Gold & Precious Metals

#1 Most Viewed Article: Jack Crooks – Gold: Lower into 2015

Posted by Jack Crooks - Global Investor

on Saturday, 2 August 2014 15:47

With the US dollar strengthening, it appears gold could be in trouble. I expect a move lower into 2015 to complete major wave IV correction targeting down to 1,155…then a move to new highs in major wave V…

Click CHART for larger view

jcrooksgoldslide

 

And if you have time, here is an interesting interview with Martin Armstrong of Princeton Economics:

Marty expects the dollar to rally and gold to bottom in 2015 also. 

Regards, 

Jack

 

www.blackswantrading.com Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future performance. Black Swan Capital newsletter services are strictly informational publications and do not provide individual, customized investment advice.

 

Gold Mining Stocks Are Beating Bullion: A Win-Win

Posted by Frank Holmes - US Global Investors

on Friday, 1 August 2014 15:15

For the first time in at least a couple of years, gold mining stock returns are outpacing those of the yellow metal itself.

As you can see in the chart below, the NYSE Arca Gold BUGS Index has given back 22.31 percent year-to-date (YTD), whereas gold has delivered 7.74 percent.

xxximage001

This is good news for both equities and bullion. When miners are doing well, gold tends to follow suit. Indeed, since the beginning of the year, spot gold has seen steady growth following a lackluster 2013. As I noted earlier in the month, it’s been one of the best-performing commodities of the year so far, a mere nugget’s throw behind nickel and palladium.

xxMiners restructuring their business strategy.

Gold mining, to be sure, is a tough gig. When gold prices are between $1,000 and $1,200 an ounce, miners barely break even in terms of cash flow.

Last year was particularly brutal. The metal plunged 28 percent—from $1,675 to about $1,200—which was the largest annual drop since 1981.

To reduce risk, many companies have cut costs in several ways. Some have decreased capital spending. Others have sold off assets. Others still have placed exploration on standby.

Case in point: Comstock Mining Inc., a young mining company which we own in our Gold and Precious Metals Fund (USERX), has managed to shrink operating expenses from $4.4 million this time last year to $3.8 million, mostly by lowering legal and advisory expenses. Other realized annual savings have come from administration and staff reductions.

In a recent interview with The Gold Report, U.S. Global Investors portfolio manager Ralph Aldis addressed the company’s rising success:

Comstock started production over a year ago at about 10,000 ounces a year. It doubled that and now it’s targeting a 40,000-ounce run rate in H2/14… The company has permits to reach 4 million tons per year so Comstock should be a 100,000-ounce producer by 2016. It’s a situation where people are creating value and [Chairman of the Board] John Winfield knows how to make money.

Time to wake up to gold-diggers.

An equity that has performed exceptionally well this year is Klondex Mines Ltd., headquartered in Nevada. Not only does it represent the largest position in both USERX and our World Precious Minerals Fund (UNWPX), but we also own it in our Global Resources Fund (PSPFX).

One of the main reasons we’re so fond of the stock is that in 2013, when the Market Vectors Junior Gold Miners Index was down 61 percent, Klondex was up 28 percent. It’s currently up 30 percent YTD and is targeting free cash flow (FCF) by the end of the year.

“This is a great story,” Ralph said in the same interview. “Most people haven’t woken up to it yet.”

Royalty companies are thriving as well.

Other players in the gold space that have flourished in this climate are royalty companies, which provide upfront capital to miners in exchange for a stake in future output. Since royalty companies avoid the costly rigmaroles gold miners must deal with on a regular basis—securing permits and building infrastructure, among others—they often receive a healthy return on their investments.

Two such companies are Franco-Nevada Corporation, based in Toronto, and Royal Gold, based in Denver. We own both in USERX, UNWPX and PSPFX, as well as our All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX). Whereas Franco-Nevada has risen 42 percent YTD, Royal Gold has leaped 70 percent.

xxxx

Looking ahead.

Gold might have taken a minor hit this week, but autumn is right around the corner, when the gold jewelry industry traditionally replenishes its stock. And with unrest in Ukraine and the Middle East continuing to drive the fear trade, as unfortunate as these events are, gold prices appear buoyant.

This bodes well not only for investors in bullion but also mining companies, which will likely proceed with cost-cutting initiatives to maintain or expand margins.      

 

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.

Stock markets can be volatile and can fluctuate in response to sector-related or foreign-market developments. For details about these and other risks the Holmes Macro Trends Fund may face, please refer to the fund’s prospectus.

Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The Market Vectors Junior Gold Miners Index is a market-capitalization-weighted index. It covers the largest and most liquid companies that derive at least 50 percent from gold or silver mining or have properties to do so.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 06/30/2014: Klondex Mines Ltd. (1.34% in Global Resources Fund, 6.58% in Gold and Precious Metals Fund, 6.60% in World Precious Minerals Fund); Comstock Mining Inc. (3.57% in Gold and Precious Metals Fund, 2.12% in World Precious Minerals Fund); Franco-Nevada Corp. (0.53% in All American Equity Fund, 2.21% in Global Resources Fund, 2.45% in Gold and Precious Metals Fund, 0.55% in Holmes Macro Trends Fund, 1.16% in World Precious Minerals Fund); Royal Gold Inc. (0.58% in All American Equity Fund, 2.18% in Global Resources Fund, 3.14% in Gold and Precious Metals Fund, 0.59% in Holmes Macro Trends Fund, 0.91% in World Precious Minerals Fund). 

Summary

 

  • The reason for gold’s meteoric rise of the last ten years is clearly the fear of fiat currency’s demise, which is completely overblown.
  • The price of gold should rise roughly along with inflation, not way beyond it. Ironically, gold is one of the most inflated items. Thus gold still needs to correct.
  • With every anemic and failed rally in the gold price, the conviction of gold bugs gets more shaken.
  • The pendulum that is gold mania should sooner or later swing to gold panic, creating an entry point for longs well under $1000 per ounce and perhaps closer to $500.
  • Due to the above bullet points, shorting $1300/oz gold is not as risky as shorting normally would be.

….read more HERE

 

On July 13, gold was still around $1,340 per ounce. Since last Monday, gold has suffered a big drop, falling as low as $1,293 in a few days. Many blame the decline on hawkish comments from the Fed’s Janet Yellen, who recently suggested the Fed could raise interest rates. “Higher interest rates would encourage investors to switch to assets that, unlike gold, pay interest,” said the news service Reuters1.

Following Thursday’s news from the Ukraine, gold has rebounded from its low, but remains under $1,320 as of July 18. Rick Rule, Chairman of Sprott US Holdings Inc., recently said gold could fall back another 10% as a normal event in this market. I asked him whether this week’s step down had altered his views on gold for 2014 (Update: Gold still below $1,300 per ounce as of 6:00am July 30th).

Does the recent drop in the gold price affect your outlook for gold in 2014?

“No, not at all, Henry. You will recall that in our last interview, I suggested that gold and gold equities would grind higher after reaching a bottom, I believe, in July of last year. That is precisely what’s happening. We’re seeing higher highs and higher lows, but every new high requires a subsequent consolidation. You’ll be up 10 or 12%, then off 8 or 9%. The ‘backing and filling’ that we are seeing right now is completely consistent with the behavior that we would expect to see coming out of a bear market bottom into a gradual recovery.

“I think this market is in good shape. It’s healthy. These ‘j-curve’ advances are followed by appropriate declines on the backside. I am very encouraged by the market action that we are seeing in both gold, and the gold equities.”

What do you make of Fed Chairman Janet Yellen’s recent comments regarding raising interest rates? Are higher interest rates plausible?

“What Janet Yellen said was that the recovery was tepid at best – if we have a recovery at all. The political narrative dictates that low interest rates are needed in order to help the economy.

“My own belief is that interest rates will remain low in the next 18 months or 2 years, but for a different set of reasons. There isn’t much private demand for loans, even at this low interest rate. But there is an implicit transfer of wealth from savers, who benefit from higher interest rates, to spenders. It’s the spenders who are more numerous, which means that the government will look out for the spenders at the expense of the savers.

“Secondly, the extraordinary levels of Federal, State, and local debts would be difficult to service at higher interest rates. As a result, I think that the Fed will continue to do whatever it can in order to keep interest rates constrained for as long as possible. As long as the demand for debt from the private sector remains low – in other words, until the economy recovers — I believe you will see artificially low interest rates.”

Recent reports show that big companies, like IBM, are probably issuing debt for the sole purpose of buying back their own shares. What do you make of this behavior? Is this the beginning of the end for low interest rates?

“Actually, I don’t think so, because they don’t need to borrow this money for their basic business. The biggest corporations in the United States have good balance sheets and are generating fairly substantial free cash flow. There is nowhere for them to re-deploy the money in their own businesses, because the economy is expanding slowly.

