<b>Gold's</b> Technicals Support Positive Fundamentals - 9 Key <b>Charts</b> <b>...</b> |
- <b>Gold's</b> Technicals Support Positive Fundamentals - 9 Key <b>Charts</b> <b>...</b>
- The Bear Market in <b>Gold</b> & Silver Miners Is Most Likely Over | Rory <b>...</b>
- <b>Gold</b> Closes Above $1,300 After 3 Months On Steady Move Higher <b>...</b>
| <b>Gold's</b> Technicals Support Positive Fundamentals - 9 Key <b>Charts</b> <b>...</b> Posted: 14 Feb 2014 06:11 AM PST Submitted by GoldCore Gold's Technicals Support Positive Fundamentals - 9 Key Charts Gold is up 3.3% this week and headed for the biggest weekly advance since October as U.S. economic data was again worse than expected. This increased safe haven demand and the biggest exchange-traded product saw holdings rise to a two-month high.
Call options on gold, giving the buyer the right to buy June 2015 futures at $2,200 an ounce, surged 24% to a five-week high as prices climbed to a three-month high.
Gold has traded above the 100 day moving average since February 10, and is heading for a close above the 200 day moving average for the first time since February 2013. A weekly close above the 200 day moving average and the psychological level of $1,300/oz will be very positive for gold and could lead to gold challenging the next level of resistance at $1,357/oz and $1,434/oz. Gold is up 5.3% so far in February and 9.3% so far this year as concerns about emerging market markets, currencies, and the U.S. economy boosted safe haven demand. Recent employment and sales data was poor. U.S. jobless claims reached 339,000 in the week ended February 8 and retail sales in the U.S. declined in January by the most in 10 months.
The fundamental outlook for gold remains encouraging as there continues to be robust physical demand for gold despite frequent sharp and sudden sell-offs in the paper futures market. Indeed, there are continuing stresses in the physical bullion market as seen in the Gold Forward Offered Rate (GOFO) rates. These are rates at which contributors, LBMA banks primarily, are prepared to lend gold on a swap against U.S. dollars. Robust physical demand is also confirmed by the government mints and their coin and bar sales - many of whom had record sales in 2013. The U.S. Mint saw gold coin sales surge 63% to 91,500 ounces in January from 56,000 ounces in December. This was the highest monthly total since April, as sales continued to rebound from their August and September lows. Chinese demand was quite weak in the last day or two but as ever with Chinese demand it is important to focus on the long term- the monthly and annual data, and fade out the daily noise. After a massive, record year for Chinese gold demand in 2013, Chinese demand for gold in January was again staggering. SGE data shows that withdrawals from the Shanghai Gold Exchange vaults in January 2014 accounted for 247 tons. This is an increase of 43% compared to January 2013. It's also more than monthly global mining production and an all-time record.
Gold is hemorrhaging out of the western banking system and flowing east to China and also to the increasingly important Asian precious metals hub in Singapore. Storage in Singapore is extremely attractive to the very risk averse, gold owning public. In just three weeks, we already have more bullion stored in Singapore than in Zurich and Hong Kong combined. Our research regarding storing gold in Singapore is the most widely downloaded and read research we have ever produced.
The flow of gold from west to east can also be seen in the COMEX gold inventory data which remains near multi year lows. We are confident this trend will continue in the coming weeks, given the fragility of the western economies and banking systems. Indeed, it may lead to a COMEX default and a scramble to acquire physical gold amid surging prices. Increasingly, gold investors are seeking the safest way to own gold and are avoiding paper gold and gold stored with banks in favour of fully segregated and fully allocated physical coins and bars, in their name, in safer jurisdictions.
Continuing rumblings of bail-ins and the risk of punitive taxes, levies and even confiscation of assets is contributing to the flow of gold from west to east. As is the ultra loose monetary policies of western central banks who continue to punish savers. This week brought confirmation, if it were needed that loose monetary policies are set to continue. Doves Carney at the Bank of England and Draghi at the ECB have been joined by Yellen taking over at the Fed. In her testimony to Congress, Yellen confirmed that she is set to be remain dovish and will continue with QE in the billions per month and maintain interest rates near zero. Yellen said the markets should expect the central bank to continue to follow the ultra low-interest-rate path laid out by her predecessor. She failed to outline the exit strategy of how and when the U.S. might be able to wean itself off the drug that is cheap money and debt monetisation. It is important to note that while the U.S. money supply did not increase much in the final year of Bernanke's stewardship of the Fed, it has accelerated as he leaves and Yellen takes over. Money supply in the form of M2 has surged in January and February and has doubled in pace so far this year.
