This Is a High Gold Price

5 May & 25 June 2011

Gold is now down almost $100 from its recent peak of $1575.10 (which occurred earlier this week).

This is still a VERY HIGH gold price.

Gold is doing fine. The miners will do exceedingly well anywhere within a couple hundred dollars of here - either way - and make no assumptions about which way!

Take Goldcorp, for example, who just released first quarter earnings - what a quarter!

Anything is possible.

Half hour before market close. Still falling. Down about $115 from the recent top.

This is OK too. There is nothing wrong with the gold price.

In a year or two, brief $100 moves will not be unusual, as gold will be much higher than it is today. I guess we'd better get used to it now!

25 June 2011: Just checking in to remind readers that the gold price is still high. $1558... $1500... $1400... $1600... does it matter? It's just high - and going higher!

The gold miners are doing wonderfully. Their stocks are selling at incongruously low prices. Though anything can go lower on a short-term basis, long-term, they can only go MUCH higher.

Nothing has changed.

Gold mining is the best business on the planet.

23 September 2011: Hmmm. Gold has fallen off sharply this week, recently trading in the $1720 range, and down $200 from its early September (2011) high of $1923.70.

As time has passed, I hope my point has become evident.

$1920 is a high gold price. $1720 is a high gold price. $1520 is a high gold price.

The fundamentals are entirely in gold's favour, and it will continue to be worth a lot for at least the next decade (by then we'll know if our leaders have been able to do anything mature and responsible in managing the economy - for example, by encouraging saving and reducing debt.

I will paraphrase Jeff Berwick at The Dollar Vigilante. If gold retraces to $1500, go out and collect cans by the roadside and borrow money from all of your relatives to buy gold and gold stocks.

The major trend is up, not down. The volatility is just noise - plain and simple.

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Want To Buy Gold Miners? Take Advantage of the Insanity Now!

3 May 2011

The word "duh" no longer describes what is happening to the market prices of gold miners. This is insanity, plain and simple.

The gold price is doing fine today, presently in the $1530 range.

In fact, this is an awesome, really wonderful gold price for gold investors!

Among other metrics, gold is now trading $50 higher than Goldman Sachs' $1480 intermediate target price for 2011, and much higher than all but the most optimistic analysts thought it would trade this year - thanks, of course, to demand in China and India, whose citizens and governments now consume - between them - over 70% of the world's gold.

However, gold stocks are falling out of bed... again! (It's getting tedious, and perhaps a little too predictable....)

Have a look at Goldcorp, the fastest growing - and best - major gold and silver miner. It is being pummelled, and is (again) back below early 2008 levels, where it is revisiting its peak levels even of May 2006. I had to draw up a 6-year chart to illustrate this numbingly obvious point!

Why is Goldcorp pulling back to these levels? In fact, there is no fundamental reason for the stock to trade anywhere near its current range....

If the gold price were to fall back to say, the $1000 level, it might begin to justify the current pricing of the miners. Anywhere in the current broad range that is well over $1000 allows gold miners to rake in profits. Their business is not just "fine," it's unbelievable! Gold mining companies are generating unprecedented profits, probably the best in any industry (as gold mining shares receive a premium over base metal mining shares, because gold trades as both a currency and a commodity).

Let's look at Goldcorp again, in relative terms.

Contrasted to the gold price, apart from its similarly bizarre dip in January of this year, the share price of Goldcorp is at its lowest level since November 2008, at which time gold was priced at $700 - that's right - less than half today's prices! The following relativity chart divides Goldcorp's share price by the price of the GLD ETF - a gold price proxy which allows me to show today's intra-day action:

So, are you worried that gold may pull back to $1400? $1300? $1000?

Forget about it! It doesn't matter. Today's gold mining stock prices would still be justified - even a bargain - at such levels - particularly as no one could suppress the price at such levels for long!

So if, like me, you're not gravely concerned if gold falls back a bit - even quite a bit - from its recent record highs in the upper $1500s, then you are looking at screaming buys across the entire gold mining sector. Keep in mind that no investment product can set a record high day after day. There have to be intermediate peaks and valleys - it's no big deal... and it's certainly not a sign of a topping long-term market price (gold has thousands of dollars to go from here)!

