has got to be called into question. Two relevant issues to address are: (1) Has the Hindeburg Omen, become, as Dee Dee Myers used to say, non-operational?; and, (2) Is the Precious Metals arena about to explode? For more on the Hindenburg Omen, click here http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
If we do not begin to see a forceful decline commence by the end of this week, it is unlikely to build the kind of downside momentum that would be required to precipitate a crash. That said, as of this writing, I have not budged from the crash prediction one bit. The technical reasons were recently outlined in this piece http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
As far as the Gold and mining stocks sector go, I have some further technical thoughts. For the record, my position is that Gold is forming an intermediate top, before returning to the proximity of its 200 Day Moving Average (DMA), which currently stands at $1175. That makes downside exposure in the vicinity of 10%.
One thing that troubles me about Gold is that it has underperformed the weakness of the U.S. Dollar over the past several months. Since June, the Dollar Index is down 11%, while Gold has risen about 9%. Ideally, we'd like to see the reverse.
More troubling is just how extremely overbought Gold has become. It now has a Relative Strength Index of 83.46. The piece referred to above explains the use of the RSI and how it's derived.
An examination of the relative strength of precious metals mining companies, as represented by the Gold Bugs Index (HUI) to Gold itself is quite revealing. Ideally, we would desire the stocks to substantially outperform the metal. Since May, the companies have underperformed, although not substantially. The HUI continues to be unable to materially break out above the 500-525 zone despite daily new highs in Gold. Should the HUI return to its 200 DMA at 446, it would get smacked for 11%. Downside risk is very limited.
Ideally, the HUI ought to also do better than the broad stock market. We can measure this by comparing the performance of the HUI to the Standard & Poors 500 (SPX). The HUI has gained no ground since November, 2009. This isn't cause to worry long term, but it does tend to suggest that a modest correction is imminent.
Investors should remain cautious but ready to jump in!
Marko's Take
Without a doubt, my assessment of the state of the markets has got to be called into question. Two relevant issues to address are: (1) Has the Hindeburg Omen, become, as Dee Dee Myers used to say, non-operational?; and, (2) Is the Precious Metals arena about to explode? For more on the Hindenburg Omen, click here http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
If we do not begin to see a forceful decline commence by the end of this week, it is unlikely to build the kind of downside momentum that would be required to precipitate a crash. That said, as of this writing, I have not budged from the crash prediction one bit. The technical reasons were recently outlined in this piece http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
As far as the Gold and mining stocks sector go, I have some further technical thoughts. For the record, my position is that Gold is forming an intermediate top, before returning to the proximity of its 200 Day Moving Average (DMA), which currently stands at $1175. That makes downside exposure in the vicinity of 10%.
One thing that troubles me about Gold is that it has underperformed the weakness of the U.S. Dollar over the past several months. Since June, the Dollar Index is down 11%, while Gold has risen about 9%. Ideally, we'd like to see the reverse.
More troubling is just how extremely overbought Gold has become. It now has a Relative Strength Index of 83.46. The piece referred to above explains the use of the RSI and how it's derived.
An examination of the relative strength of precious metals mining companies, as represented by the Gold Bugs Index (HUI) to Gold itself is quite revealing. Ideally, we would desire the stocks to substantially outperform the metal. Since May, the companies have underperformed, although not substantially. The HUI continues to be unable to materially break out above the 500-525 zone despite daily new highs in Gold. Should the HUI return to its 200 DMA at 446, it would get smacked for 11%. Downside risk is very limited.
Ideally, the HUI ought to also do better than the broad stock market. We can measure this by comparing the performance of the HUI to the Standard & Poors 500 (SPX). The HUI has gained no ground since November, 2009. This isn't cause to worry long term, but it does tend to suggest that a modest correction is imminent.
Investors should remain cautious but ready to jump in!
Marko's Take
Tuesday, September 21, 2010
Let's Get Technical (Part 2)
Yesterday, we built a case that the markets, despite a surprisingly strong Septemeber, were doing their best to prove Abe Lincoln right by "fooling most of the people, most of the time". There is much more evidence of that.
Technical analysts often use an indicator called the RSI or (Relative Strength Index). According to Investopedia, the RSI is defined as follows:
"A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 - 100/(1 + RS). RS = Average of x days' up closes / Average of x days' down closes."
"The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued."
