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Stealth ‘Bull Market’ In Stocks Still In Progress!

Elliott’s theory is based on the Dow theory in that stock prices move in waves. Because of the “fractal” nature of markets, I have broken them down so that you can trade a daily complete wave count. Fractals are mathematical structures, which on an ever-smaller scale infinitely repeat themselves. Elliott discovered stock-trading patterns were structured in the same way.

This week will be very interesting in the markets. You need to understand what the markets are telling you. The markets are at anextreme”. I trade the most profitable waves, which are impulsive waves 1,3 and 5. It takes time to develop these great trades, but it is worth the wait as you observe the profits rolling in. Do not get caught up on the wrong side of the trade. Timing the waves correctly is a critical factor for creating these profitable 1trades.

The Corrective Waves are not as easy to identify as the Impulse Waves because the Corrective Waves have more variations as compared to the Impulse Waves. Corrective Waves of any trading pattern are broadly termed as the “ABC Corrections”. Corrective Waves are always the three wave patterns that unfold in the direction opposite of the larger trend.

“ABC Corrections” is the broad name given to the Corrective Waves. The corrective patterns formed by the Corrective Waves are against the direction of the trend. Wave 1 is corrected by the Wave 2 and Wave 3 is corrected by the Wave 4. After wave 5, the wave pattern finishes and the entire move which will be corrected. This correction will occur a multiple wave move. ABC” numbered waves are also the Corrective Waves.

Based on research that I have just completed, when the January and February months are both bullish, the equity markets moved much higher for the rest of the year! (http://www.marketwatch.com/story/still-room-for-stock-bulls-to-run-as-historic-breakouts-take-shape-analysts-say-2017-02-23/email).

The SPY Fund Flow represents the weekly flows in and out. This is a ‘Contrary Indicator’. When it becomes extremely pessimistic, I then look for a reversal to the upside. When fund flows are very high, I become concerned about a correction as expectations may have become too optimistic.

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The total put/call ratio is the volume of puts divided by the volume of calls traded on individual equities on the Chicago Board Options Exchange, on any given day.  Generally speaking, heavy volume in put contracts shows large-scale fear by options traders, while heavy call volume is usually a reflection of increased investor optimism in regards to rising prices.  When there is heavy put buying and low call buying, the put/call ratio will be high. When an extreme is reached, this becomes a bullish contrarian indicator and we should expect higher market prices ahead of us. When option traders are optimistic and there is low put volume in relation to call volume, then the put/call ratio will be low and we may be nearing a market high.  The interpretation of this indicator is the same as the equity put/call ratio itself – high readings show fear and are generally bullish for the market. Low readings, show excessive optimism as the market typically declines after they are seen.

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The GLD Fund Flow Weekly Indicator represents the daily flows into and out of GLD: (http://www.wikinvest.com/wikinvest/api.php?action=viewNews&aid=8343471&page=Stock%3ASPDR_Gold_Trust_%28GLD%29&comments=0&format=html).

Contrary Indicators are measuring the fund flows. When it becomes extremely pessimistic, then I begin to look for a possible reversal to the upside. When fund flows are very high, then I become concerned about a correction as expectations have become too optimistic. Why gold is great again: (https://www.forbes.com/sites/ralphbenko/2017/02/25/president-trump-replace-the-dollar-with-gold-as-the-global-currency-to-make-america-great-again/#23cdf01f4d54)

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The Commitment of Traders (COT) Indicator gives you the overall picture of what is happening behind the scenes. It tells you who is buying and who is selling!  This information is an important key for your trading success!

The commercial traders are considered the “Smart Money”. The chart below displays, as of February 21st, 2017, that the commercial traders have taken new long positions.  This matches up perfectly with my long-term Elliot Wave forecast of 2550, in the SPX.

 

Red Bars: The Commercial Traders
(i.e.: Farmers, Hedgers, Producers, and Factories)

Blue Bars: The Large Speculators
(i.e.: Banks and Large Financial Money Managers)

Green Bars: The Small Speculators
(i.e.: You and me)

Yellow Line: The overall open interest in the market.

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The next setup for going long on Natural Gas.

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The U.S. dollar: Waiting for trend confirmation.

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Learn how to build wealth during 2017!

Every week, there are new actionable trade ideas. Avoid what I refer to as “Herd Mentality” which will put you on the losing side of the trades more often than not.

