Gold Stocks

Agnico-Eagle Mines Limited: Up 6.96% Today

By Bob Kirtley

But as they say ‘One swallow does not make a summer’ and this one day bounce does not make up for the recent dismal performance of this stock. Back in September 2011 this stock was trading at the $70.00 level so in just six months we have witnessed a 50% drop in the stock price for Agnico-Eagle Mines Limited (AEM).
The lions share of the damage can be attributed to the demise of the Goldex Mine which had to be written off. At the time the loss was estimated to be around $1.00 per share, however, investors dumped the stock taking it down $10.58 or 18.55% on a huge volume of 13 million shares traded in just one trading session on the NYSE. The Goldex incident has severely damaged Agnico’s reputation as evidenced by the continuing slide in the price of this stock.

Gold Stocks: Tracking The Equity Bull Markets

All bull markets have similarities and all equity bull markets have strong similarities. They go through similar phases. Most bull markets start off slow and then build towards what we like to say is an acceleration into a bubble and potential mania. In last weeks editorial we noted how bull markets, prior to the bubble phase, tend to make major bottoms every three or so years. Yet, in looking at the present bull market in gold stocks and comparing it to the previous three equity bull markets (Technology, Japan and Gold Stocks) we find stronger and deeper similarities which confirms to us that the gold stocks are in the bull market of our time.

In examining these four bull markets we find that the typical secular bull market in equities follows a strong pattern. Most would assume that the bubble or mania phase is the strongest connection. While this is often the case its really the start of the bull market and middle phase that follow a textbook pattern. The first phase consists of a fairly strong rise over six or seven years while the second phase (through a correction or consolidation) consists of five or six years of no net progress. This sets the stage for the acceleration and eventual bubble phase.

The Nasdaq began its bull market in 1980 so its first phase ended with the historic stock market crash in 1987. The market rebounded fantastically through 1991 and 1992. However, it wasn’t until late 1992 that the market escaped a five year period of no net progress. Though not shown, it was 1995 when the market began to accelerate into its bubble.

Next we have the Nikkei which shows Japan’s historic bull market. Looking at historical data shows the bull market began in earnest in 1967. The first phase ended in 1973. From 1973 to 1978, the market made little progress. After 1978 things really began to takeoff.

In our next chart we show a rebalanced look at the current bull market (HUI in red) and the bull market from the 1960s and 1970s (BGMI in blue). The time scale is aligned to the BGMI. Note the distinct similarities between each other but also to the aforementioned Nasdaq and Japan.

First, note that each market made its initial major peak at virtually the same time, about seven plus years in. Second, each market endured a major correction though each was different in time and scale. The HUI recovered more quickly but has yet to break away from the initial high. The HUI hasn’t made much progress since 2006 while the BGMI did nothing from 1968-1973. The BGMI made its final low (late 1972) almost five months after its initial peak. It was at that point when the BGMI would surge over the next 18 months to a new high. If the HUI follows the same path and scale then it would make its final bottom within weeks and gain strongly until the fourth quarter of 2013.

From this point forward the three historical bull markets essentially accelerated course and endured one final correction before the mania. The corrections were (BGMI 1975-1976, Nasdaq 1994, Japan 1981-1982).

The only distinction to make is that the gold stocks (BGMI) didn’t have the kind of mania the other two bull markets had. Perhaps that is just because mining is such a difficult business or that speculators concentrated on junior companies, silver and silver miners. In other words, the mania was centered outside of the senior gold companies.

In any event, its important to share these similarities as it shows that the struggles in the gold stocks are right on par with previous bull markets. Nothing that has happened is out of the ordinary. In fact it is only following the pattern of equity bull markets. Combined with the low valuations and low ownership of gold stocks, this is some very powerful evidence of what lies ahead.

GD Star Rating
loading...

Posted by Jordan Roy-Byrne - January 10, 2012 at 11:52 am

Categories: Gold Stocks Tags: bgmi, gdx, gold stocks, nasdaq, nikkei

Gold Stocks Complete First Major Bottom Since 2008

All bull markets have to endure a plethora of corrections and all bull markets have to endure a handful of major corrections. The gold stocks are no different. In fact, due to nature of the mining business and the high-beta status of these stocks, it is very easy for investors to forget that they (the gold stocks) are in a real structural bull market. Corrections and crashes are commonplace and yes, even in a bull market. Yet in 2011 the gold equities did not crash. They merely digested and consolidated the massive recovery gains from 2009 and 2010. This persistent consolidation has left many scared, frustrated and distrustful of the sector at precisely the wrong time. Gold stocks have quietly completed a major bottom, their first since 2008.