To be sure, the RSI is far from perfect, but it has a pretty decent track record of at least measuring the condition of a market that is conducive to either an upside or downside reversal.
At the conclusion of trading yesterday, the Dow Jones Industrial Average (INDU) had an RSI of 66.60, the Nasdaq 100 (NDX) had one of 72.74, the Standard & Poors 500 registered 66.50, Gold came in at 72.50 and the HUI was 55.99 after hitting 68 several days earlier.
A good charting service from which one can review these numbers and other indicators is Stock Charts (http://www.stockcharts.com/).
If you pull these charts up, you can see that most intermediate term rallies crap out with an RSI in the mid-to upper-60's and bottoms hit 35 or below. Markets rarely rally much after crossing 70 on the upside or decline much if they penetrate 30 on the downside.
What makes the market seem so weak is not only the poor price action despite a long string of up days as highlighted in yesterday's piece http://markostake.blogspot.com/2010/09/lets-get-technical.html, but also in looking at how extended, or lack thereof, the market got.
A real lift-off will typically pull an index or stock well above its 200 Day Moving Average (200DMA). Historically, major Gold rallies have peaked in excess of 30% above is 200DMA. The HUI has historically peaked more than 50% above its 200DMA.
The bullion, despite a near-uninterrupted 10 week rally, has failed to get much in excess of 10% above its 200DMA, while the HUI has only gotten 15% above its DMA. One might argue that this means that they have further to go. True enough. But, in light of the various overbought conditions are measured by the RSIs, it would appear that what we are seeing is a series of markets losing momentum.
We continue, therefore, to urge extreme caution. Today's Federal Reserve meeting is a perfect occasion to provide the market with an excuse to begin its trek to lower, perhaps MUCH lower levels.
Once again, while we believe that caution should rule the day even in the precious metals sector, it is highly unlikely that we will see the type of smash that occured in 2008. And, it may even surprise everyone and rally. However, use the guidelines outlined in yesterday's piece before jumping in with both feet.
Marko's Take
Technical analysts often use an indicator called the RSI or (Relative Strength Index). According to Investopedia, the RSI is defined as follows:
"A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 - 100/(1 + RS). RS = Average of x days' up closes / Average of x days' down closes."
"The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued."
To be sure, the RSI is far from perfect, but it has a pretty decent track record of at least measuring the condition of a market that is conducive to either an upside or downside reversal.
At the conclusion of trading yesterday, the Dow Jones Industrial Average (INDU) had an RSI of 66.60, the Nasdaq 100 (NDX) had one of 72.74, the Standard & Poors 500 registered 66.50, Gold came in at 72.50 and the HUI was 55.99 after hitting 68 several days earlier.
A good charting service from which one can review these numbers and other indicators is Stock Charts (http://www.stockcharts.com/).
If you pull these charts up, you can see that most intermediate term rallies crap out with an RSI in the mid-to upper-60's and bottoms hit 35 or below. Markets rarely rally much after crossing 70 on the upside or decline much if they penetrate 30 on the downside.
What makes the market seem so weak is not only the poor price action despite a long string of up days as highlighted in yesterday's piece http://markostake.blogspot.com/2010/09/lets-get-technical.html, but also in looking at how extended, or lack thereof, the market got.
A real lift-off will typically pull an index or stock well above its 200 Day Moving Average (200DMA). Historically, major Gold rallies have peaked in excess of 30% above is 200DMA. The HUI has historically peaked more than 50% above its 200DMA.
The bullion, despite a near-uninterrupted 10 week rally, has failed to get much in excess of 10% above its 200DMA, while the HUI has only gotten 15% above its DMA. One might argue that this means that they have further to go. True enough. But, in light of the various overbought conditions are measured by the RSIs, it would appear that what we are seeing is a series of markets losing momentum.
We continue, therefore, to urge extreme caution. Today's Federal Reserve meeting is a perfect occasion to provide the market with an excuse to begin its trek to lower, perhaps MUCH lower levels.
Once again, while we believe that caution should rule the day even in the precious metals sector, it is highly unlikely that we will see the type of smash that occured in 2008. And, it may even surprise everyone and rally. However, use the guidelines outlined in yesterday's piece before jumping in with both feet.
Marko's Take
Monday, July 12, 2010
Bullion or Mining Stocks?
All of us Gold Bugs wonder how best to allocate resources. It's no secret that mining stocks have proved to be a MAJOR disappointment for several years.
