Two weeks sailing in Alaska. An incredible trip: humpback whales and icebergs and grizzly bears and glaciers, almost all of it in glorious sunshine. I have sailed the waters of B.C. since childhood but Alaska is different: vast and rugged, with peaks rising straight out of the ocean and often not another boat in sight.
Cell coverage followed me for the first few days, then disappeared. I had no way of knowing what was going on in Greece or how badly Chinese markets were melting down or what it all meant for the price of gold.
Returning to civilization, somewhat panicked about what I had missed, I was reminded of the unshakeable nature of a depressed market.
The seven-year-old Greek drama had reached peak pressure. Chinese stocks went into freefall, a 30% loss in just four weeks representing more than $3 trillion in evaporated value. Real progress in negotiations with Iran, which today produced an historic deal, had the price of oil down 10%. Some significant situations had played out.
Gold barely blinked. It slid some, but stayed comfortably inside its 4-month range.
Copper did blink, but not substantially. The red metal punched down to US$2.42 per lb., a
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It’s been a while since I wrote about the price of gold. Time to revisit the yellow metal – though to be honest, we haven’t missed much.
Gold has had a pretty boring couple of months. After running to almost $1300 per oz. in January and then falling back to $1150, the yellow metal has sauntered sideways, staying mostly between $1170 and $1215 per oz.
When it manages to attract attention, gold’s narrative remains stuck on the same points. When will the Fed raise rates? Are the US markets topping? What will happen with Greece and the EU? Is the US economy really growing? What’s the outlook for the greenback?
On a day-by-day basis, much can be said on each of these points. Stepping back, though, the drama dies away and it looks more like these macro questions simply make up our new normal.
The markets have gotten used to the endless debate over rates, to the unsustainable mess that is Greece, to a constant argument over US market valuations versus economic indicators. Even the most ardent gold bugs seem to have quieted their prophesizing that money printing is leading the world towards fiat currency collapse, despite continued
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We are in a holding pattern. Take the uncertainty around the Federal Reserve’s pending decision, add in tax loss selling pressures, mix in a rising US dollar, and add in end-of-year fatigue and you get a market moving as much on self protection and exhaustion as on technicals or fundamentals.
One example of that: I met with a uranium junior today and, after catching up on corporate news, we talked shop for a while. Tax loss selling came up. That’s a normal seasonal occurrence but this year-end there is another kind of pressure. Portfolio managers and institutional traders with mining exposure are in such need of gains that they are selling up stocks, even if they still like the story, to have a closed-out win in their books. They might be planning to re-enter the stock in the New Year, but the reality right now is extra selling pressure not only on tax loss candidates but on stock success stories.
Consistent metal price weakness is not helping. The 30-day copper price chart is looking almost as bad as the 6-month chart.
Gold is down too (though it jumped to end today, not yet sure why). Zinc
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Metals are getting hammered again.
The hits are coming from all sides. Expectations of a mid-December rate raise are pushing against gold, which is down almost 10% from where it was trading before the Fed opened the door to December tightening in mid-October. In response, futures traders – expecting a rate increase to lift the dollar and depress gold – have dumped the equivalent of 368 tonnes of gold in just three weeks.
Rate moves and resulting dollar strength hit hardest against gold, but these forces don’t spare other metals. Copper traded as low as US$2.05 per lb. this morning, down from US$3 per lb. a year ago.
As the PhD of metals, copper is supposed to reflect expectations for the world’s economies. Clearly expectations are low, which you would think at some point would manifest in a US market slowdown. Instead it just keeps climbing. However, many indicators suggest the ascent is limited, from falling appetites for leveraged loans (a yielding investment that usually mirrors stock market performance) to limited market breadth to a dollar so strong it will soon strangle manufacturing and exports.
As for copper itself, prices are now at a point where many mines are
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Happy Monday. Or not so happy, for anyone focused on gold.
It’s been a tough couple weeks for the yellow metal and the pressure is not about to abate. Equities are facing double downside pressure: metal prices are sliding and tax loss selling is getting underway. The only solace there is that many portfolios are looking at bigger losses with oil and gas holdings than metals stocks, so energy equities will bear some of the tax loss selling burden.
The time to clean out some of your underperforming metals stocks was a few weeks ago, as I advised subscribers. Take the tax loss, consolidate some cash, and be ready to play the pending strong season.This week’s Maven Weekly letter to subscribers will outline how I plan to profit in the next few months, as gold and mining moves from seasonal weakness to strength. If you are interested, click HERE and sign up for a free trial.