There are several strong reasons why we believe the gold stocks have completed a major bottom. As we discussed in our last article, the bullish percent index (number of stocks on a point and figure chart buy signal) dipped to 10%. The last time this happened was in 2008 when the gold stocks bottomed. The two big downturns in 2008 occurred with the bullish percent index at 30% and 70%. Presently, the entire sector is oversold and thus there is very little room to fall but much room to rebound.

As we see in the chart below, GDX bottomed at the 40-month MA which also supported key bottoms in 2001, 2005, 2007 and 2010. Furthermore, the market bottomed right above $47, the 38% retracement. Most important, instead of following through on its apparent breakdown, the market reversed back above previous support at $52 and is set to close at a three week high.

We also want to note how the market has made major bottoms in 2005, 2008 and at the very end of 2011. Including the low in 2000, that is four major lows for this bull market in its first 11 years. This is similar to a few previous bull markets which include the Nasdaq (80s and 90s) and the gold stocks (60s and 70s).

We see some similarities with the Nasdaq of the 1980s and 1990s. After the genesis of its bull market in 1982, the Nasdaq would form major bottoms in 1984, 1987 and 1990. It wasn’t until after that fourth low (in the eleventh year) that the trend began to accelerate.

With data from BGMI.us, we show the Barrons Gold Mining Index and specifically the bull market from 1961 to 1980. As you can see, the gold stocks would often make key lows every three years. Major buying opportunities occurred especially in 1960, 1963, 1969, 1972 and 1976. Note that the bull market began to accelerate after its fifth major low in late 1972.

The gold stocks have just made their fourth major low since this bull market began. The bull is moving into its 12th year yet many feel like giving up on the gold stocks. They don’t have the understanding or the patience that is required to make money in this sector and in a bull market. They are dismayed by the fact that the metals have far outperformed over the past five years. However, this is nothing new. Check the previous chart and you’ll notice that the gold stocks made little progress from 1966 to 1972. The same can be said for the Nasdaq from 1987-1991.

Given all we know, this is likely to be your best buying opportunity for the next few years. The market appears to have bottomed, the technicals are improving and valuations of both producers and juniors are quite compelling. Sounds like a major low to me!

GD Star Rating
loading...

Posted by Jordan Roy-Byrne - January 6, 2012 at 11:19 am

Categories: Gold Stocks Tags: barrons gold mining, gold bull market, gold price, gold stocks

The Gold Producers are at a critical juncture

This article courtesy of Bob Kirtley of http://gold-prices.biz

Once again the gold mining stocks are pressing for recognition and acceptance by encroaching on a previous all time high with the view to bursting through it in an attempt to convince the investment community that mining is the place to be. This is a critical juncture for these stocks as they have performed poorly in recent years despite gold making new records highs. The early years of this bull market are now behind us and those early leveraged gains on the back of gold’s progress have now dissipated.

However, it could be different this time as the Gold Bugs Index (HUI) has rallied once again to within striking distance of an all time high and as we write it stands at 603.66. Should it be successful, then the possibility exists for gold mining stocks to fly a lot higher given their earnings, profitability and potential for future growth. A move from here to the ’700′ level would go along way to restoring confidence in this sector, it would also reward those who have waited patiently to see a significant improvement in the capital growth of their holdings. It may also be the ignition that attracts new money from those who are currently sitting on the sidelines waiting for confirmation that this is the time to grab a sizable position in some of the much vaunted hot stocks.

However there is competition in the form of investment funds and the ease with which an investor can move in and out of the various funds at the push of a button is an attractive facility for many investors. Exposure to gold does not necessarily mean having to wade through the prospectus and balance sheets of thousands of company’s to come up with a few potentially good investments.

The business of mining is fraught with risk and many would rather avoid that sort of exposure. However the allure of a big gain is captivating and when that gold light flashes we can expect rational people to the irrational things.

Now we will take a quick look at the chart of the HUI.

As we can see the HUI formed a double top and then fell back to the 500 level before mounting this recent attack on its previous all time highs. The RSI has the room to push higher, but the other two indicators, the MACD and the STO are looking a tad over extended at the moment. We could see more sideways action from this point despite the mining stocks putting on a good show of late.

We are still of the opinion that the gold/dollar inverse relationship remains intact and the fortunes of the dollar must be watched closely. A dire situation in the euro-zone saw the euro fall and thus prevented the dollar from testing the support at 73.5. Bad news for the euro appears to be good for the dollar, for now at least. With the appointment of two new leaders for both Greece and Italy we should get a positive reaction from the markets on the basis that something is being done, giving the euro a little boost and adding pressure to the dollar once again.

The USD Chart:

As we can see from the USD chart the indicators are fairly neutral with the exception of the STO, which is high and can be an early indicator of a change in direction for the dollar, so we will watch it intently.

