Anatomy of a gold miner bear market

Last two years, we've witnessed a plunge of precious metal prices from before Christmas leading to the New Year. The relentless gold bear raids from mid April onwards, lead to a multi year low for gold on June 28 and the following recovery completely was wiped out with gold equalling the June 28 low on Thursday Dec 19. It seems the gold bear has gotten ahead of itself.

Much the same accounts for the miners, which ceased to leverage down precious metal prices last week and were vigorously reviving, despite meager gains for the metals. Over the short trading week leading to Friday Dec 27, gold added a timid 0.86% on the Comex close to end at $1213.80, while -after its major plunge- silver added 3.43% closing at 20.08. The HUI index of major gold and silver miners added 4.23% with the HUI/Gold ratio now up to 0.1633, hovering above its decade low.

Gold price volatility: Real swing still to come...

The below graph shows the price of gold since the start of 2008, gold was about to break above $1000/oz for the first time in history. We all more or less remember what was to follow, but human memory is selective and often narrows down to the more recent events. Apart from the price of gold (in blue using the left axis), a second graph in red (using the right axis) shows an annualized measure of gold price volatility. It wants to tell a story...

Gold mining: the fading away of an industry...

The protracted downtrend of precious metal prices may have run its course, there is however no clear indication of much higher gold and silver prices in the near or medium term future.  Gold is moving sideways, unable to uphold $1400 for more than a few days.  Producers are scrutinizing their mining sites and not without reason. Production at mines with high total production costs may need to be scaled back.  Any new mining development will need to factor in lower gold prices going forward and the internal rate of return will be substantially lower.  Especially on sites where investment costs have been spiralling out of control, tough decisions may have to be made.  It should be clear that, under these circumstances, the global gold mining output will continue its decline, possibly at an accelerated pace.  Gold mining: the fading away of an industry...

Precious metals and miners make a U-turn

After grinding lower the first week of August, precious metals made a U-turn. The sentiment change sent the heavily depressed miners soaring. HUI/Gold made it to 0.20 last week and now stands at 0.195. (for fresh graphs, check the GoldMinerPulse page). While we could barely imagine any value below that 0.20 threshold until recently, we're glad the gloomy days are behind us (at least for a while). Last Friday gold peaked above $1400 intraday for the first time since early June.

Brutal end of a nascent gold miner recovery

We 've witnessed a nascent precious metal miner recovery since June 27, as miners have started recovering even before gold found its final bottom below $1200 in the morning of June 28. For as long as the stealth gold rally had legs, miners responded favorably. The gold rally was petering out the week after last posting:
The stealth gold recovery rally. Gold has been sliding from July 29 onwards. Despite a small technical recovery last Friday, the gold slide aggravates. Whenever there is some rumor out about "tapering" the QE3/QE4 bond purchase programs of the FED, hell breaks loose.

The stealth gold recovery rally

Ever since bottoming in the morning of June 28, gold has been hesitantly drifting higher. The short first week of July, with American and Canadian exchanges closed for the national day, the yellow metal lingered on, apparently challenging its June 28 bottom. Gold closed the short week down 1%, however without closing below $1200. Ever since we seem to experience a stealth gold recovery rally. Until this morning, $1300 seemed to be a firm resistance for gold. After a few failed attempts, we're now vigorously steaming up higher.

Depressive June ending with a manic gold miner recovery rally

Precious metal investors have been watching in disbelief how gold tumbled through all resistance levels eventually bottoming well below $1200 in European trading and during the NYMEX morning session, yesterday June 28. The recovery rally however was written in the stars:

• On Thursday, precious metal miners followed the stock market recovery, ignoring the continuing plunge of the yellow metal;
• While gold continued the last stage in its race to the bottom, silver upheld well on Thursday and both platinum and palladium reverted course and started recovering; the proverbial "bridge too far" for gold bears...

Investing in gold miners and getting out alive (?)