Our most recent trade was UGAZ:( http://etfdb.com/etf/UGAZ/) on February 21st, 2017. We sold half of this position to lock in a quick 10+% profit in two days. Previous trades generated a 112% profit within 25 days (NUGT), and 7.7% profit (ERX) within 24 hours.

 

Stock Market bulls will continue their historic breakouts!

The Trump Administration’s promises of tax cuts and regulatory easing is the catalyst for the markets’ recent strong advance. Mr. David Dodd’s timeless classic saying: “The market in the short term is a voting machine, but in the long run it is a weighing machine”. This is the second most bullish market, after an election, since President Kennedy took office.

The Research Investment Committee commented “Monetary, fiscal and regulatory policies could be key drivers in 2017, but the timing of those actions could cause volatility”.  New regulatory action will favor many stocks in the financial and energy sectors. Repatriation will occur under President Trump’s new corporate tax plans. The U.S. currently operates under a tax system in which the domestic earnings of U.S. corporations are taxed at the federal U.S. corporate rate (35%) and any overseas earnings that are repatriated are taxed at this rate less a credit for foreign taxes paid on those same earnings. Foreign earnings have been parked offshore, allowing corporations to avoid the taxes associated with bringing them back to the U.S. These U.S. Companies would be granted an eight-year period to pay their tax liability. President Trump’s plan calls for a one -time deemed repatriation of overseas corporate profits at a 10% tax rate.

 

Conclusion:

In short, the US stock market is back in full blown bull market with truck reenergizing things. While I feel a short-term correction is due any day, it is just that, a short-term pullback followed by higher prices into June/July.

Tuned For More Analysis and Trades at: www.ActiveTradingPartners.com

Chris Vermeulen

 

 

Market Melt-up Brings Volatility to Metals

Our recent analysis bases on a previous report of the potential for a further run in the US markets based on a number of technical and fundamental factors leads to the question of “what could happen with Gold and Silver”.  A broad US market rally may put some pressure on the metals markets initially, but, in our opinion, the increase in volatility and uncertainty will likely prompt more potential for upward price action in precious metals.

 

As with most things in the midst of uncertainty and transition, the US Presidential election has caused many traders to rethink positions and potential.  As foreign elections continue to play out, wild currency moves are starting to become more of a standard for volatility.  Combine this with a new US President and a repositioning of US global and local objectives and we believe we are setting up for one of the most expansive moves in recent years for the US general markets and the metals markets.  This week, alone, we have seen a flurry of action in DC and the US markets broke upward on news of the Dakota Pipeline and other Executive actions.

 

As we wrote week or so ago, we believe the US markets will push higher in 2017 a business investment, US strategy and foreign capital runs back into the US equity market chasing opportunity and gains.  Additionally, we believe the strength of the US market, paired with continued strength of the US Dollar, will drive a further increase in global volatility and wild swings in foreign markets.  This volatility, uncertainty and equity repositioning will likely drive Gold and Silver to continued highs throughout 2017 – possibly much longer if the new trend generates renewed follow-through.

 

Our belief that the US markets will continue to melt-up while certain foreign markets deteriorate relates to our belief that currency variances will become more volatile and excessive over the next few months.  This, in combination with a renewed interest in developing US economic solutions, will likely drive the US markets higher while the metals markets will continue to become a safe-haven for US and foreign investors to protect against deflation and foreign market corrections.

 

S&P Futures are setting up a clear bullish pennant/flag formation that will likely prompt an explosive price move within 2~3 weeks.  This bullish flag formation is likely to drive the ES price higher by roughly 100+ pts.  Currently, strong resistance is just above 2275, so we’ll have to wait for this level to be breached before we see any potential for a bigger price move.

 

SP500 Weekly Chart
ES_Weekly2

 

SP500 Daily Chart

ES_Daily

GOLD is channeling in a very clear and narrow upward price channel and trading in the middle of a support zone.  The recent reversal, near the end of 2016, was interesting because GOLD trailed lower after the US election, but then reversed course just before the new year.  The interesting fact about this move is that this new upward swing in GOLD correlates with the beginning of the Bullish Flag in the S&P Futures as well as a decrease in volatility.  We believe as this Bullish Flag will prompt a jump in volatility and price action that will result in is a strong push higher in GOLD.

