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Gold & Precious Metals

Gold Mining Stocks Continue to Disappoint But Not For Long

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Posted by Chris Vermulen - GoldandOilGuy.com

on Tuesday, 14 August 2012 00:00

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).\

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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.

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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



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Gold & Precious Metals

GOLD UPDATE

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Posted by Martin Armstrong - Armstrong Economics

on Monday, 13 August 2012 16:38

 This week’s close of 1622.6 is the highest weekly closing since May. We have to be cautious next week for we could still make a higher intraday high, and then turn down for 3 weeks before turning back up. The resistance to watch is 1671. We have to see a weekly closing above that level before gold will see any sustainable rally. This crawling sideways pattern is indicative of the calm before the storm. The volatility should start to rise now for the next three weeks before we see another turning point. The other number to watch is 1569. A year-end closing below that level will signal a low next year completing a two-year correction process with a 5 year rally thereafter intraday into 2018 with 2017 being the highest annual closing. If this pattern unfolds and gold cannot get above 1671, the we may be looking at the whole Sovereign Debt Crisis coming in starting next year. Taxes will rise in the USA and governments are attacking the bullion trade as we see in France. They appear to be forcing capital to hoard expanding the underground economy. Americans with safety deposit boxes in Europe have been told to get out. Governments are doing everything to grab money short-term. They will cause a sharp economic contraction by forcing capital to hoard.This is similar to the same patterns that set the Decline and Fall of Rome in motion by  Maximinus I (235-238 AD) who sought to attack the rich seizing all wealth.



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Gold & Precious Metals

Pretty Sure Bets....

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Posted by Bob Moriarty via The Gold Report

on Monday, 13 August 2012 08:30

"In July of 1932, during the depths of the depression, with the Dow at 41, a few brave souls realized that no market goes to zero and they invested. Just short of a year later, the Dow was 108, a climb of 150% during the worst part of the depression.

It’s been my observation in my 40 some years of investing that markets that decline between 87 and 91% will tend to have a countertrend rally of 150%.

Rhodium is quoted at $1170 an ounce today. It is used in catalytic converters primarily but also to plate white gold and sterling silver jewelry. It is one of the platinum group metals. (PGM) It hit a high of just over $10,000 an ounce in mid-2008. It hit a low for this year of $1150 a week ago".

.....read more HERE



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Gold's Seasonality & Yearlong Consolidation Setting Up Rally To All-Time Highs

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Posted by Robert Zurrer for Money Talks

on Friday, 10 August 2012 06:52

With Europe in Financial Crisis, the US Debt soaked and struggling economically, the biggest influence on gold prices right now is the expectation towards more monetary easing, either out of Europe or the U.S. That’s the No. 1 driver. For Gold investors this happily coincides with Equity Clock's seasonal and technical studies which clearly show that Gold typically embarks on a significant upward swing during the month of August. Furthermore, as the second chart shows that Gold in US Dollar Terms is not only down 16% from its high, it is breaking out of a yearlong descendng triangle, typically a reliable technical indicator. 

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Gold Mining issues outperformed this week too, as another indication that this rally is getting underway. The GDX is up 4% so far and the GDXJ is up 4.5%. 

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One interesting facet is that Silver is in Backwardation. Backwardation occurs when the future price of a commodity (gold, silver, oil, corn, etc.) is less than the current spot price. In other words, the price you pay now is higher than the price you have the option of paying a month later. . .two months later. . .or a year later.” The result, according to Brian Hicks of Wealth Daily, is “Historically backwardation means one of two things:

1) there’s a current shortage of silver bullion available on the open market and/or

2) silver traders believe the price of silver is about to take off.” Hicks continues, “Basically it means that there are relatively few silver owners that are willing to sell their bullion holdings. As a result of this tight supply, there’s an increasing amount of demand for bullion that is jacking-up the current spot price of silver. And that’s the significance of backwardation. The current spot price of silver is an accurate record of the real spot price of physical silver as long as people are willing to exchange currency for silver at that price, which is why backwardation is so important.” 

James Turk pointed out in an interview with King World News that gold may also be in backwardation. Turk says, “I think it is, even though the gold forward rate doesn’t show it simply because dollar interest rates are manipulated. I think to a large extent gold interest rates can’t be manipulated any more than they have been. So the true reflection of the market is you have a backwardation, but it’s not obvious because of the various interest rate manipulations that are going on. That’s very bullish. Whenever you get the metals in backwardation it’s a very bullish situation. I” I think that’s what we’ve got right here.” Turk also commented, “The bottom line is we are in a fiat currency bubble. Eventually this bubble is going to pop because we are using this fiat currency, backed by nothing, not just in one country, but throughout the world".

