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Will There be a Parabolic Rise in Gold Equities..?

Freaking Heck's picture




 

By: Mark Wallace at

http://capitalistexploits.at/

 

 

This is the question on the mind of many a gold share "bug." I can say with relative certainty that the answer is YES. Why? I think the reason should be fairly obvious. Everything moves in cycles.

As we've discussed ad nausea within these pages, gold has had a dismal few years. In 2011 gold hit a high of around $1,900 USD per ounce, fueled by easy money and fears of a currency debasement. Money printing continues to this day, but the dollar is alive and well. As of December 2013 gold sat below $1,200 USD per ounce. Silver fared worse yet, declining from almost $50 USD per ounce, to under $20 USD per ounce.

When we look at the gold mining equities it's really ugly. The NYSE Arca Gold Miners Index lost about 70% of its value in that time frame. Many junior companies lost 90% plus, and some just blew away like so much pixie dust in the wind.

Chris and I were casualties of this decimation ourselves. Most of our junior stocks, and almost all of our recommendations related to anything gold/silver were just taken out back and shot. Plain and simple.

In general though 2013 was a bit of an anomaly, in that gold declined while the broader equity indexes rose substantially. Over the past 13 years prior, gold had outperformed equities. With the decline in gold it's no surprise that gold stocks got clobbered so badly, as the fundamentals were awful.

Bellwethers like Goldcorp and Barrick Gold had massive losses and reduced reserves in anticipation of lower gold prices. In the last quarter of 2013 Goldcorp lost a whopping $1 billion USD, while Barrick claimed a $2.83 billion USD loss. These "big guys" were forecasting gold could be as low as $1,100 going forward.

As they so often are, the "big guys" were wrong. Gold has risen to $1,335 USD per ounce as I write this, and the stocks of the senior miners have risen over 25% on average. The old axiom, "Buy when there's blood in the streets" seems to have held once again. The time to buy a stock, whether its a resource stock or otherwise, is when they begin rising on negative news. This is precisely what has happened with the miners.

GDX

 

 

 

 

 

 

 

 

 

 

 

 

 

Our very own Brad Thomas put out a Trade Alert to subscribers on Barrick saying the following:

"I continue to hold the view that there will be an ultimate price to pay for all of the unprecedented monetary “stimulus” and money printing that we have observed over the last 5 years across most developed markets. This ultimate cost will be inflation, with a resulting dramatic rise in precious metals.

If ever there was a time to invest in gold stocks now is probably the best time due to a number of factors:

  • Sentiment towards gold stocks is exceptionally bearish – how much more bearish can sentiment become
  • Given the above it is highly likely that this is the most under-owned that gold stocks have been in a couple of decades, with the result that shares of mining companies are likely to be concentrated in the hands of a relative few - where is the marginal seller of gold stocks going to come from?
  • Most gold producers are making losses, which suggests that the cost of producing gold is about $1200 an ounce – how much below the cost of production can gold go before material shutdown of capacity occurs?
  • Fundamental valuations are exceptionally low with most of the big producers trading more or less @ book value – are we likely to see any further compression of price multiples?

Why ABX specifically? In essence while the price of gold has continued to fall over the last 8 months, Barrick’s share price hasn’t, which suggests that Barrick’s stock price has probably found a long-term bottom."

Brad recommended the January 2016 $25/$35 spread. With this trade you would buy the $25 option and sell the $35 option. At expiration if ABX was to close:

  • Below $26.50 – loss = 100%,
  • @ $28.00 – profit of 100%,
  • @ $30 – profit of 220%,
  • @ $35 – profit of 567% (a maximum profit will be achieved if ABX closes @ 35 or higher).

Taking a look at the weekly chart of ABX, that price level being achieved within the next 2 years looks to be a good bet!

ABX

The moral of this story is that the bear market in the precious metals and the associated equities may be coming to an end. The bad news has been delivered, and now we are seeing prices rise. This is likely a new trend forming, with the classic higher lows patterns developing in the individual equities.