 

GOLD Weekly Chart
GC_Weekly

 

Gold Daily Chart

GC_Daily2

 

SILVER is setting up in a similar manner as GOLD.  Although the SILVER chart provides a clearer picture of the downward price channel that is about to be breached – and likely drive both SILVER and GOLD into a new bullish rally.  The support Zone in SILVER, between $16.60 ~ $17.40 is still very much in play.  SILVER will likely stay within this zone while the Bullish Flag plays out.  Yet, when the breakout begins, a move above $18.00 will be very quick and upside targets are $18.50~18.75 and $19.50~$20.00 (possibly much higher in the long run).

 

SILVER Weekly Chart
SI_Weekly

 

Silver Daily Chart
SI_Daily2

 

EUR/USD correlation to the US moves should be viewed as measure of strengthening US economy/USD as related to foreign market volatility and potential.  As the USD strengthens, this puts pressure on foreign governments and global transactions based in USD.  This also puts pressure on the METALS markets because billions of people around the globe consume precious metals as a “safe-haven” related to currency volatility.  We expect the EUR/USD levels to fall near “parity” (1.00) again and possibly dip below parity based on future foreign election results.  This volatility and uncertainty will translate to increased opportunity for GOLD and SILVER to run much higher over the next few months.

 

EURUSD Daily Chart

EUR_Daily2

 

USDMXN Daily Chart

USDMXN  

USDGBP Daily Chart

USDGBP

 

Right now is a fantastic opportunity to take advantage of these lower prices.  We may see rotation near to the lower support zone levels as price rotates over the next few weeks.  The key to any trade in the metals market is to understand the potential moves and watch for confluence and volatility in other markets.  We believe the next few weeks/months will be very telling.  If we are correct, we’ll see new highs in the US markets fairly quickly and we’ll see a new potential bullish breakout in GOLD and SILVER.

You can follow our weekly analysis and trade ideas at www.TheMarketTrendForecast.com

Chris Vermeulen & John Winston

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The New Gold Rush Of 2017!

Gold to Regain Its Gleam!

One question that gold investors are asking now is, will 2017 be as spectacular for the yellow metal as it was in 2016? The short and sweet answer to this is YES.

The dollar, gold and the major U.S. stock exchanges will all see new highs. Gold is currently in a “complex corrective correction” while experiencing its’ last pullback, beforehand.

Both the short-term outlook and the long-term outlook for gold is BULLISH!  Trumps’ victory win is a positive for gold bulls. Policy uncertainty and slowing growth, following a Trump win, will stoke the yellow metals’ price in 2017.

Gold prices have been under pressure since the Trump victory, but the long-term scenario for gold is that it is parabolic. The global economy is still in contraction. Global Center Bankers continue with monetary easing, leading to currency debasement. Interest rates continue to slide into negative territory in Europe and Asia.  Gold’s investment appeal will encounter a period of time before it generates positive yields. Gold, as an investment, will once again be back in vogue. As prices rally, investment demand will only rise further, taking everyone by surprise.

The demand for gold jewelry has been declining within the large gold-consuming nations. The gold investors will call the shots in this new ‘bull’ market of gold.  Current supply constraint has cushioned gold prices from the rally in the U. S. dollar.

This is the last great buying opportunity for gold before it makes its’ next historic run in 2017 and beyond.

 

Excessive Pessimism: 2.0
THIS IS WHEN THE BEST OPPORTUNITY TO BUY GOLD IS PRESENTED

Latest Value(s):

– Last Reading: 1.0

– Extreme Values:

– Excessive Optimism: 8.0

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Excessive Pessimism: 30:
THIS IS WHEN THE BEST OPPORTUNITY TO BUY GOLD IS PRESENTED

Latest Value(s):

– Last Reading: 34.0

– Extreme Values:

– Excessive Optimism: 75.0

– Excessive Pessimism: 30.0

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Gold Hedgers Positions

Latest Value(s):

– Last Reading: -134022.0

Extreme Values:

The green dotted line is 1 standard deviation above the 3-year average;
the red dotted line is 1 standard deviation below the 3-year average.

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The Drivers!

A key factor that has driven investments in gold is the negative interest rate in Europe, Japan, Denmark, Sweden, and Switzerland. The sovereign debt of approximately one third of the developed countries traded with a negative yield while an additional 40% of the countries had yields below 1%.