When plotting the HUI index (basket of unhedged gold miners) relative to gold, we've been witnessing an almost uninterrupted slide since nearly three years. HUI/gold made a post Feb 2001 low last month (well below the crisis bottom level of 2008). As gold held above $1400 a couple of weeks ago, HUI/Gold was flirting with its 0.200 resistance. Until few months ago it was difficult to conceive HUI/Gold ever breaking below that 0.200; yet it has and is again challenging its 0.181 bottom.

Leveraged Exchange Traded Funds: a trader's tool

Among the ever growing family of exchange traded funds (ETF's), there are quite a few leveraged products. Direxion probably is the larger distributor of this particular type of ETF's.

Soros gambles on a swift gold recovery

George Soros confused the markets with his gold ETF sales. Now he seems having put a on a far riskier bet. Not only he bought a fair stake in GDX, the main large cap gold mining ETF, Soros also gambles on a swift gold recovery though a considerable long position using call options on the Market Vectors Gold Miner Junior ETF (GDXJ).

Volatility in the gold market

It’s often heard that gold takes the staircase up, but the elevator down. A gold rally would then consist in a gradual process of relatively small but consistent daily upward moves. The gold cartel (bullion banks and investment banks, backed by the FED) would not allow gold to rally over 2% daily.

Once ignited, swoons in precious metals are thought to aggravate by forced liquidation of future long positions and the redemption of leveraged products and bullion ETF’s...

All of this is a mixture of facts and myths, causes and consequences, hidden motives and secrecy, misinformation, manipulation and opportunism. While I can do very little about most of those, I will try to clarify some of the facts in order to eliminate a few of the myths.

Honestly, you don't want to know...

Gold price manipulation reached its culmination on Monday with an over-night low around $1320. The multiyear resistance of gold at $1525 was broken the previous week, triggering the plunge. After a suggestion by IMF president Christine Lagarde, rumours were out that Cyprus was to sell its gold holding in order for the €10 B bail-out loan to be approved. Little imagination is needed to shift focus to Italy: in a political stale-mate and with debt equally spiraling out of control. Contrary to Cyprus, Italy does have meaningful gold holdings, however still only worth a fraction of their outstanding debt.

The puke moment for precious metals and miners

This is worse than a nightmare !
With gold down $84 today and silver shedding $1.81, we can't have much more... and we got more on Monday.
Continuing the slide at that pace, by the end of April we will get paid to carry away those metals previously considered precious... and smelly beggars outside the shopping mall will put down a sign in front of them saying: "no gold please". You don't buy the story? Then it's perhaps the time to stop shorting those metals.

Explorer shake out coming

Several illustrous precious metal mining gurus have been warning for it: an explorer shake out is coming.

As Rick Rule uses to phrase it: "Many explorers will inevitably tend towards their intrinsic value: zero", qualifying the typical ill managed nano-cap as "would-be explorers lead by butchers, bakers and candle stick makers".

Gold Miners hit rock bottom relative to gold

A graph says more than a thousand words: Gold Miners hit rock bottom relative to gold.

HUI Gold ratio since  Jan 2008 (graph updated on Apr 05, 2013)

Platinum group metals, a story of scarcity and industrial needs

Among precious metals, platinum deserves special attention because of several of its characteristics. Unlike gold or silver, platinum is an extremely hard metal, with high wear resistance. Alloying platinum with gold makes the alloy more malleable.  Platinum is denser than gold and has with 21.45 g/cm³ over twice the density of silver. It melts at a higher temperature (1768.3 °C or 2041.4 K) than silver or gold.  Unlike silver and palladium[1] and similar to gold, platinum is not corroded in any normal environment.
(With graphs updated as of Jan 5, 2017)

Miners relative to precious metal prices - an update

The focus of this blog article is on the gold and silver miners from a tactical point of view: how do PM miners perform relative to the price of gold or silver.
Special attention is paid to the miners covered by the database 'Canadian gold and silver mining', for which a capital weighted index of gold- and silver miners is calculated. Aggregated performance is one thing, it's also very illustrative that miner and explorer performance has been diverging from outperforming the metals by a wide margin to losing ground completely.