Despite the recent taper and a recent slight improvement in the U.S. annual trade and budget deficits, the U.S. financial position remains appalling as seen in the national debt. Then, there is also the small matter of the unfunded liabilities in the U.S. of between $100 trillion and $200 trillion. Conclusion This is aligned with the still positive fundamental backdrop of significant macroeconomic, systemic, geo-political and monetary risk which is leading to significant demand for physical bullion globally. Gold is good value at these levels. However, those considering accumulating gold should not assume that the correction is over as it may not be. There is still the potential of falls to test support at $1,180/oz and more range bound trading. However, if the very positive demand and supply fundamentals are allowed to assert themselves then we should see gold enter a new bull market. Buyers are advised to dollar cost average into position to protect from further corrections and pullbacks and to always own physical bullion and have full title to it.
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| The Bear Market in <b>Gold</b> & Silver Miners Is Most Likely Over | Rory <b>...</b> Posted: 14 Feb 2014 12:00 AM PST The Probability That the Gold & Silver Miners Bear Market Is Over Is Now High It's been a tough bear market for the gold and silver miners. The Philadelphia Gold & Silver Miners Index (XAU) reached a weekly high in April 2011 (225.79) and declined some 64% peak to trough by December 2013 (weekly low 80.43). After an 11-year bull market in the gold price from 2001 to 2013, which took it from $255 a troy ounce to a peak of $1,900 an ounce and back to $1,300 currently, the gold miners are not just back to 2001 levels, but also the mid-1980s levels. In other words, the gold and silver miners have not added value for investors over the long-term, and even a quadrupling in the gold price in the 2000s did not see them deliver higher and sustainable earnings, cash flows and dividends for investors. [Don't Miss: Ross Hansen: All Quiet on the Precious Metals Front - Metals Ready to Roll] The recent bear market set in well before there was any sign of weakness in the gold and silver prices. Miners had been struggling before that with an increase in political interference regarding mine permitting, a gradual lower grade of gold per tonne of mined material, industrial unrest in many jurisdictions and a higher oil price all adding materially to costs. In addition, ill-discipline on the acquisition front detracted rather than added to shareholder value. The Beginning of the End of the Bear MarketIn my view, the first signs of a market bottom in the gold and silver miners occurred in April 2013. As the chart shows, back then we saw the XAU Index capitulate by 33% below the 30-week moving average as investors fretted about the impact on miners of the falling gold and silver prices. Capitulation is a useful indicator in highlighting the speed of decline. Acceleration in the speed of decline often marks the bottom of a bear market, or at least the start of a bottoming process. In this case, it was the start of the bottoming process. In late June 2013, the gold price itself then capitulated with a rare 20% decline below its own 30-week moving average. This led to a second capitulation in the gold and silver miners with the XAU Index once again declining 32% below its 30-week moving average in early July 2013. As the chart highlights, the gold price has only declined 20% below the 30-week moving average on three to four other occasions since 1969. Capitulation in the gold price, therefore, is a rare event. The cause of the decline in the gold price is relatively well understood. Stock markets were signalling recovery and inflation remained benign. Profit taking set in after 11 years of strong returns. In short, investor demand for gold and silver waned, typified by an exodus of investors from gold exchange-traded commodities (ETCs). It didn't help that India, one of the world's largest ongoing buyers of gold annually, raised duties on gold imports in an attempt to reverse weakness in the Rupee. The Case for Precious Metals Appears IntactCentral banks are still printing money in vast quantities in the US, UK, Europe and Japan. The risks associated with all this money printing may not be known for a few years, but the risks have not gone away. Investors may have temporarily forgotten about these risks (inflation) but sooner or later investor demand for gold is likely to return. After all, gold is the only global currency where the supply cannot be increased at will by central banks. Hence, it protects investors against future inflation. While none of us really knows the implications of the global experiment in money printing, I am of the view that investor demand for gold will return when investors realize that they need to protect portfolios against a scenario where inflation becomes a problem. Having capitulated in late June, the gold price has not declined below the June lows since, and it appears to be on an upward trend once again. This does not surprise me. In addition, as the chart highlights, the world's largest gold mines are struggling to find and mine high grade gold deposits. According to IntierraRMG, the average grade of gold per tonne of material mined in 2012 was circa 1.15 grams. This is down from 5-6 grams per tonne a decade ago. As I highlighted earlier, this statistics goes a long way to