Gold prices will be driven more by its’ value as an ‘investment asset class’. Gold will supersede investments in other ‘asset classes’ such as equity and bonds in due time.

The massive U.S. debt continues to spiral out of control. The Treasury Department’s printing presses are cranking out hundreds of billions of dollars in new money. European countries are imploding financially and the entire European Union is at risk of a collapse.  These ‘geopolitical’ factors will be driving the demand for gold as a ‘safe haven”.

The global ‘retail’ investment market is well positioned for growth what with demand for gold in China, India, Germany and the U.S. for 2017.

Social media is a ‘key driver’ which is critical in both China and India. Financial advisors and financial websites are the key drivers in the U.S. markets. In Germany, banks play the most important influence; ‘Protect wealth against the system’.  It has a competitive advantage compared to other investment options.

 

Jordan Eliseo, Chief Economist at precious-metals dealer ABC Bullion, says “Gold retreated about 18 percent from its year-to-date high. Afterward, it gained 26 percent in the first half of 2016.  The decline so far, this year has been about 15 percent from its year-to-date high.  Gold, is setting up for another rally in fashion like last year. The recent correction has already drawing in some investors to buy what they see as cheap metal.”

 

On December 14th my trading partner accurately forecasted the recent bottom in gold which you can see in this gold market forecast.

December 14th Forecast chart:

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He then took things a step further and entered into a NUGT (3x long gold miners ETF) with subscribers and recently locked in 50% profit on the first half and is up over 70% on the balance as of Fridays closing price.

 

 

GOLD WEEKLY CHART REMAINS IN DOWNTREND

The constructing on this new infrastructure is going to require a lot of new money. The country is already close to $20 trillion in debt, so if the administration plans to make this one of their priorities, it is going to have to print it.

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‘THE GREAT RESET’

Nixon closed the gold window on August 15th, 1971 and consequently, the world entered a new era.  For the first time in history, all the world’s monies were unbacked fiat currencies, adrift on a sea of floating exchange rates.  This stopped the redemption of currency for gold. Today, gold reserves are nothing more than an asset listed on the FEDS’ balance sheet.  Gold had stopped being an integral part of our financial monetary system

At the top of international commerce, money managers had always known the dangers of ‘currency risk’, but now every currency has become a ‘soft currency’. Recognition of ‘currency risk’ seeped down into the knowledge chain, but on the street of personal financial management, despite it being 45 years later, not many have caught on to the concept.

 

To Live And/Or Continue Living the American Dream

Golds’ strength is in the role of ‘wealth protection’. It is a ‘safehaven’ and its ‘independence’ from the global financial system makes it a great investment for the future. Gold is still good value for those who do not own any to accumulate ounces.

In a few days, I will be publishing a piece talking about the shift in the economy and what I call “The Great Transfer of Wealth”. Be sure to join my free newsletter below to receive this special report!

Chris Vermeulen
www.TheGoldAndOilGuy.com

Weekly Forecast & Setup – Jan 18 2017

Stocks and Commodities Going Up & Up

Chris Vermeulen is a very savvy trader and even he was taken by surprise by the stock market’s Trump rally. Especially by its strength and ferocity and he sees no immediate end in site. It could go on and on. But it won’t necessarily be bad for commodities and precious metals. He’s seeing very bullish signs in those markets as well. So are we living in the best of all possible worlds?

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Trade Alerts @ www.ActiveTradingPartners.com & www.TheGoldAndOilGuy.com

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Silver Miners, Gold Miners and the Price Of Gold

Silver and silver mining stocks are front and center for investors and active traders. Because of silvers high volatility (large price swings) it naturally attracts a lot of attention.

First you have seasoned investors who are waiting for the right opportunity to get long or short for the next move. Then you have the active traders playing the day to day price swings. Finally you get the gamblers who are salivating over the potential to double their accounts and are riding the commodity on pure emotions (Fear & Greed). All these things compound the volatility for the investment making it headline news and what everyone wants to be involved in.

The focus of this report is show you where the price of gold, silver and miner stocks are currently trading and what to lookout for in the coming days/weeks. Below is a chart of gold but silver has a similar pattern and will follow or should I say lead the price of gold in percentage terms because of its volatility.

