Gold and Silver Update - It's Game On!

Sprott Money's picture

 

 

 

Gold and Silver Update - It's Game On!

Posted with permission and written by Sprott USA (CLICK FOR ORIGINAL)

 

 

Gold and Silver Update

 


 

Gold continues to consolidate. Two months of sideways price action is proving the yellow metal’s early-year gains were justified while setting the foundation for another move up.


That move will require some kind of impetus and there are many options to provide the push: more stimulus announcements in Europe or Japan, weak Q1 earnings, increasing inflation expectations, rising general economic uncertainty, US dollar weakness, and interest rate roulette, to name a few.


We don’t know if these things will transpire, let alone when. The US dollar is certainly declining, if in fits and starts:


 

 [1]

That helps gold, from both the fundamental angle that gold is priced in greenbacks and the investment rationale that a declining greenback encourages savers to find another safe haven hideout for their savings.


But a declining dollar is only one cog in a machine driving investor interest towards gold. Another is the fact that super low interest rates have removed investors’ go-to tool for hedging their stock portfolios: bonds.


No matter what you think the odds are of a recession in the near to medium term, the fact is we are in uncharted waters. Very low or zero to even negative interest rates had their intended effect, which was to force savers and investors into riskier assets like bonds and equities. That created a seven-year bull market in equities and bonds – but one not representative of the actual economy, which remained stagnant.


That is what already happened. Of interest now is what will happen next.


Bonds have long been the go-to hedge against equities. Bonds are supposed to rise in price when recessionary periods push equities down, because recessions prompt central banks to lower interest rates and that lifts bond prices.


But how’s that supposed to work when interest rates are already rock bottom?


Bonds will not hedge stocks if we enter a recession because central banks can’t do anything to support bonds. That means investors will look elsewhere for a hedge. Gold will be a natural conclusion.


As John Hathaway of Tocqueville Asset Management calculated, if investors were to increase their gold allocation from 0.55% (the current level) to 1.55%, that would represent 56,075 tonnes of demand. That is far more gold than is currently available in London. In fact, a 0.1% increase swamps the supply of physical gold. [2]


That is the kind of logic that backs the idea that gold has a good run ahead.


Gold moving sideways and consolidating supports the view that gold’s run has truly begun. The way equities are acting adds weight.


Gold stocks outperform gold at the start of a bull cycle. Take a look back to the last cycle: gold bottomed in April 2001 but then ascended slowly, not making a new 52-week high until early 2002 and not establishing a higher high until almost the end of that year. Meanwhile, gold stocks as per the HUI more than doubled during 2002 while many juniors moved far more.


Gold stocks outperform the yellow metal the most at the start of the bull cycle. We are seeing that kind of outperformance now.


Then there’s silver, which has finally started to move.


 

  It doesn’t look like much on the five-year chart, but silver seems to have carved out a bottom. It is up 21% this year, making it the best-performing metal.


And silver has more ground to regain. Gold may have lost 45% in the bear market, but silver lost more than 70%.


The fact that silver is moving now matters. Silver never moves lock step with gold. When uncertainty prompts investors to seek out safe havens, they look to gold long before silver because gold is a far more straightforward safe haven. Silver, by contrast, is also an industrial metal, which means demand waxes and wanes more with economic demand.


However, after some time silver’s safe haven status starts to catch up. And once it starts to look like a safe haven, it acts increasingly so. That process usually starts when gold is consolidating its first big move and preparing to take out its next resistance.


In other words: we’re seeing gold consolidate, which gives confidence in the new price range, and gold is trailing gold equities, which is precisely the pattern we see to start new bull markets. Silver’s recent move only confirms the pattern.


Explorers, miners, and resource investors have been waiting for this pattern to emerge for years. With evidence of a new bull market mounting, they are getting busy.


Here’s a good comparison: in the fourth quarter of last year, miners and explorers raised a measly $565 million. The average placement totaled just $3.3 million.


In the first quarter of this year, the sector has raised $3.5 billion and the average size rose to $23 million. [3]


That’s a massive change. Granted, a few huge raises tipped the scale, including Franco Nevada’s $1 billion, Silver Wheaton’s $623 million, and Goldcorp’s $250 million.


But the money still matters.


For one, royalty and streaming companies like FNV and SLW put capital to use by investing in other assets and companies. That helps the whole sector.


For another, doozies aside the sector still raised a lot of cash and about a fifth of the financings went to explorers and developers. That is significant – in the depths of the bear market, explorers just didn’t have access to capital.