John Embry of Sprott Asset Management says that the next big move in gold may be the result of supply more than demand. He told King World News, “I have been a long time proponent of the idea that we may very well be at peak gold production in the world. We may have seen the peak. The problem is that all of the low hanging fruit has long since been plucked. The high grade ore bodies in geopolitically (friendly) places have (already) been mined and a lot of these open pits have been mined. And they (open pits) have a very finite life. Underground mines last forever (by comparison). But the fact is all of the easy stuff has been mined and where you are now finding anything of significance, it tends to be in geopolitically unattractive areas. They are hard to mine and they are going to be extraordinarily expensive to mine... I don’t worry too much about the fact that the production profile can’t grow that much because ultimately that will be extremely bullish for the gold price. This is a classic supply/demand squeeze. We know that demand is rising in many parts of the world... If there is no greater amount of gold coming out of the ground, the only thing that can arbitrate where the gold goes is price, and the price will go up a lot. I think the gold price could go up to multiples of the current price.” Embry is even more bullish on silver: “I have been of the long held opinion that if we get into a raging bull market, which we are going to in the two precious metals, that silver will head towards the low end of the gold/silver ratio, which is currently over 50. In real bull markets, it will fall as low as 10 or 15 (to 1). If that happens, silver will move up three times as fast as gold by the time this is all over. And I think gold is going a long ways, so you can get really excited about the upside potential in silver.” 


The Bottom Line? The framework for a strong move higher in Gold has become established.   In addition to increased inflation expectations, the US Dollar index has also come under pressure over the course of the past month and a minor head-and-shoulders top can be spotted on the charts.   The target of this topping pattern points down to 81, also the point at which the price action would intersect with the rising intermediate trendline.  As you can see in Equity Clocks Seasonality Chart below, the US Dollar Index seasonally declines, on average, between now and September, supporting commodity prices, such as Gold.

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Gold Seeks "Foothold Above $1600", China Stimulus "Likely to be Positive for Gold"

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Posted by Ben Traynor - BullionVault

on Thursday, 09 August 2012 04:50

WHOLESALE MARKET prices to buy gold bullion hovered in a tight range around $1615 an ounce for much of Thursday morning in London – marginally above where they started the week – before dipping slightly around lunchtime, while stock markets also edged lower following gains earlier in the week.

"Gold seems to have gotten a foothold above the $1600 level and seems to be relatively stable," says Robin Bhar at Societe Generale 

"It's still showing this correlation to riskier assets. We've seen a bit of a rally in the oil market and equities, and gold has kept a par with those moves."

Prices to buy silver also ticked lower towards the end of Thursday morning, dipping to $28.04 per ounce, while other commodities were broadly flat.

"Like gold, silver is showing no trend momentum," says technical analysts at bullion bank Scotia Mocatta.

"We continue to watch the $28.40 level on the upside and $27 on the downside."

Chinese consumer inflation continued to fall last month, dropping to 1.8% – down from 2.2% in June – according to official consumer price index (CPI) data published Thursday. 

Producer price inflation fell further into negative deflationary territory, while industrial production and retail sales growth both slowed.

With inflation falling and the economy showing signs of slowdown, "the numbers confirm that the door for more monetary easing is open," reckons Dariusz Kowalczyk, economist at Credit Agricole.

"[However], we expected CPI inflation rise from now on, reaching 3.8% at year end."

"Any relaxation of monetary policy is likely to be very positive for gold," adds Nomura analyst Saeed Amen in London. 

"Gold isn't fully pricing in further easing."

Over in India, which lost its position as the world's biggest gold buying nation to China in the six months to March, jewelers are finding that some consumers are opting to buy gold in less quantity, purchasing smaller items of gold jewelry, Mineweb reports.

"People do make their annual jewelry purchases at this time," says precious metal retailer Madhukar Jha.

"Marriage season will soon be here and the high gold price will not stop purchases."

As the Rupee has fallen on currency markets, the Rupee price to buy gold has continued to set records this year, despite the wholesale market  Dollar price retreating from last September's $1920 per ounce high.

India's new finance minister Palaniappan Chidambaram meantime described gold bullion as "not a productive asset" earlier this week, as he laid out his plans to boost investment and the economy.

"In 2007-08, savings touched 36% of GDP. It is now down to 32% of GDP," Chidambaram said.

"One of the reasons may be a perceived lack of attractive investment opportunities and instruments. 

Hence the attraction of gold, but gold is not a productive asset and the demand for gold worsens the current account deficit."

Chidambaram added that government policies will be announced "to attract more people to invest in mutual funds, insurance policies and other well-designed instruments".

Pranab Mukherjee, Chidambaram's predecessor as finance minister and now India's president, argued in June that Indians should invest in "wealth generating" assets rather than buy gold. 

Mukherjee twice raised import duties on bullion in the first half of the year, as well as gold sales taxes, sparking a three-week strike by many of India's gold jewelers.

Here in London, Standard Chartered is seeking legal advice over whether it can take action against the New York State Department of Financial Services, after the regulator accused the bank of being a "rogue institution" over dealings with Iran.

"Our reputation has been damaged," Standard Chartered chief executive Peter Sands told the Financial Times.

"It's not worth pretending that isn't the case."

Shares in Standard Chartered were the FTSE's biggest gainers during Thursday morning's trading, regaining some ground after falling sharply following the DFS allegations. StanChart's share price however remained more than 10% below where it closed last Friday.

 

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

 

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.



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