Gold Weekly Chart:

Gold has been testing its long term support level for three weeks. I expect we see price start to move quickly sooner than later but there is potential for it to tread water here until the second half of April. We all know the saying “Sell in May and Go Away” and as we get closer to that date we should start to see money flow into the “Safe Havens” being gold, silver, and miners. While this has not happened many times on the charts I am thinking beyond them and of what the masses are likely to flock to when stocks lose their luster.

Also if you have been following the price of the dollar index you know that its getting a little overbought and when it starts to correct the falling dollar should help send precious metals higher.

Gold3

Gold & Silver Miners VS Gold Bullion Performance:

The stock market has certain chart patterns that tell chart readers what the holders of that particular investment is feeling emotionally. Knowing how to read these extreme patterns can yield some big gains and works for most investments types (stocks, bonds, commodities and currencies).

Without getting into the boring technical details precious metal stocks are starting show signs of panic selling which typically happens before a major bottom is put in place. A bottom generally takes a week or two for some type of bottoming pattern or base building to form. This is the most volatile time to be trading these investments so trade with caution.

Gold1

 

Gold Miners Bullish Percent Index:

Bullish percent indexes are a great way to see how popular an investment is. If you do not know what a bullish percent chart is then you can look it up online and learn more. The way I read it is when it’s up over 75-80 it’s a popular investment and everyone is buying it. It also means it’s in a major uptrend. But you must be aware that when everyone is buying something once price starts to turn down you better be one of the first few out the door before everyone else runs for the door and price crashes.

It’s similar but reversed for investments that are below 20. Everyone is selling, no one wants to own it but once the selling momentum stops price should rebound and rally. Keep in mind this indicator is not great for timing, but confirms that what you are looking at is either oversold, neutral or overbought in the BIG picture.

Gold2

 

Weekend Precious Metals Trading Conclusion:

In short, I still like gold, silver, and their related mining stocks. I am watching them very closely for signs of a bottom and will be jumping on that train when the selling momentum looks to have stalled. Keep in mind that all these investments are still in a VERY STRONG DOWN TREND and trying to catch a falling knife is not what I do. Waiting for momentum to shift is my focus as there should be big upside if metals and stocks can find a bottom soon. If gold breaks down below key support as posted on the weekly chart then the uptrend may be over and it will be time to start looking for short positions.

You can get my free weekly reports and ideas here: www.GoldAndOilGuy.com

Chris Vermeulen

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Gold and Silver Nearing MAJOR Long Term Support

Gold and silver along with their related miners have been under a lot of selling pressure the last few months. Prices have fallen far enough to make most traders and investors start to panic and close out their long term positions which is a bullish signal in my opinion.

My trading tactic for both swing trading and day trading thrive on entering and exiting positions when panic trading hits an investment. General rule of thumb is to buy when others are extremely fearful and cannot hold on to a losing position any longer. When they are selling I am usually slowly accumulating a long position.

Looking at the charts below of gold and silver you can see the strong selling over the past two weeks. When you get drops this sharp investors tend to focus on their account statements watching the value drop at an accelerated rate to the point where they ignore the charts and just liquidate everything they have to preserve their capital. A few weeks ago I posted my outlook on precious metals which seems to be unfolding as expected: http://www.thegoldandoilguy.com/precious-metals-miners-making-waves-and-new-trends/

Gold Bullion Weekly Chart:

The price and outlook of gold has not really changed much in the past year. It remains in a major bull market and has been taking a breather, nothing more. Stepping back and reviewing the weekly chart it’s clear that gold is nearing long term support. With panic selling hitting the gold market and long term support only $20 – $30 dollars away this investment starts to look really tasty.

But if price breaks below the $1540 level and closed down there on a weekly basis then all bets are off as this would trigger a wave of selling that would make the recent selling look insignificant. And the uptrend in gold would now be over.

Gold1

 

Silver Bullion Weekly Chart:

Silver price is in the same boat as its big sister (Yellow Gold). Only difference is that silver has larger price swings of 2-3x more than gold. This is what attracts more traders and investors but unfortunately the masses do not know how to manage leveraged investments like this and end up losing their shirts.

A breakdown below the $26.11 price would likely trigger a sharp drop back down to the $17.50 level so be careful…

Silver2

 

Gold Mining Stocks – Monthly Chart:

If you wanna see a scary chart then look at what could happen or is happening to gold miner stocks. This very could be happening as we speak and why I have been pounding the table for months no to get long gold, silver or miners until we see complete panic selling or a bullish basing pattern form on the charts. We have not seen either of these things take place although panic selling is slowly ramping up this week.