“At these interest rates – particularly if these companies can lock in these interest rates for long periods of time – debt is a cheaper form of capital than equity. In a slowly growing economy, the only way that these companies can increase earnings per share is to reduce the number of shares.

“What they are doing – buying back their own stock with borrowed money – is a normal response to the Fed’s low interest rates. Right now, debt is much cheaper than equity in the long term.

“Of course, there is a downside. Companies like IBM are weakening their balance sheets, which were real fortresses against potential problems in the economy. When everyone does this, you are replacing more and more equity with debt. You are making the economy as a whole much more vulnerable going forward. That will become a concern for these companies in 18 months or two years from now.”

If it is good for big companies, why not for everyone else? Do you think average investors should also try to benefit from these record low interest rates?

“In fact, I do. For an investor who has a stable financial situation, a 30-year fixed-rate mortgage for a house where they intend to live will probably begin to feel like free money once we are 3, 5, or maybe 10 years down the line. If you have the ability to borrow long-term capital at today’s rates, and are able to service the debt – in other words, don’t abuse it – this is probably a once-in-a-lifetime opportunity. After real inflation, the costs of this capital over the long term will likely be negative. That’s very attractive!”

What do continued low interest rates mean for gold going forward?

“Ultimately, it’s probably pretty good for gold. Right now, you are seeing gold being crowded out, because the returns from other assets such as stocks look more attractive.

“But the way I look at this nearly ‘free’ capital is ultimately good for gold. It weakens the medium of exchange, the US dollar, in which gold is denominated.”

What do you think is the most important message to attendees of the conferencein Vancouver, just a few days away now?

“The most important thing to do for attendees is to really take the time to interrogate the exhibitors. We are in the early stages of a resource sector recovery, and the most dramatic parts of a recovery take place in the micro-cap stocks. If you want an in-depth discussion of what to ask, take a moment to revisit the material on our website on how to conduct these interrogations with company. You can use these techniques when talking with the exhibitors at the Sprott conference. There is going to be a lot of money to be made at that conference.”

Update: The Sprott Vancouver Natural Resource Symposium is now over. If you’re interested, you can get the audio recordings at a reduced price of $149 until August 1sthere.

1 http://www.reuters.com/article/2014/07/16/markets-precious-idUSL4N0PR2A420140716

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This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.

Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and nowadays also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment.  Because of significant volatility,  large dealer spreads and very limited market liquidity, typically you will  not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally  associated with  domestic markets, such as political,  currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.

Gold vs. Currencies, Commodities, Equities & Bonds

Posted by Jordan Roy-Byrne - The Daily Gold

on Tuesday, 29 July 2014 20:52

At turning points and for Gold in particular, relative performance is quite important. When people buy Gold they are effectively passing on another investment or market. Hence, it is always important to check how Gold is performing against other markets. In the chart below from top to bottom we plot Gold against foreign currencies, commodities, equities and bonds. What is this chart telling you about Gold’s relative performance?

july26rpog

Gold looks fine against foreign currencies, good against commodities but has yet to breakout against equities or bonds. We’ve noted that 0.75 is the important point for Gold/S&P 500. Gold appears close to breaking out against bonds. It could happen suddenly but the price action says its farther away. The action in gold and gold stocks relative to the stock market is something I will carefully watch this week. I think this is more important than the US$. As I showed you last week, correlation analysis shows no negative correlation, recently, between the US$ and Gold. I think at the present time the strength of the equity and bond market is more of a headwind for a sustained recovery in precious metals than a falling US$. Take a look at what happened during Gold’s bottoms in 2001, 2005 and 2008. The US$ went up with Gold. The two can go up together.  

Overall, the short term trend is difficult to call. I believe the miners are still in consolidation or corrective mode but Friday’s recovery puts that in doubt just a bit. I reduced long exposure a bit this week by trimming the weakest position and those which could have material downside. I also hedged a bit. If the stocks breakout then I can make a few trades and be fully long. If the sector continues to consolidate or correct then I will keep an eye on the relative strength of my positions. To repeat what I said last week:

We want to sell non-performers and reduce overweighted stocks which are not performing strong enough. The stocks that hold up best during this correction, if it materializes, should be the leaders during the next breakout. Meanwhile, stocks that are underperforming and acting poorly figure to lag in the future.

Thanks for reading. I wish you all great health and prosperity in 2014 and beyond. 

-Jordan

….also from Jordan:

More Weakness Ahead for the Miners published July 25th

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