My suggestion, load up on the premium quality gold miners, the Doody Top Ten if you will: Goldcorp, Franco Nevada, New Gold, Yamana, Gold Resource, Royal Gold, Minefinders, and more. In the area of silver, Silver Wheaton is a giveaway, as is Alexco - which in my opinion is the best Canadian-based silver miner.

Stock up now, and offer special thanks to the momentum traders who will sell you the best companies in the world today - in any sector - at one-half to two-thirds their inherent value!
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Gold Mining Investors Hate Record Highs in the Gold Price - Huh?

25, 26 & 27 April 2011

Gold mining investors absolutely hate new record highs in the gold price. Every time gold moves to a new high, the gold mining shares plummet.

I understand why. It's because the investors who accumulate gold stocks think gold is too high and has to go back down again.

Huh?

If that's the explanation, though, what (the heck...) are they doing investing in this sector???

Case in point. Gold soared to a new record high in the $1518 range overnight. As is so often the case, it was sold off in New York (that is a recurring pattern too).

But as I write, the gold price is doing just fine, acting quite comfortable in the $1500 range. And last week, people seemed to think $1500 was a pretty high price for gold. (In 2008 and 2009, they though $1000 was pretty high, and so on and so on, back to $300 in 2002, which seemed like quite a lot at the time also!)


So what did gold stocks do today, as indicated by the HUI Gold Bugs Index?

They sold off hard. Every time this happens, a text box pops up above my head with one word in it:

How, then, are gold stocks looking relative to the gold price? Here is the ratio chart, using the GLD ETF to create an intraday chart.

Hmm. This looks really bad - trending sideways, and actually falling when the gold price climbs!

Well, perhaps it's not as bad as it appears. It does seem that investors are willing to dip their toes back into the market when gold holds at new prices for a few days. It's just a very skittish crowd, for reasons I don't totally understand.

Of course, this broad behavioural pattern has actually caused gold mining shares to underperform the gold price since 2006.

So, yes, you can still buy gold shares very cheaply, relative to the cost of gold, which, surprisingly enough, is what they happen to produce and sell - the better ones in increasing quantities and with rapidly rising profit margins... making gold mining more or less the most profitable business on the planet at this particular juncture in history.

However, at some point this pattern will change, and cheap gold stocks will no longer be readily available.

For the holdouts in the crowd, I'm warning you now.

You are getting gold stocks at a steal. Enjoy it while it lasts, because, hey, it's not gonna last forever!

And think about this: When the gold price sets new record highs - for example - for the last ten years in a row, that might be a reason to hold gold miners, not sell them!

So, why not buy and hold gold mining stocks now? It's just a thought on my part....

Looks like it's been a good idea for the past ten years.

Have you ever noticed how, when a trend sets in motion, it just tends to keep going that way?

Seems to me we might have some kind of trend going on here! So... why not stick with it?

26 April 2011:

Here's an update for you.

Gold, in my opinion, had an uneventful though somewhat lower day (after all, it's a bit hard to trade higher every time an all-time record high has been achieved...):

Gold stocks of course, were smacked down for the second day:

And HUI:GOLD, the ratio chart, is back to valuing gold miners - relative to the gold price - about where they were in late January, when gold was trading $200 lower, in the low $1300s.

Duh.

Let me do the math for you. When the gold price is $200 higher, gold miners make more or less $200 more in profits per ounce of gold sold.

That is, if math is tough for you - as it obviously is for most gold mining investors, then at this level, the miners' margins might be up by, say, 25%.

Let me explain.... Suppose their production costs are $500 per ounce - it can vary considerably, from $0 to $800 or so. Then from late January to late April this year, the miners' profit per ounce of gold sold has increased from something like $800 per ounce to something like $1000 per ounce.