Insitutional and retail investors are starting to take notice. Reuters reported on February 27th that, "The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, is on track for its first monthly inflow of metal in more than a year after a run of weaker U.S. data boosted investment interest in gold. The SPDR fund added 10.5 tonnes to its reserves so far this month. That means that, barring a large outflow on Friday, February would be the first month to show an increase since December 2012."

GLD

The chart above is courtesy of StockCharts.com and John Murphy, an EXCELLENT technical analyst that I've followed for the last 15 years. According to John, the chart, "Focuses on the two month advance in the Gold SPDR (GLD). With GLD trading near 130, it has retraced just over 62% of the prior decline. Even though the 62% area could mark a reversal zone, the trend since early January is clearly up.

The trend line zone and late February lows combine to mark support in the 126-127 area. The indicator window shows the Commodity Channel Index (CCI) moving into positive territory in early January and remaining largely positive during this advance."

Everything seems to be lining up for gold at this point in time.

Brent Cook, former associate of Eric Sprott and one of the best mining analysts in the world believes that, "2014 should be a good year for investors to begin positioning themselves in the better metal deposits, mining companies, and the most competent explorers. The reason is quite simple: the industry is not finding enough economic deposits to replace mine production.

"

To further that, Grant Williams, the prolific editor of Things That Make You Go Hmmm, in regards to an impetus for a potential violent upwards move in the gold price has stated, “I fear that it will be a shortage in physical metal because that could be very, very extreme..."

For an excellent timeline of important developments in 2013 that will affect the gold price going forward, I recommend reading Alasdair Macleod's (Gold Money) recent post, Gold in 2013: The Foundation For 2014.

If you want to skip to the conclusion, which by the way we agree with, Alasdair states:

"The events of 2013 persuaded investors in western capital markets that gold's bull market had definitely been broken, and that gold would probably go lower or at best move sideways in 2014. The underlying reality is very different, with China in particular managing to corner the physical market with trend-following Western analysts caught unawares.

So far, instead of continuing to fall the gold price actually bottomed on 31 December at $1182, and since then has rallied over 13% to $1340. The position today is that some hedge funds which were short have closed their positions and there are more yet to do so. There is growing evidence for the trend-chasers that the price is entering a new bull phase, with the 50-day and the 200-day moving averages both rising and about to complete a golden cross.

Central banks appear to be facing a problem of their own making. The lesson from Germany's attempt to repatriate her gold appears to have provided prima face evidence that central banks have little or no physical liquidity left. Minor central banks, such as Finland's, must now be wondering if gold out on lease will ever be returned to them, so may be increasingly reluctant to make their gold available for further leasing. Instead they are likely to end current leasing agreements as they mature rather than extend them.

In 2014 there is likely to be a growing realisation that the vaults in the West are very low on stock."

Turning once again to Grant Williams:

“Gold is a manipulated market. Period.

 

“2013 was the year that manipulation finally began to unravel.

“2014? Well now, THIS could be the year that true price discovery begins in the gold market. If that turns out to be the case, it will be driven by a scramble to perfect ownership of physical gold; and to do that you will be forced to pay a lot more than $1247/oz."

Well, gold is now well on its way, having risen $100 since Grant penned those words last month. Don't get left behind!

 

 

Next week we'll be making a special offer to those who are receiving our FREE Trade Alerts. To get on that list and receive our offer just drop us your email HERE.

 

- Mark

 

"There’s going to be a bubble in gold stocks.” - Doug Casey

 

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Fri, 03/07/2014 - 11:11 | 4521136 GIABO
GIABO's picture

Just bought another 10 ounces of the silver stuff... all I could afford

Fri, 03/07/2014 - 12:09 | 4521373 SAT 800
SAT 800's picture

Silver makes a particularly good long term savings account; whether or not it will have some wonderful appreciation vis a vis the dollar is, of course, unknown at this time. As long as you don't buy mining stocks, it's a good palce to keep purchasing power.