Over the last two years, the table below demonstrates how poorly mining stocks have performed relative to the metal itself. The HUI Gold Bugs Index,is the key benchmark for publicly traded Gold and Silver miners.
Time Frame HUI Peak Gold Peak
March, 2008 515 $1,025
December, 2009 510 $1.225
June, 2010 500 $1,250
As is clear, mining stocks have failed to keep pace with the metal itself in a very major way.
The basic argument for investing in mining companies, as opposed to bullion, is that they have leverage relative to the metal. This has not been the case in recent years. In fact, despite accelerating earnings, they've performed rather dismally.
Gold, in my opinion, is, for the time being, the better bet. Its use as an alternative currency during a period of extreme worldwide monetary debasement is proving far more valuable. Mining stocks are still equities and subject to the extremely bearish winds now in motion for the stock market. There will be better opportunities to re-enter.
If we are entering another deflation scare, it's important to be aware that even the metal itself may be subject to some temporary pressure. There will probably be a better entry point for the metal itself, although, at this time, its chart still looks VERY constructive.
Federal Reserve chairman Ben Bernanke is a student of the Great Depression and is very aware of the relationships between money supply growth, economic activity and asset performance. Undoubtedly, as this new market smash fully expresses itself, the FED will be forced to undertake even more drastic measures to re-liquify the economy than it already has. Bernanke earned the nickname "Helicopter Ben" for proclaiming, on numerous occasions, that he would be prepared to drop money out of helicopters if that's what it took to get money circulating again. He may have to make good on that one.
In its desperation, the FED wil probably over shoot and, in so doing, sow the seeds of hyper-inflation. Then, all the ingredients for Gold to achieve vastly higher levels will be in place.
This is one of the reasons that successful investing is so damn tough. You can be completely correct in a forecast and STILL lose money. All of us precious metals mining stock investors have stood back, watched the bullion advance and have been totally unable to cash in.
Extreme caution continues to be warranted here.
Marko's Take
Over the last two years, the table below demonstrates how poorly mining stocks have performed relative to the metal itself. The HUI Gold Bugs Index,is the key benchmark for publicly traded Gold and Silver miners.
Time Frame HUI Peak Gold Peak
March, 2008 515 $1,025
December, 2009 510 $1.225
June, 2010 500 $1,250
As is clear, mining stocks have failed to keep pace with the metal itself in a very major way.
The basic argument for investing in mining companies, as opposed to bullion, is that they have leverage relative to the metal. This has not been the case in recent years. In fact, despite accelerating earnings, they've performed rather dismally.
Gold, in my opinion, is, for the time being, the better bet. Its use as an alternative currency during a period of extreme worldwide monetary debasement is proving far more valuable. Mining stocks are still equities and subject to the extremely bearish winds now in motion for the stock market. There will be better opportunities to re-enter.
If we are entering another deflation scare, it's important to be aware that even the metal itself may be subject to some temporary pressure. There will probably be a better entry point for the metal itself, although, at this time, its chart still looks VERY constructive.
Federal Reserve chairman Ben Bernanke is a student of the Great Depression and is very aware of the relationships between money supply growth, economic activity and asset performance. Undoubtedly, as this new market smash fully expresses itself, the FED will be forced to undertake even more drastic measures to re-liquify the economy than it already has. Bernanke earned the nickname "Helicopter Ben" for proclaiming, on numerous occasions, that he would be prepared to drop money out of helicopters if that's what it took to get money circulating again. He may have to make good on that one.
In its desperation, the FED wil probably over shoot and, in so doing, sow the seeds of hyper-inflation. Then, all the ingredients for Gold to achieve vastly higher levels will be in place.
This is one of the reasons that successful investing is so damn tough. You can be completely correct in a forecast and STILL lose money. All of us precious metals mining stock investors have stood back, watched the bullion advance and have been totally unable to cash in.
Extreme caution continues to be warranted here.
Marko's Take
Wednesday, June 30, 2010
Gold Or Precious Metals Stocks?
Recently, I proudly and confidently proclaimed that GOLD was ready to head for $2,000. As Bill Clinton's former press secretary, Dee Dee Myers, used to saying when Billy was caught lying, that forecast is "no longer operational".
An interesting dynamic has put itself into motion. As GOLD continues to hover near its highs, the equity market is rapidly falling apart. Precious metals mining companies are battling a tug-of-war between higher metals prices versus a vastly more difficult environment for equities.