So, independently of the gold price, the miners should trade on the order of 25% higher now than they did in January. In this case, that would constitute a rise in the HUI index from the bottom-feeding 492 in January 2011 to a still undervalued 615 today (the HUI actually closed today at an absurdly low 574).

Let me tell you now - this logical increase in the market value of the gold miners is systematically not happening! The gold miners have lost traction as the gold price has risen for the past 5 years, just as has occurred over the past 3 months, with an additional 33% underperformance from already undervalued levels!

So long as mining company investors go running for cover - like cockroaches under an upturned rock - every time the gold price drops from a new high, that pattern is not going to change!

I guess a smart speculator could play this game for profit, just by going short the miners every time gold sets a record high.

In fact, I'm going to guess that some do, as many commentators on Eric King's program have been maintaining (Dan Norcini and others, for example)!

Shorting the investment sector I believe in more than any other is contrary to my ethics, but what an easy way to make money for the past 5 years!

27 April 2011:

OK. Anywhere around $1500 is a perfectly fine gold price for now. Watch out, as we're setting yet another new record high in gold.

It would be nice to see gold stocks respond positively to a record high in the gold price for once. They are still below last week's levels.....

If that occurred, it would be a watershed event!

Oh, Ben Bernanke is speaking now. The first news conference ever for a Fed Chairman. I disagree with every Fed policy and every statement he makes. However, I admire his courage in attempting to make the Federal Reserve and its policies more open and understandable to the public. That single decision on his part is entirely admirable, and increases my underlying sense of hope for the future.

That is, I believe Mr. Bernanke is wrong about literally everything, but I have total respect for his openness and directness.

You can't help but notice Mr. Bernanke's voice shaking from time to time. He is a courageous and well-intentioned man who is really trying to do a good job! Oh, by the way, his job is probably impossible. He can't fix everything by himself. For example, you'd need a few committed politicians. And how can they do it if the citizens themselves are not willing to take the road less travelled?

You need an entire people working together to respond to a crisis of the present proportions. I hope that will happen one day. But, unfortunately, today is not that day. Almost everyone still wants the easy but short-term solution with higher long-term costs!

Post-News Conference comment:

Hmmm. Mr. Bernanke and I agree on one important point. He stated that the US Federal budget deficit is "unsustainable," and that US Federal debt is "our most serious problem." Wow! That is exactly correct.

Obviously we have different ideas about how to respond to that problem, but yes, we are all looking at the same problem.

Mr. Bernanke was somewhat happy about the S&P downgrade of US debt (S&P warned that its rating of US debt may fall below an "AAA" credit rating, which would drive interest rates powerfully upward!). Obviously Mr. Bernanke hopes that something will get the politicians (and public) moving, so he won't have to do the whole job by himself - which, as we have discussed - he can't possibly do in any case!

As to the gold price, it is soaring on an intraday basis, higher still post-news conference. Somebody somewhere believes that inflation is going to continue....

Are you surprised?

Jim Sinclair's $1521 gold price target was met (and surpassed) today. It hovered at that level following the Fed announcement (due to a promise of continued dovishness in a situation where something entirely different is obviously needed), and the gold price moved over the $1521 level following the conference with Mr. Bernanke. Note that $1600 seems to be the next stop....

Mr. Bernanke still believes that he can act effectively when long-term inflation expectations get out of hand.

Just a small caveat on that one.... We are long past that point, and Mr. Bernanke has obviously missed this critical historic juncture! Pandora's box was actually opened back in 1987, when Alan Greenspan took over the chairmanship of the Fed. That is an event that has been unacknowledged for the past 24 years!

Oh, the question I would have asked... "Mr. Chairman, given that you have announced your intention to cease purchasing US Treasuries in June of this year, what will be the result if no one steps in to take your place?"

Not sure why no one asked that question. It would have been my first!

And... are gold stocks still underperforming the gold price?

Radically so. It is a shocking disconnect! However, the long tail and the trend reversal in today's chart looks optimistic for gold mining shares in the short-term....

If we had a new high in gold and gold stocks climbed... that would be a BIG DEAL! Let's wait and watch for that one....