Then there’s the deal flow. The quarter saw several big deals: Tahoe buying Lake Shore Gold, Endeavour buying True Gold, and Newcastle buying Catalyst Copper. There were a good number of smaller deals as well: Probe Metals and Adventure Gold merged, Kootenay Silver took over Northair Silver, and First Mining Finance bought both Clifton Star Resources and the Pitt project from Brionor Resources, among others.


Also really interesting are the moves by majors and mid-tiers to acquire stakes in smaller companies. Goldcorp’s move on Gold Standard Ventures is one example (and it prompted Oceanagold to put more money into GSV to maintain its stake); Oceanagold’s investment in NuLegacy is another.


A favorite question during the bear market was: what will it take to bring mining back to life?


Our answer was always the same: investors have to make money.


In that sense, a mining revival becomes a self-fulfilling prophecy. A bit of recovery gives companies confidence to raise capital. Capital enables exploration, development, and deals, which in turn adds life to share prices. Reinvigorated share prices means more financings, more activity and happier investors.

 

 


It’s game on.

 

 

 

 

Please email with any questions about this article or precious metals HERE


 

Gold and Silver Update - It's Game On!

Posted with permission and written by Sprott USA (CLICK FOR ORIGINAL)

 

 

[1] Bloomberg

 

 

 

[2]  http://tocqueville.com/insights/gold-strategy-inve... 

 

 

 

 

 

[3] Haywood Research, Junior Exploration Report, 2nd Quarter: https://clientcentre.haywood.com/uploadfiles/secur...

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Stu Elsample's picture

Silly dupes...you armchair investors won't make any money in PMs that are price-controlled by bankers. The PMs that you should buy and 'stack' right now are brass and lead.

Latitude25's picture

The monkey had his hammer taken away this am.  He will soon be in the zoo where he can eat bananas and masturbate.

DeusHedge's picture

the hows and whys of gold market manipulation ~article

pakled's picture

Also, Bob Moriarty over at 321gold.com has a great piece out today of interest to anyone looking to buy PM mining stocks. Both he and the analysts he refers to in the piece have some amazing track records at calling PM market tops and bottoms. This is a must read piece.

 

http://www.321gold.com/editorials/moriarty/moriarty042816.html

 

 

Lets Buy The Dip's picture

so stock market down, and GOLD SILVER UP....hmmm this might be a clue => http://bit.ly/1SUfIeq

The real question is will they let wall street when this FULLTARDS need votes and all want to become the damn president of USA??

I looked back, over last 100 years and its usually a good year, but then the years after a new president, are bad, sometimes HORRIFIC!

**insert bulging eyes here**

rbianco3's picture

The future will be determined by the "Monkey"! His ability to escape the giant waves of mass as he approaches the event horizon. 

I believe the Monkey is already dead...

A.) The Monkey has long been dead, spaghettified and deconstructed into nothing at the singularity. The Monkey appears to be stationary as light from his final efforts to escape creep towards us, his last second of life will show a spectacular attack at the point where metals buyers pounce on the injured prey. The metal buyers that could see beyond the past will rule the world, having taken the prey at the exact moment possble, the other buyers will chase his distant memory and they will meet his fate.

or

B.) The Monkey is alive and well and/or has a secret weapon allowing him to reach escape velocity away from the event horizon and away from us and being our curse forever having the benefit of hind-sight while his prey only thinks they can see him. Metals buyers will get monkey hammered for eternity.

 

Flying Wombat's picture

The Precious Metals Are The Market Story Of The Year So Far - Dave Kranzler

http://thenewsdoctors.com/the-precious-metals-are-the-market-story-of-th...

jomama's picture

Big fucking deal, I paid more than that for my MB's... seven years ago.

ali-ali-al-qomfri's picture

the inverse graph can be found on the DOT's boating accident, opened files, Section * canoe roll over suspected.

 

CHX's picture

The game will be "on" once the CONeX has defaulted (or is shut down for its criminal behaviour) and the LBMA is a memory only. Till then, unbacked (naked) "paper contracts" will set the price and it will be right where they want it to be. Happy stacking at these bargain "prices" - hope to see all of you on the "other side" after the pop of the paper PM ponzi... 

WhackoWarner's picture

COMEX cannot default.  This is not true.  Paper is paper and there are provisions that provide for cash settlement.  COMEX can be pressured and exposed.  But not default....

READ a bit.