This sets up a very difficult question: how does one play the market volatility? Carefully.
During the financial meltdown of 2008-09, GOLD held up pretty well, gaining a "flight to safety" bid. Despite the very good action in GOLD, however, mining stocks got blasted for losses of up to 90%. Any one of a number of events could trigger an explosion in the metal: war in Iran, a breakdown of the Euro-Zone, more quantitative easing or more problems in the financial system. This list is hardly exhaustive.
The above notwithstanding, many signs have emerged that another DEFLATION scare is imminent. The money supply is plunging at un-precedented rates. DEFLATION. Bond yields have broken to new multi-generational lows. DEFLATION. Bank loans and credit are contracting at historic rates. DEFLATION. The dollar, despite all the government spending and low interest rates keeps rallying. DEFLATION.
The "Gold Bugs" index, also known as the HUI, has been carving out an ascending wedge pattern. These are normally, but not always, bearish. The HUI has also approached the 500 level on several occasions, and can't seem to break through. A material violation of either 475 on the downside or 500 on the upside would provide a pretty good indication of what to do.
It's possible that GOLD itself could rally while precious metals stocks could decline. So, for now, the best bet is the metal itself. I would be VERY cautious about the equities at this juncture. I tend to think there will be a better buying opportunity down the road.
As to the metal, I would use $1,225 as a stop level. If it breaks below, chances are that we will see some decent downside and there will be a much better entry point. For now, the amber light is flashing.
Warning Will Robinson!
So, what to do here? If you're going to stick with your portfolio of miners, I would at least add a hedge to insulate against equity pressure. Personally, I like the inverse ETFs FAZ, SKF and TWM. There are plenty of others you can use. I would NOT recommend purchasing a GOLD inverse ETF. What's the point of being both long AND short?
As investors, it is ever so important to not get wedded to a particular point of view or to stay either perma-bull or perma-bear. The easiest way to lose money in the world is to be stubborn and insist that your pre-conceived notions must be correct. Minimize your losses and wait until a better opportunity presents itself.
Marko's Take
An interesting dynamic has put itself into motion. As GOLD continues to hover near its highs, the equity market is rapidly falling apart. Precious metals mining companies are battling a tug-of-war between higher metals prices versus a vastly more difficult environment for equities.
This sets up a very difficult question: how does one play the market volatility? Carefully.
During the financial meltdown of 2008-09, GOLD held up pretty well, gaining a "flight to safety" bid. Despite the very good action in GOLD, however, mining stocks got blasted for losses of up to 90%. Any one of a number of events could trigger an explosion in the metal: war in Iran, a breakdown of the Euro-Zone, more quantitative easing or more problems in the financial system. This list is hardly exhaustive.
The above notwithstanding, many signs have emerged that another DEFLATION scare is imminent. The money supply is plunging at un-precedented rates. DEFLATION. Bond yields have broken to new multi-generational lows. DEFLATION. Bank loans and credit are contracting at historic rates. DEFLATION. The dollar, despite all the government spending and low interest rates keeps rallying. DEFLATION.
The "Gold Bugs" index, also known as the HUI, has been carving out an ascending wedge pattern. These are normally, but not always, bearish. The HUI has also approached the 500 level on several occasions, and can't seem to break through. A material violation of either 475 on the downside or 500 on the upside would provide a pretty good indication of what to do.
It's possible that GOLD itself could rally while precious metals stocks could decline. So, for now, the best bet is the metal itself. I would be VERY cautious about the equities at this juncture. I tend to think there will be a better buying opportunity down the road.
As to the metal, I would use $1,225 as a stop level. If it breaks below, chances are that we will see some decent downside and there will be a much better entry point. For now, the amber light is flashing.
Warning Will Robinson!
So, what to do here? If you're going to stick with your portfolio of miners, I would at least add a hedge to insulate against equity pressure. Personally, I like the inverse ETFs FAZ, SKF and TWM. There are plenty of others you can use. I would NOT recommend purchasing a GOLD inverse ETF. What's the point of being both long AND short?
As investors, it is ever so important to not get wedded to a particular point of view or to stay either perma-bull or perma-bear. The easiest way to lose money in the world is to be stubborn and insist that your pre-conceived notions must be correct. Minimize your losses and wait until a better opportunity presents itself.
Marko's Take
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