We have been skeptical about the ability of the miners to return to us a better profit than either metals themselves or other related investment vehicles and that continues to be our stance especially if this breakout fails to impress.

Our strategy remains unchanged in that in that it has three elements to it. Firstly, buy and hold both physical gold and silver and keep it in your hands. Secondly build a core holding of quality producing stocks (although we are not prepared to increase our holdings at the moment for the reasons stated above) and finally, in an attempt to gain leverage to the precious metals, the careful selection of a small number of options trades can generate handsome returns when compared to the movement of the underlying commodity. Our concentration remains totally focused on the metals space, it is exciting,rewarding, irritating and sometimes downright infuriating, but this where we want to be.

We maybe trying to hard to pick such turns in the market, however, timing is an essential part of the decision making process in the investment cycle and it should not be underestimated.

Chin up and have a good one.

GD Star Rating
loading...

Posted by Bob Kirtley - November 14, 2011 at 4:57 pm

Categories: Gold Stocks Tags: gold stocks, gold/dollar inverse relationship, Price Of Gold, usd chart

Gold Stocks Inch Closer to Major Breakout

In recent commentaries we’ve discussed the relative strength of the gold stocks and in particular the relative strength of the large miners. This relative strength comes at a time when the sector is nearing a potentially historic breakout. We’ve written about this breakout before but now the gold shares are closing in and it could only be a matter of days. GDX, our proxy for large-caps is now, after almost a year of trading in a tight range, only 3-4% away from new all-time high territory. Meanwhile, ZJG, the Canadian junior gold ETF, though lagging behind, is in great position to follow GDX to new highs.To get a feel for how the gold shares could perform after the breakout, consider one of the most classic breakouts. In late 1982 and 1983 the DJIA broke past 1000. This came after a 16-year consolidation. The retest came in early 1984 and the gradual move back to 1300 formed a cup and handle type pattern that facilitated an explosive move from 1300 to 2700 in just two years. The cup and handle lasted about 16 months.

The large cap gold stocks broke to new all time highs in late 2010. The breakout move, though small has formed a very bullish consolidation that has lasted almost one year. Tight consolidations are bullish. In this context of sustained new all-time highs for the first time in 30 years, an ensuing breakout after tight consolidation would have hugely bullish implications.

Interestingly, its actually the junior golds that look more like the DJIA post-breakout. We use ZJG as it includes only gold companies and is more reflective of the junior gold sector than GDXJ. As you can see, ZJG is likely forming a cup and handle pattern. Look for a breakout in this market shortly after the breakout in the large caps.

Here we go. The table is set. Unlike in 2008, the fundamentals for this sector are outstanding. Unlike in 2008, we have trouble in the sovereign credit. Unlike in 2008, Gold is accelerating and Silver is not far off its parabolic high. Unlike in 2008, the gold and silver stocks are holding up while the rest of the market falters. A simple way to take advantage would be to invest in a gold mutual fund, GDX or GDXJ. However, picking the right stocks and employing market timing tactics will produce better returns and in some cases, reduce your risk.

If you’d be interested in professional guidance then we invite you to learn more about our service.

GD Star Rating
loading...

Posted by Jordan Roy-Byrne - August 29, 2011 at 7:05 pm

Categories: Gold Stocks Tags: canadian gold, gdx, gold price, gold stocks

Uncertainty Provides Major Opportunity

This is an article received from Chris Vermeulen of http://www.thegoldandoilguy.com/

Over the past seven trading sessions we have seen stocks plummet in price because of the debt issues in the United States. I think a lot of individuals including myself thought that a bill would have been passed last week and with a plan underway money would flow back into stocks for a relief bounce at minimum. Instead, nothing was passed and that lead to strong selling into Friday’s close.
The next couple weeks are going to be very interesting for stocks, bonds, currencies and commodities as traders and investors process this event as it unfolds.
Let’s step back and take a quick technical look at the chart…
SPY – SP500 Index ETF – 10 Minute Chart
I call this chart my sentiment chart because I use three indicators to get a feel for what the masses are doing. The first indicator which is the green spikes on the price chart is my own custom indicator to measure panic selling in the stock market. Usually I look for strong selling days followed by an exhaustion gap lower within 1-3 days.
As you can see below, the last panic selling spike took place on a large gap down only 2 days after we saw extreme panic selling which actually got stronger as the session grew older. This is a bullish sign in my opinion.
Also if you look at the two other indicators at the bottom we can see the NYSE advance decline line trading down in an oversold zone. And the very bottom indicator is the put/call ratio showing everyone is trading puts and that means they are betting on lower prices.
To sum this chart up quickly I can tell that traders are selling everything they own because they are scared, stocks have moved down to quickly and likely ready for a bounce and also that options traders are expecting lower prices. So if everyone is bearish and has already sold their positions it only makes sense that a bounce or rally should take place in the next few sessions.