Pareto's picture

I upvoted you, but, technically, forced settlement in cash for failure to deliver is just lame cover for defaulting.  Its the same thing as the central bank continued purchase and rollover of treasuries - its not a default, but, technically, because the central bank is effectively monetizing the debt, thus debasing the currency, then by definition this is a default.  Full faith and credit takes on a new meaning to include diminution of purchasing power.  If that isn't defualting, I don't know what is.

new game's picture

not one mention of manipulation, so therefor all hype to sell a book...

but if the manipulators get on board, hmmm.

and what about politics, sentiment from an election?

fundamentals might come back, but certainly not holding my breathe...

Theonewhoknows's picture
Theonewhoknows (not verified) Apr 28, 2016 6:22 AM

Gold and silver will be gaining on all fronts as the QE train is being continued (after FED, BOJ and ECB) - the war on cash will send gold up and up. http://independenttrader.org/war-on-cash-a-piece-of-a-bigger-puzzle.html

KnuckleDragger-X's picture

The fun starts when they quit playing with paper, and start demanding real metal. It's not paranoia if they really are out to get you.......

WhackoWarner's picture

The fun starts when all the folks playing on COMEX realize that for all the babbledegook delivery of metal is really just a sideline affair.  CASH settlement is in the rules and you can cry if you want to,,,,cry if you want.

YOU WILL CRY TOO WHEN IT HAPPENS TO YOU.

 

https://www.youtube.com/watch?v=bbOrjHBaDzQ           Lesley Gore circa 1964.

Max Hunter's picture

I quit reading these articles for the past couple of years. But this time, I admit, it feels different. We'll see. 

swass's picture

That is because they were wrong for about 2 years straight. I remember reading one of the gold and silver permabulls articles as we were approaching the bottom, and they just then admitted it was in a long term bear market, stating there was much lower to go, when it turned around.

I actually did catch the very bottom with all of my metals purchases because I was looking at the technicals and behavioral finance aspects of the precious metals market. That said, we are at a correction, which should be followed by one more leg higher, before probably going to new lows. In my case, I will just buy more if we plummet to new lows again in the coming year, as that will likely be short lived.

Bottom line, in my humble opinion, is that these articles are by people that have financial and emotional stakes in the precious metals market, so their articles are always bias toward a view that gets them more customers. Nothing against Sprott, but look at their profile. That is all they do. Of course they wouldn't promote a bearish perspective of their lifeblood.

Haraklus's picture

Yeah, it's the classic folly of trying to time the market.

 

My own personal strategy is not to try to tell when things will turn around in a precise way, but instead to look at historical prices relative to current prices to try to determine if it's a "goodish deal" and pile in when it is.

Right now, even after the recent surge in silver, it's still just 37% of the 10-year-high. And many major producers are unprofitable even on just a cash on cash basis.

That sounds like a 'goodish deal' to me.  Most likely sometime in the next 10 years I'll be able to sell (or more realistically swap from some other asset that looks cheap at that moment in time) at 2-3x the current price, if so inclined. So I'm still making small, regular purchases.

When it hits 50% of the 10 year high, I'll probably stop making purchases.  That moves it from "goodish deal" to "I am not 100% sure it's a goodish deal" which I don't like, because I'm cheap.

Aussiekiwi's picture

'Yeah, it's the classic folly of trying to time the market.'

Perhaps, but I like to time when I am buying,  call me crazy, but I like to buy when stocks are cheap, bought both SBM at 20c (AUD) and MOY at 6c near the start of the year.

The advice of don't try to time the market leads to average upside and severe downsides when the market inevitably rolls over. The same sort of thing occurs if you go to a financial planner for advice, they have a tendency to put your cash into whatever gives them the largest commission.

Be crazy, buy when stocks are cheap and sell when you are happy with the profit, run tight stop losses, always preserve capital first. Never try to hold on for the top of the market, 

swass's picture

I think for most people, yes, don't try to time the market. This is a financial blog oriented toward traders with a little libertarian perspective in there. The whole point of traders is to time the market. Timing the market is very possible, but it is never 100% even with very skilled traders. For me, bottoms are much easier to call than tops. So the bottom calling I was doing for metals and oil worked out very well.

Haraklus's picture

It really sounds like you're not actually "timing the market", though, you're just doing what I do -- getting a good deal.

nink's picture

May 26th futures is coming fast and with Silver Hot and Locked, it will only take a couple of large investors to demand good delivery and at that point we all know what happens.  DEFAULT.