There will be some very frustrated gold bugs if they take another 33% hair cut in value… You can view some of my trading charts, setups and analysis free at my stockcharts.com list. Be sure to vote for me chartlist each day so I know its of value: https://stockcharts.com/public/1992897

GoldMiners3

 

Precious Metals Trend and Trading Conclusion:

In short, the precious metal sector remains in a cyclical bull market. That being said and looking at the daily charts the prices have been consolidating and are in a down trend currently. Until we see some type of bottoming pattern or price action form it is best to sit on the side lines and watch the emotional traders get caught up and do the wrong thing.

The next two weeks will be crucial for gold, silver and miner stocks. If metals cannot find support and close below the key support levels things could get really ugly fast. If you would like to receive my daily analysis and know what I am trading then check out my newsletter at: www.TheGoldAndOilGuy.com

Chris Vermeulen

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Gold, Silver and Miners in Stage 1 Accumulation Mode

We don’t hear much about gold and silver anymore on the news. This time last year you could not go 5 minutes without a TV or radio station talking about them. Why is this? Simple really, precious metals have been building a Stage 1 Basing Pattern for the last 12 months. This boring sideways trading range is how the market gets most of those long holders out of an investment before it starts another move up. The saying is “If the market doesn’t shake you out, it will wait you out”.

We all know time is money so the above statement makes a lot of sense doesn’t it? Instead of having your money sitting in an investment that has clearly displayed a large sideways range with month and possibly years before any significant breakout will occur, why would you want their money in it doing nothing? There are other opportunities which you could be putting your money into that could generate more gains until the precious metals sector sets up with a high probability trading pattern.

The good news is that gold, silver and precious metal miner stocks are forming a very large Stage 1 Accumulation pattern on the weekly chart. This points to a multi month rally in prices if they breakout above our resistance levels.

 

Gold & Gold Miner Stocks Weekly Analysis:

The chart below shows a lot of analysis and to the untrained eye this may look messy and confusing, so take your time to review it. In short, what I am showing are sideways price patterns using the previous highs and lows for support and resistance levels. The analysis shows the shift in prices from bearish (down), to Neutral (sideways). The exciting part about this pattern is that a new bull market should emerge if my analysis is correct. Now, I’m not talking about 5 -10% move here, I’m talking about a multi month and possibly a yearlong rally in precious metals that could allow some individuals to retire early if played properly…

A break above our red dotted resistance lines should trigger aggressive buying in gold miners along with physical gold bullion.

Gold Miners ETFs

In the past month I have been giving out some of my Stage 1 trading ideas which have generated some decent gains for those who follow along. All but one have generated gains with FSLR 12.5%, FB 12%, RIMM 54%, AAPL 5%, TLT 2.5%, XLU 1.5%, and KOL down -5.2%. Keep in mind that you can follow my trading charts live for free and get some of my stock and ETF trading ideas here: https://stockcharts.com/public/1992897

 

Silver & Silver Miner Stocks Weekly Analysis:

This chart of silver and silver miner stocks (SIL), shows a very similar pattern to that of its big shiny sister (Yellow Gold). Silver carries a lot more risk because of its industrial usage. Also this commodity is thinly traded and can move very quickly on a daily basis compared to gold. Because of these quick price movements it has attracted a lot of speculative money which also has increased the volatility. More often than not silver will move 2-3 times more on a percentage bases than that of yellow gold.

Silver Miners ETFs

 

Battle of the Miner ETFs Weekly Performance:

This chart compares three precious metals miner ETFS (GDX – Gold Miners, SIL – Silver Miners, NUGT 3x Leveraged Gold Miners).

Silver miners have held up the best because the herd saw how big the move was a year ago and are front running the next potential rally. But, depending on how you read the charts and sentiment it may be pointing to the dormant gold miners for a bigger than expected rally. But debating which one will breakout and run the most is a conversation/debate of its own and even I can argue both sides. The safe play is that even if gold miners (GDX & GDXJ) underperform the silver miners (SIL), the NUGT which is 3x leveraged gold miners should be the same if not outperform silver miners.

Precious Metals Mining Stocks

 

Precious Metals & Miners Trading Conclusion:

In short, I favor trading the miners over physical bullion simply because the charts show much more profit potential than if one was to buy the bullion exchange traded funds GLD and SLV.