That would change everything.
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Goldcorp: Cup and Handle Base Pattern

19 & 25 April 2011

I'm not an expert in technical analysis, but I know from experience that the "cup and handle" is about the nicest chart pattern you will ever see.

Wanta see one?

Then look at the current chart of Goldcorp.

It's a beauty.

And this one is somewhat aggressive. Notice how it is already angled upwards....

What do cup and handle formations do?

They go up (other things being equal, such as the stock market not crashing this week, etc.).

Oh yeah, here are a couple of examples (from the textbook).

McDonalds 1998-99:

And the Euro in Australian dollars (2008):

Wow!

(UPDATE: McDonalds is still looking great in 2011. The Euro - not so hot, for now, especially in Australian dollars. My call for Goldcorp? Looking very good for a very long time to come - about as far as the eye can see!)

Enjoy.

25 April 2011:

Oh yeah, some other gold miners and royalty companies are showing similar cup and handle patterns. Here are some.

Franco Nevada (one of my favourites:

Royal Gold (this one's a little skewed, but it's aggressive):

Yamana Gold (getting ready to move, a bit of a slow starter....):

Alexco Resources (creeping steadily upwards to double digits):

New Gold (give it time, it just swallowed a big bite of Richfield Ventures....):

And Minefinders is just an old-fashioned bottle rocket, with its "cup" having formed back in 2010 (the formation still works, obviously!):

Look like a pattern?
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Atlas Shrugged: The Movie Is Worth Seeing Despite Its Obvious Failures

15 April 2011

OK. Just caught the premiere of Atlas Shrugged: Part I this evening. I read the book in high school (at which time it was still fairly new - it was published in 1957). The movie is only on 200 screens.

In my view, Ayn Rand, the controversial and celebrated author, was not a great novelist. She used the form of the novel to express ideas about her personal philosophy ("objectivism") that had been formed by her personal survival of Russian collectivism and a genocide twice the scale of Hitler's. This woman definitely has something to say. As to the film, I was most struck by the conflicting and deeply compromised premises at its core.

Rather than seeing the film set in historical context, we find that it opens in the year 2016. Gas is $36 a gallon, everybody is unemployed, and evil politicians scheme to loot the last few of the country's wealthy and successful people.

Sound like Russia? You've got it. And we are also taken back to the original story of railroading, iron, steel and coal – and ballroom cocktail receptions. That is quite a disconnect, and at least for me, I couldn't set the railroad story in our present decade.

There are other problems. I was bugged by the characters' inability to construct grammatical sentences (“we/us,” “is/are,” basic stuff). The dialogue itself was probably taken from the book, but honestly, that is not an inspired source. Rand's characters can speak for 50 pages without taking a breath. So a lot of the pieces of the story didn't work together.

I also have the impression that the screenwriters (John Aglialoro and Brian Patrick O'Toole) don't know much about modern business. For example, and most tellingly, they stayed with Rand's notion that individuals would be outlawed from owning more than one company.

Hey, individuals don't own any major companies anymore – and don't want to! Everything has been floated on the market to exploit shareholders! Why do it yourself, when you can suck the shareholders dry?

This problem is in fact one of the contemporary manifestations of exactly the problem that Ms. Rand was trying to illustrate from the middle of another century.

That is, the evils of our age are different than those of the mid-20th century. So if we're going to set this story in 2016, then let's see the collective thinkers mired in political correctness and tortured compromises, trying to rescue the economy by destroying the currency. Hey! That is actually happening – and it would make the same point in a contemporary setting, as I think the screenwriters intended.

So, at least for me, this WAS still worth watching. I guess the producers didn't have much money or time. I understand. This is not a big budget film, and that's OK. Give them a break.

I think what everyone involved in this shoestring effort was trying to get across is that individual initiative is the only thing that can save us (as opposed, say, to organizing various factions into groups and going at each others' throats – as seems to occur on Fox News nightly!).

So yes, this film is trying to be about courageous people believing in something and doing it, not unlike trying to produce this film with no money! Good for them. It's probably still the right answer.... I commend them for trying!
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