Fri, 03/07/2014 - 12:07 | 4521362 SAT 800
SAT 800's picture

Repeating for the one thousandth time now; there is never a parabolic rise in anything. At the end stage of a speculative frenzy the price movement becomes exponential, not parabolic. The great up-surge in mining stocks is not fore-ordained; there's no particular reason to expect any such thing; there's no reason to own any mining stock. the usual rationale that the stocks will provide beta, or margin like, performance vis a vis the underlying is false. There is no correlation. The stock market, and mining stocks, may go down while the metals go up, and vice a versa. This is only a subject for the profoundly ignorant people in speculation, (there are no investors).

Fri, 03/07/2014 - 09:45 | 4520753 elwind45
elwind45's picture

Keeping the dream alive by kicking the equities? Germany seems to be kind to the US or stuck? China will be in need of dollars not gold cornered or not? The central bank will have your back just not your wallets back. You will become used to new price levels or be left behind. Your great now produce

Fri, 03/07/2014 - 04:41 | 4520368 MeelionDollerBogus
MeelionDollerBogus's picture

I can tell you this.

Manipulation doesn't end until the institutions that do it are ended.

Stocks for most people are just electrons or paper & if ownership is bestowed it's your broker that has it while you have a claim on a fiat-figure price at that moment. That includes mining stocks.

Mines can be confiscated, sold, de-listed, poorly managed despite good performance of price of the metals themselves.

Mines can even be a total hoax like Bre-X.

And one last final thing I've personally tested: I've never seen a person tell me gold & silver aren't real money or have no value, after personally taking my gold or silver and putting it in their hand and watching their reaction. The first thing they notice isn't the shine. You'd think so but they aren't blind. What they notice is the weight.

They've never held real money before. Ever. The look of shock at the weight of just a single ounce of gold is what gets them. The shine keeps their eyes transfixed but I always hear how 'heavy' it is. Never after have I heard a person then say it isn't of any value, isn't money, isn't important. Never.

* yes, it's very risky to bring your own gold & silver out like that. No, it's not actually wise to do so but the word must be spread somehow.

Fri, 03/07/2014 - 12:56 | 4521579 outamyeffinway
outamyeffinway's picture

"Manipulation doesn't end until the institutions that do it are ended."

 

Wrong.

 

Advice to readers: Never take advice from someone living in fear.

Sat, 03/08/2014 - 06:12 | 4523114 MeelionDollerBogus
MeelionDollerBogus's picture

Bad advice twice.

#1 so long as those who manipulate are not stopped, they will continue to manipulate. Basic logic.

#2 what fear? I have no fear. I have faced death many times, poverty many times, betrayal many times and I am stronger for it. I have learned, adapted & continue to live. Is that a thing to be feared? No. The future? No. I see much of it & I know how to move, what to prepare for, so I fear nothing of that. The past? No use in fearing the past. What went wrong, and right, built me into what I am as surely as it formed the world I live in and adapted to. Nothing to fear at all.

I wonder: did you really even understand what you wrote in your reply, or did you actually mean to reply to a different person on a different message?

Fri, 03/07/2014 - 03:49 | 4520292 manofthenorth
manofthenorth's picture

For what Zuckerburg just spent on an APP , He could have had every ounce of Silver produced on Earth last year with a couple of $Billion left over. That tells me that Silver is way too cheap.So long as I can get 60+ ounces of Silver I will keep trading every ounce of Gold  that I can produce. When it gets below 15 to 1, I will start keeping my Gold. With any luck 60 to 1 will hold a couple of more seasons !

Fri, 03/07/2014 - 04:57 | 4520373 MeelionDollerBogus
MeelionDollerBogus's picture

I'd think it wiser to get USLV as it's 3.92x (rated 3x bull) vs silver's FIAT price.

I know, it's paper.

But what you're talking about is letting actual gold atoms leave your hand, for paper, so you can get silver atoms.

Both are a risk. My way the gold atoms I have stay in my hand & the ratio goes much more powerfully than linear.

Let's work through that math from today's price to a made up future price & see how it compares.

Right now no sane person should let a physical gold ounce leave their hand at spot price. So let's call it $80 USD + spot to be nice. That today would be 1428 USD. Let's presume you get silver for your paper. Similarly you'll probably pay at least 24/oz for real physical, not the spot price. 59.5 is the answer so 59 ounces is what you get plus some paper left over.

