Three year slide for precious metal miners

Buying pressure wanes on broad stock markets, having rallied to new highs only some days after the latest pull-back. Precious metals have been oscillating. On this last full trading day of 2014, gold regained $1200, while silver gained 2.9% to close at $16.27. The Gold to silver ratio still stands at 73.7, barely below its recent multi-year high.

The volatile NYSE Arca Gold Bugs Index (HUI)

Since a couple of years, precious metal miners are the absolute dogs of the stock market. Every recovery we enjoyed has rolled over, followed by an even deeper trough than the previous bear market bottom. Even before gold peaked in August 2011, miners had been lagging the rising price of the metal.

Halloween gold slide

It 's not just pumpkins and scary masks. This time there are daggers hiding behind the cloaks and the blood on the streets is more than just tomato juice...

Metals not equally precious in their slide

From September until the end of the year is repeated over and over to be the seasonally strongest period of the year for precious metals. Such statistics however are averages and calculated standard errors are considerable. Yet we now face the fourth consecutive year with gold selling off during autumn. Could we do any better investing in any other precious metal ?

Vigorous short-lived bear market bounces

There is nothing as vigorous as a bear market rally. After a severe swoon, the market gets oversold. Earlier sellers see an opportunity to get back in much cheaper, while cautious shorts may want to cover and lock in decent gains. When this mindset gets root among investors and speculators, a bear market rally is born. However, there is nothing as short-lived as a bear market rally. That's why I called them “bear market bounces” in the blog title.

Miners back to square 1.

Ultimately the broad stock market rally ran out of steam. The S&P retreated from its all time high and now is back to 1982.8. Not that this makes any difference for precious metals. After another rocky week, the metals end mixed. Since Friday Sept 19, Gold is almost flat, while silver is down 0.7% over the week. After the lowest close since several years at $17.5 on Thursday, there is a timid recovery to end the week with. Main victim is Palladium ($772), which sold off quite rapidly after its recent multi-year high above $900. Platinum is taken down in the slipstream to $1297, with the gold-to-platinum ratio now up to 0.94 once again.

Relentless slide ...

The S&P broad market index holds above 2000, within a sigh of its all time high. Bond markets suffer somewhat as rates have risen above the August lows. In the mean time, precious metals continue to slide, irrespective of whether the economic indicators coming through are good or bad, whether the stock market goes up or down or geopolitical tensions ease or aggravate.

Metals not equally precious investments ...

While speculators are focusing on price changes of the metal of their choice to set up a trade, the long term investor is better off studying the price changes over the long haul and the relative price changes of one precious metal to another. It is most common to compare gold to any other precious metal through e.g. a Gold-to-Silver, or Gold-to-Platinum ratio. This tells you how many ounces of the second precious metal one ounce of gold would buy.

Precious Metal Mining ETFs: a benchmark

The 2013 cyclical gold bear market and the crash of precious metal mining stocks leaves investors shattered. Some have been lured in again during the early 2014 recovery, while others are waiting to get their toes wet. A few mining analysts left the scene, while many saw their audience dwindle. Investors with limited funds and/or time for a due diligence study may gain exposure to the precious metal mining sector through purchasing one of the exchange traded funds (ETF's).

Relative strength of gold prices

There are plenty of technical indicators working very well for a short time frames: RSI, MACD ...
However when it comes to determining the relative strength over the long haul of the gold price, or that of any other precious metal or commodity, it is more useful to compare to the average of the preceding period. In the following article, a simple moving average over 250 days is chosen, since that generally coincides with the number of trading days in a year.
Graphs last updated on Oct 21, 2016

Their last trump card...

The current circumstances in the precious metals markets are remarkably similar to those on June 27 and 28 of 2013.

1. Gold put down a new low since the 2014 recovery faltered. But the yellow metal is cutting its intraday loss towards the close.
2. Gold is playing it solo: though platinum group metals followed in the plunge, their recovery was swift and Palladium reversed to the positive, while platinum is breaking even by 4 pm and seems to evolve to a positive close.
3. Silver reluctantly follows gold, but never was down more than a couple of cents.

Failure of a rigging scheme (?)

The majority of traders in precious metals futures probably aren't the geniuses the outside world takes them for. They do have more and better market information and statistics and consistently apply those sources of information, with the algorithms implemented on their trading platforms. They continue adding to their personal -or their company's- profits until proven wrong.

Nearing the end of a major pull-back ?

Any major trend reversal never comes without any hick-up, questioning the reversal. Throughout the gold-miner bear market we have seen quite a few false recoveries, which were merely decent exit points allowing investors to mitigate their loss. In every occasion worse was to come. The major pull-back we faced in the second half of March is one of those key-events questioning the emerging trend. Anybody doubting the reversal should have sold by mid-March, the believers were and still are offered an opportunity to add to their positions.

Credit Suisse Global Investment Returns Yearbook 2014

Credit Suisse Global Investment Returns Yearbook 2014

This popular yearly publication goes in depth on three different questions puzzling many investors. It doesn't provide you with an easy unambiguous answer: there is no such one. Instead the statistical analysis gives you the insight necessary to recognize accepted misconceptions and false evidence. The "Credit Suisse Global Investment Returns Yearbook" 2014 is no longer available on the CS website. You can try the above sequence on a search engine to retrieve a copy on any other site.

Miners rally into second gear

The worst asset class of 2013 has metamorphosed into the high flyer of the first months of 2014. After a few weeks of hesitation, the gold miners rally gets into second gear. When evaluating miners relative to precious metals, the paradigm change is revealing itself. Throughout nearly the complete gold miner bear market, the main index for unhedged miners quoting on American exchanges (HUI) was losing ground relative to gold. Moreover it rarely even regained its declining 200 days moving average. The trend reversed and HUI/Gold now breaks above its 200 dma.

Miners reviving

Broad stock markets are hesitating after the December rally. Over the week Nasdaq holds on to a tiny gain but the S&P couldn't keep up. Precious metals seem to be floating with the tide: both gold and silver were retreating, but rally back on Friday to end the week up marginally. Gold ends at $1254, (+0.44% over the week) while silver closes at $20.32, (up 0.74%).

Over most of 2013, poor precious metal gains and broad stock markets hesitating, would have sent miners sliding. However a different mantra seems to have taken the lead. The HUI index added 3.47% over the week, making HUI/Gold appreciate to 0.173. Whereas this is hardly something to be proud on (comparing where we started 2013), it's definitely up since the December 2013 low. It's not that most miners suddenly have turned highly profitable, but rather that investors simply are fed up with the doom scenario.

Hui mining index relative to gold

A happy and prosperous 2014 to all readers.

Two gold miner bear markets compared

A very long term graph of the HUI gold miners index naturally goes together with a historic view of the gold price. The Yahoo data series for the HUI index starts off in 1996.