Percentage of Stocks Trading Above the 20 Moving Average
This chart helps me get more of an intermediate trend analysis for if stocks are oversold or over bought. This chart tells us the percentage of stocks that are trading above their 20 day moving average.
This is how I use the info:
Example: If we are in a long term bull market which we currently are… then I look at buy during these oversold conditions. Once this chart reaches the 75%+ level I become more aggressive with my positions and actively manage them (Take partial profits, tighten stops).
Example 2: During a major bear market you to the opposite (build short positions on the bounces to 75%+ level and then cover partial positions and tighten stops once stocks are oversold and ready for a dead cat bounce once below the 25% level.

SPY Daily Chart
This chart below allows us to get a longer term view of my panic selling indicator. As we all know the market moves in waves (fear and greed). So with the SP500 traded by individual’s from all around the world it generally takes 5-15 days for everyone to become fearful and or greedy and to take action with their investments. This can be seen from looking at how long it takes for the sellers unload their positions.
If things play out in favor of what the charts are telling me we should have a nice bounce or rally just around the corner. Again this analysis is based strictly on technical analysis and not on economic data. Adding the economic/political data makes things very confusing and interesting to say the least and they do not always to hand-in-hand.

Weekend Trading Conclusion:
In short, this coming week the market has a big wild card on the table. Until we know what that is be very cautious with trading positions. Just now/tonight Obama said a deal was reached to end debt issue and urges both parties to do the right thing and support this deal over the next 2 days. This deal will raise the debt limit and will cut $2.5 trillion from the deficit over the next 10 years.
We are seeing a 20 point jump in the SP500 futures from this news just moments ago so this just may be the bounce/rally I am looking for.
Technically I feel higher prices should take place in stocks but we may have a couple volatile sessions with lower prices before a strong jump in price as this news is not set in stone just yet and we have a couple days before we know what the final decision is…

GD Star Rating
loading...

Posted by Raul Valenzuela - August 1, 2011 at 3:05 pm

Categories: Gold Stocks Tags: gold price, gold stocks, gold trading, us default

Ready For Historic Move in Gold Stocks

A variety of factors are lining up that lead us to believe we are on the cusp of a major move higher in the gold stocks. We feel we have been saying this for a while but the reality is we are moving closer and closer to that moment. The fundamentals couldn’t be more obvious and being in the 11th year of a bull market means the timing is ripe. We think you will find the facts and conclusions extracted from the technicals, sentiment, and valuations very compelling.

First lets look at the technical aspect with the Barrons Gold Mining Index. Gold Stocks basically consolidated from about 1937 to 1961. The breakout really began in 1964. The consolidation ranged from about 17 to 50. The breakout took the market from 50 to about 220 and in only four years. Today we are on the cusp of a similar breakout. The market made a marginal high in 2008 and another marginal high earlier this year. A sustained move to new highs will qualify as a major multi-decade breakout.

This breakout will come at a time when the gold stocks are trading at a historical discount. The chart from Erste Group Research below shows the historical and estimated future price to earnings (PE) ratio for the companies in the HUI Gold Bugs Index. As of now, the gold stocks are trading at their lowest PE ratio in the past 11 years. That is ironic considering we are in the second decade of a bull market. In an interview with KingWorldNews, legendary mining executive Pierre Lassonde said the gold stocks, in terms of valuation are probably trading at a 10-20 year low. Obviously, there is plenty of room for valuation expansion.

Furthermore, the gold stocks are hardly a popular sector. The data from Rydex’ Precious Metals Fund (courtesy of SentimenTrader.com) shows that the sector is underowned in both nominal and real terms. Assets in the fund are just gaining from a two-year low and as a percentage of all sectors, assets are only 14% which is also near a major low.

Moreover, the size of the gold stocks relative to the market is almost akin to a needle in a haystack. The next chart is another great one from the Erste Group. The S&P 500 has a market cap of $10.3 Trillion. The market cap of the HUI, at $220 Billion is only 2% of that. It’s less than Microsoft and Exxon Mobil.

The gold stocks are ready for a massive, potentially historic breakout and it comes at a time when the sector is underowned, undervalued and a tiny fraction of the overall market. Put it all together and your conclusion should be obvious unless you’ve been conditioned (as sadly many have been) to only focus on conventional asset classes. Then we can’t help you. If you live in reality and are ready to ride this historic bull market, then we invite you to learn more about our service.

GD Star Rating
loading...

Posted by Jordan Roy-Byrne - July 25, 2011 at 6:05 pm

Categories: Gold Stocks Tags: erste group, gold bugs, gold mining, gold stocks