On the other hand USLV is just under 60/share right now.

This equation http://flic.kr/p/f17z1s silver = e (gold x3/2635 + 19/12) describes a long-term relationship of silver vs gold in US dollars. The adjustment for the last 3 weeks would see silver lower so that x1.05 would return to the trend. So let's use this e (gold x3/2635 + 19/12)/1.05 equation and let's push silver up to 25/oz from today's price 21.35 spot.

At 25/oz USD silver spot, gold spot is going to be 1,479.41 so a gold ounce physical will probably cost 1560/oz. USLV follows this equation http://flic.kr/p/kppK2Z and liberally I will go with some decay and use "1/3000" or 3000 as presented. USLV = silver 3.92 / 3000 so 25 3.92 / 3000 = 100.65/share.

Let's say you're in USD the entire time, again to make the math easier.

If you were looking to get 59 ounces at 25 spot and probably turning that into 28 or 30 for physical ounces, 59x28 = $1652 and if USLV will net you that at a later price of 100.65/share with $10 fee then you'll have to sell enough shares to get $1662 which is 16.51 shares so at least 17.

Ya, I know, odd lot of shares, but the math...

17 x today's USLV price is 58.87 x 17 + fee, so that is $1,010.79.

If you can come up with that cash & get the shares and let silver rise a small amount you can have all those ounces while actually only putting in 1010.79. As you can clearly see 1,010.79 / 59 = 17.132 which means this small push up does 2 things for you:

#1 no gold atoms leave your hand

#2 17.14 per ounce is actually just slightly more than what you'd actually pay per physical ounce since you put that in originally.

You're trading paper both ways unless someone barters silver directly to you. If that's what you're doing, maybe just go ahead & keep doing it. It fosters a relationship of trust & has no paper involved.

But if you're playing paper regardless maybe this way's the smarter way. One way is under 17.14/oz to acquire, the other is a much higher paper price plus gold atoms have to leave your hand.

Fri, 03/07/2014 - 12:01 | 4521330 SAT 800
SAT 800's picture

The arithmetic you've become fascinated by is called "margin". It was once called the secret of the rich. But you don't have the right idea, yet. The Comex is for trading on Margin. you can set the margin wherever you want by controlling the size of your position relative to the size of your dollar account. you can have three to one margin if you wish. Saxo Bank.com also has a trading platform that will sell futures contracts on Silver Bullion. These are both infinitely preferable to the ETF; which is a fragile reed compared to these highly capitalized instiutions which always trade at spot and always give good fills on price orders. The underlying problem is; is Silver actually going to go up or not? Nobody knows. It depends on the mass mind. If you believe in manipulation then you're still lost in the dark world of ignorance fostered by the internet. If enough people believe their prifits will be higher owning stocks or commercial real estate, or whatever; then the price of silver will not go up. Basically it's a market that trades on fear and uncertainty; and of course, one of the main fears and uncertainties is the future value of currencies. But, repeating once again; it's what the mass mind believes that counts; not reality, or your analysis of reality. And, once again, if you still live in a world of long-term suppression of metals prices, AKA; manipulation as usually meant on the internet blogs; then you are lost in a world of ignorance and no one can help you.

Fri, 03/07/2014 - 18:34 | 4523123 MeelionDollerBogus
MeelionDollerBogus's picture

You are completely mistaken.

Not one use of margin is required or recommended in my comment you replied to. I strongly suggest no one use margin. It isn't required.

I am making trades on this math and I can't use margin, and won't use it. I have a TFSA Canadian account which means no taxes on the gains and the trade-off is no margin is permitted.

I refuse to touch margin or futures contracts. They are not worth the risk.

This isn't the first time I've set you straight on what should be entirely obvious. COMEX vs SHARES. Atoms vs PAPER. Math vs BELIEF, fact vs GUESSING.

Your moniker should be SAT80 not SAT800. You're dumb as a stump, or, perhaps you didn't put on your reading glasses before starting a reply. Are you senile? What's your excuse for being so incredibly wrong all the time?