The market seems to be setting up for some very large moves in 2013 and members of my trading newsletter should do very well. Be sure to join and follow along at www.GoldAndOilGuy.com

Chris Vermeulen

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Gold Mining Stocks Continue to Disappoint But Not For Long

Chris Vermeulen – www.TheGoldAndOilGuy.com

It is an endless debate for investors interested in gold. Should they buy a direct play on the gold price, either gold bullion itself or even so-called paper gold with an ETF such as the SPDR Gold Shares (NYSEArca: GLD)? Or should they invest into gold equities, particularly the larger, higher quality gold mining companies?

Recent history suggests the answer is gold itself. According to Citigroup, physical gold has outperformed global gold equities 120% percent of the time over the past 5 years. Stocks of the bigger gold mining firms seem to react adversely to bad news (which is normal), but the problem is they react with no more than a yawn to good news. These type of stocks are contained in the Market Vectors Gold Miners ETF (NYSEArca: GDX).

Gold Mining Stocks ETF - GDX

Gold Mining Stocks ETF - GDX

Evidence of this trend can been see in the latest news to hit the industry…the slowdown in expansion as recently signaled by the world’s largest gold producer, Barrick Gold (NYSE: ABX). The company’s stock has fallen by more than 30 percent over the last year due to cost overruns at major projects. The latest blowup in costs of up to $3 billion occurred in its estimate for development of its flagship Pascua-Lama project on the border of Chile and Argentina. The project may now cost up to $8 billion.

In addition, Barrick decided to shelve the $6 billion Cerro Casale in Chile and the $6.7 billion Donlin Gold project in Alaska. Barrick is not alone in its thinking among the major gold producers. The CEO of Agnico-Eagle Mines (NYSE: AEM), Sean Boyd, recently said “The era of gold mega-projects may be fading. The industry is moving into an era of cash flow generation, yields and capital discipline.”

Fair enough. But are gold mining companies’ management walking the walk about yields or just talking the talk? Last year, many of the larger miners made major announcements that they would be focusing on boosting their dividends to shareholders in attempt to attract new stockholders away from exchange traded vehicles such as GLD, which have siphoned demand away from gold equities. Barrick, for example, did boost its dividend payout by a quarter from the previous level. Newmont Mining (NYSE: NEM), which has also cut back on expansion plans, has pledged to link its dividend payout to the price of gold bullion.

So in effect, the managements at the bigger gold mining companies (which are having difficulties growing) are trying to move away from attracting growth-only investors to enticing investors that may be interested in high dividend yields. This is a logical move.

But rising costs at mining projects may put a crimp into the plans of gold mining companies’ as they may not have the cash to raise dividends much. And they have done a poor job of raising dividends for their shareholders to date. In 2011 the dividend yields for gold producers globally was less than half the average for the mining sector as a whole at a mere 1.3 percent. Their yields are below that of the base metal mining sector and the energy sector.

It seems like management for these precious metal companies have the similar emotional response shareholders have when they are in a winning position. When the investor’s brain has experienced a winning streak and is happy it automatically goes into preservation/protection mode. What does this mean? It means management is going to tight up their spending to stay cash rich as they do not want to give back the gains during a time of increased uncertainty. Smaller bets/investments are what the investor’s brain is hard wired to do which is not always the right thing to do…

Looks like there is still a lot work to be done by gold mining companies’ to improve returns to their shareholders. But with all that set aside it is important to realize that when physical gold truly starts another major rally. These gold stocks will outperform the price of gold bullion drastically for first few months.

Gold Stock Rally

Gold Stock Rally

 

Gold Miner Trading Conclusion:

In short, last weeks special report on gold about how gold has been forming a major launch pad for higher prices over the past year. Gold bullion has held up well while gold miner stocks have given up over 30% of their gains. If/when gold starts another rally I do feel gold miner stocks will be the main play for quick big gains during the first month or two of a breakout. The increased price in gold could and value of the mining companies reserves could be enough to get management to start paying their investors a decent dividend which in turn would fuel gold miner shares higher.

Both gold and silver bullion prices remain in a down trend on the daily chart but are trying to form a base to rally from which may start any day now. Keep your eye on precious metals going into year end.

If you would like to get my weekly analysis on precious metals and the board market be sure to join my free newsletter at www.TheGoldAndOilGuy.com

Chris Vermeulen