In last week’s letter I discussed drill results from Gold Standard, Integra Gold’s resource update, and BHP and Vale’s abysmal response to the Samarco tailings dam failure, before talking through why the dollar’s rise will keep on keeping on, holding gold
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Gold got smacked on Friday after a strong US jobs report made a December rate increase more likely. Or so we all think. Only time and Janet Yellen really know. Gold’s slide bolstered the bears who believe gold needs ‘one more bottom’ before it can really rally. Such generic arguments mean little to me. However, chartists can create some solid arguments with their lines this way and that across gold’s price plot showing support and resistance. The non-technical summary is that gold’s failure to best US$1,185 per oz. continues a pattern of lower highs and lower lows, suggesting the worst is not yet over.
Not great news, I agree. But I have stopped stressing about gold. We may yet see gold mark a new bear-market low before the end of the year, but chartists and I generally agree it would be unlikely for such a low to be dramatically below this summer’s US$1,090 per oz. Of course there are deflationists out there with far weaker predictions for the yellow metal, but my belief that the broad US market run is dying supports a brighter near-term for gold than that.
That being said, I do not think the next six
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I spent last week at the New Orleans Investment Conference, and what a great week it was. Quality companies, interesting and informed speakers, engaged attendees, and fantastic food and drink. Many thanks to Brien Lundin for inviting me to be a part of it.
It was a good week to be slightly detached from the metals markets. The Fed promised to really, truly think about raising rates in December and that apparently was enough to justify continued strength in US markets and the US dollar, while smacking gold back down.
Honestly, it’s enough to make you crazy. Why is bad news – that the US economy is not strong enough to sustain a teensy little rate increase – considered good? I personally don’t think the Fed will raise rates any time soon because Yellen would rather be lambasted for not doing what she promised (raise rates) than be blamed for a recession should one follow a decision to tighten.
The way to avoid being driven batty by this endless rates-dollar-gold dance is to ignore the day-to-day and focus on the fundamentals. I’m preaching to the choir when I say that metals and mining are incredibly undervalued and will cycle
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Sorry for the dearth of postings of late! Subscriber commitments have consumed me: a new weekly posting format, notes from a site visit, and news from Maven companies.
I am also currently en route to the New Orleans Investment Conference, one of the longest-running resource conferences around. Generally focused on gold, New Orleans attracts strong speakers and active investors, and I am looking forward to talking shop and trading ideas with other resource folks. Hopefully I will see some of you there!
Last but not least, the new format for my subscriber missives also means a new format for these weekly articles. I had been sending articles and portfolio updates when news warranted, but the result was variable – sometimes several articles a week, occasionally nothing. I also found the format did not give me space to discuss everything that deserved mention.
Now subscribers get a Maven Letter every Wednesday, with at least three sections:
- In The News: comments on resource sector news of note. Not limited to Maven companies – there are lots of explorers, developers, and miners out there doing interesting things!
- Macro Observations: analysis of the latest moves in metal prices, currencies, rates, bond yields,
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Things are getting interesting.
The ten largest markets in the world are all turning bear. US markets were down 11% before bouncing some in recent days. China is off 40%. Japan is down 13% since August. London has lost 11% since April. Euronext is down similarly in the same time period. Toronto is down almost 12%. Germany’s loss is nearing 20%. Among the next ten largest markets: Australia is down almost 14%, Brazil is off 17%, and India and Russia are both down 9%.
Technical analysts are busy debating whether yesterday’s bounce defined a double bottom for US markets and what that might mean. I agree it looks like a double bottom…but I have no confidence that a real rally is at hand.
As I’ve written before, the US economy just doesn’t support a big bull market.
The latest bullet in that gun came out on Friday, with a jobs report that was just terrible. Not just a bit off – terrible.
The addition of 142,000 jobs last month fell far short of the 200,000 expected. To boot, wages were stagnant and hours worked declined to 34.5 from 34.6, while the labour participation rate declined to sit at levels
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September 25th, 2015
The big resource picture is still unclear. No one knows what will turn mining around or when it will happen.
With so much uncertainty, it is easy to hesitate. Why buy now?
That rationale makes sense – for most mining stocks. But a select few offer reason to act.
The company I am thinking of has almost $600 million in the bank. That treasury backs up 80% of their market cap. Think about that: the company has 80¢ in the bank backing each dollar invested.
The other 20¢ acknowledges the company’s asset: an operating mine producing 150 million lbs. copper annually that reliably generates millions of dollars of net profits every quarter (that’s where the near-$600 million came from) and where a nearly complete expansion is set to transition the mine to zinc over the coming years, just as a global zinc deficit is expected to hit.
Oh, and you get paid to own the stock. A dividend yield of 5.6% makes the company one of the top yielding dividend stocks amongst all resource players.
The company is Nevsun Resources (TSX: NSU). The mine is Bisha, one of the best performing mines in the world.
Nevsun’s
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