Fri, 03/07/2014 - 03:29 | 4520279 Fuh Querada
Fuh Querada's picture

5 reasons to avoid gold equities
- many easy ways to fabricate reserve estimates
- confiscation of assets likely in almost any jurisdiction
- incompetent or corrupt management
- bankers have management by the balls
- dilution. They can issue wads of new paper any time they want.

edit :
-true costs of production almost never stated

Fri, 03/07/2014 - 10:10 | 4520887 mccvilb
mccvilb's picture

So D Prepper, you did it. You're the proud owner of gold and silver. BFD. Now what? Are you prepared to kill to keep it? Really.

Have you actually thought about that or what surely must follow, like lawyers and trials and incarceration?

Ignoring all that for a moment, how prepared are you to die to keep your PMs? You say with conviction yes, yes you are, but when the rubber meets the road I call bullshit on both counts.

But hey, what other choices are there? There's one thing we know for sure - people are scheming, and patiently waiting to take it from you. Flesh and blood or otherwise, they are very real. They exist. The crooks, the government, the police, your neighbors, the law, the corporations, the religious fringe - and when the time comes they won't hesitate for one effing New York Manhattan minute. Just how paranoid is that thinking, ZHers?

Fukushima, Monsanto, Iraq, Afghanistan. Figured out the end game yet? Mate in ten... nine...

Fri, 03/07/2014 - 18:31 | 4523134 MeelionDollerBogus
MeelionDollerBogus's picture

There is no less will or potential to be killed for anything: your wife, your children, your gold, your food, your house, anything, at any time.

To think only of silver holdings in this manner is foolish.

Fri, 03/07/2014 - 02:46 | 4520253 The Wisp
The Wisp's picture

Well they stopped all the Minipulation now Right so were Good.. ?

  real price of gold for me is whatever Apmex charges to get it to my House...

Fri, 03/07/2014 - 08:50 | 4520154 mccvilb
mccvilb's picture

There is no correlation between the underlying fundamentals in equities and PPS. Goes for commodities and equities too. Expect the unexpected. If gold makes a comeback it doesn't mean the miners will follow. The BS will continue to spew forth and WS will continue to create their shortstorms no matter what. The sheeple eat up everything the MSM feeds us. Up 1 day, down 3. You can take that to the bank.

Fri, 03/07/2014 - 00:49 | 4520147 El Oregonian
El Oregonian's picture

"Chris and I were casualties of this decimation ourselves. Most of our junior stocks, and almost all of our recommendations related to anything gold/silver were just taken out back and shot."

Now why pray tell, why would I would want to invest with you considering your admitted recent track record?

Just thought I'd ask.

Fri, 03/07/2014 - 03:50 | 4520317 SlvrBull
SlvrBull's picture

Anyone trying to understand this post without first understanding the true function of gold in a sound economy and how that plays against the aims of the fiat cabal is going to come out with stupid remarks like-

"Now why pray tell, why would I would want to invest with you considering your admitted recent track record?"

Maybe you should try to understand the larger battle and why PMs have been taken down countless times instead of pointing out, simply that they got taken down.

The battle between west (IMF, BIS, Fed, BOE etc) and east (BRICS and MENA) is the reason to buy PMs, if you believe that petrodollar status quo will win then BTFATH sheepbot.....

 


Fri, 03/07/2014 - 04:58 | 4520387 MeelionDollerBogus
MeelionDollerBogus's picture

Then maybe you need to tell me how many gold atoms are in the shares of those miners.

Oh, wait, is that a trick question?

If you don't hold it you don't really own it.

You can take that to the bank.

Fri, 03/07/2014 - 03:24 | 4520283 Freaking Heck
Freaking Heck's picture

El,

Unlike "professional" marketing, urghh I mean financial wizards we publish both or successes and failures. We don't mask our failures. We just try learn from them. Try that with 90% out there.

BTW long term track record speaks for itself. We've published it end of each year for all to see.

Thu, 03/06/2014 - 21:54 | 4519715 capitallosses
capitallosses's picture

Gold bitchez!

Do NOT follow this link or you will be banned from the site!