explaining why gold miners have not really participated in the gold price rise from $255 a troy ounce in 2001 to $1,300 today. Mining costs have risen substantially, and in no small part reflecting lower grades of gold per tonne of material mined. If the grade of gold mined is lower than historically, this also adds to the argument that the gold price needs to be higher. Otherwise, miners will lower output and supply will fall behind demand. In contrast, the XAU Index broke below its July lows (weekly low of 86.44 in early July 2013) in December 2013 (weekly low of 80.43). My view at the time (and shared with subscribers of GillenMarkets) was that without a new low in the gold price the breakdown in the XAU Index was unlikely to be sustained. That is indeed what happened with the XAU Index quickly recovering to close back above the July low. Technically, this was another clue that it was a bottoming process, and not the onset of a new leg down in this gold and silver miners bear market. But Value Is the KeyTechnical indicators, like the 'Capitulation' indicator, are all very well in terms of assisting investors to understand when markets may be over-reacting (in this case to the downside). But if good fundamental value is not on offer at that stage, the odds of strong investor returns from that asset class on a 3 to 5-year view can still be low. But when good business values exist when an index or sector capitulates then the odds of strong returns from there are much higher. As gold and silver generate no income, it is harder than normal to judge whether these precious metals offer value at any point in time. Some investors compare gold to an equity index or average house prices back in time to see how dear or expensive these precious metals are relative to these other assets. But, as gold and silver have merely matched inflation over the millennia while equities and (commercial) property have delivered returns of circa 5% above inflation over the long-haul, personally I am somewhat dubious about such comparisons. The positive, however, is that value in gold and silver miners is easier to judge. They are, after all, productive businesses capable of generating earnings, cash flows and dividends. In that regard, perhaps it makes more sense to compare the XAU Index levels with the gold price. The chart highlights that on average since 1983 the XAU Index has traded at 0.22 times the gold price. Today, following a near 3-year bear market in the gold and silver mining sector, the XAU Index is trading at 0.08 times the gold price. That leaves at lot of upside if history is our guide. [Read More: What's the Safest Way to Buy Gold Stocks? ] Fundamental Values in Gold MinersIn terms of highlighting value in individual miners, in early January 2014, I highlighted on my website a list of gold and silver mining stocks trading below balance sheet value. As I excluded acquisition goodwill from these balance sheet values, their book values were decent proxies for replacement cost. On average, the list of stocks shown was trading at a price-to-book value ratio of under one times, after goodwill has been stripped out – that is, the value of gold miners in the market place is less than the value of tangible assets on the balance sheet. The seven stocks we listed were all well financed, with some companies even having substantial net cash balances. All companies included in the list have positive operational cash flows. Please note that all share prices and balance sheet values are presented in US dollars, except for New Crest, which is presented in Australian dollars. As I write (14th Feb 2014), the gold and silver miners have rallied 24% from the bottom made in late December 2013. How quickly sentiment can turn – but thus it always is! If you are like me, and believe that investors are once again starting to appreciate the protective values in gold, then the gold and silver mining sector has significant upside from current depressed levels. |
| <b>Gold</b> Closes Above $1,300 After 3 Months On Steady Move Higher <b>...</b> Posted: 13 Feb 2014 02:59 PM PST Exactly 3 months ago, the price of gold broke down through the psychologically important $1,300 level. Today, spot gold prices broke above $1,300 and continued its move higher to close the New York trading session at $1,300.40. Gold is very close to test its 200 day moving average which comes at $1,304.70. Needless to say this is an important technical price level. From Marketwatch: Gold climbed on "worse-than-expected retail sales figures along with a higher initial jobless claims number — both contributing to lower U.S. dollar DXY -.00% and therefore a higher gold price," said Jeffrey Wright, managing director at H.C. Wainwright.
Earlier this week, we showed how the entire precious metals complex was at major resistance, from a chart perspective. The four metals and the mining indexes were all simultaneously trading at key resistance levels or at the end stages of a trading range. Meantime, the technical picture has become better, although gold trading at its 200 day moving average is expected to encounter resistance. The key gold price level to watch, as we said, is $1250 – $1260; gold should not fall below this price before the daily chart turns bullish. It would be a strong signal if gold would test $1250 – $1260 but not breach it. Gold remains the best performing asset in 2014, even better than silver, amid tapering. |
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