No Renewed Bull Phase for Metals Miners Just Yet
The Physical Platinum Exchange Traded Commodity [ETC] [LSE:PHPT] fell -30% in the week to Aug 17. This data may be of interest.
Stephen Jen, currency specialist at Morgan Stanley has issued an excellent report (“My Thoughts on Currencies”) dated Aug-18. Here is the summary, making many points I am in agreement with:
Bottom line: The rally in the dollar in the past two weeks, though sharper than I had expected, makes a lot of sense to me. (Apologies for the radio silence during this time as I was on vacation.) I believe that the dollar has established a genuine medium-term floor. The path forward will likely be marked by a two-steps-forward, one-step-back pattern; but this path will be up for the USD, for at least the remainder of the year. The ‘Dollar Smile’
that I proposed at the end of last year is finally working more visibly against a broader range of currencies; it already began to work against the Asian currencies in early May. The global economy is likely to slow further in the months ahead, with several large economies flirting with outright recessions. But global weakness is precisely the key ingredient for the ‘Dollar Smile’ to work, which wasn’t present in 1H this year. (1) The stars were
aligned 2-3 weeks back for the dollar to rally. (2) The AXJ currencies will likely dictate and lead the general trend of the dollar. I see them weakening further in the months ahead, as cross-border (as opposed to cross-asset) risk-reduction gains momentum. The INR, KRW and other AXJ currencies will continue to weaken against the
dollar. (3) Though I don’t believe that China will slow dramatically in the period ahead, investors are likely to be excitable in the post-Olympics period and inclined to be bearish on China. Such bearishness and caution will set the tone for the rest of Asia. (4) The US and the world’s Phillips Curve should remain relatively stable, i.e., if the
world falls into a recession, inflation will decline; the spike in oil prices may have disturbed this relationship. (5) What real money investors do with their hedging strategies will be the single-most important determinant for the dollar, in my view. Hedge funds and model accounts are important in the short run, but US real money accounts, which haven’t hedged much of their overseas exposures, may start to elevate their hedge ratios. This is a sea change for the dollar, in my view. (6) The strong dollar is a positive development for the world, as it encourages virtuous circles through lower commodity prices. Also, there will be virtuous circles through general sentiment regarding the US, as an economy and as a society, that – in turn – will be positive for USD assets, including the dollar itself.
On the weekend in the Week-In-Review, I opined that the $USD was in a new Bull phase, which when recognized a few weeks ago pulled the precious metal prices down. After weeks of virtual free-fall in the metals, when the $USD powered north, this weekend I advanced the notion that very long-term oriented traders as well as day traders may find it to their benefit to buy the depressed shares of the gold companies.
In the case of the long-term oriented traders, that would be the start of an averaging down strategy. For the day-traders it would be done to try to capture a +4% to +8% move in share prices.
What happened Monday, on a day when the huge majority of share prices plunged, was that the goldminers group rallied, as I said I expected they would. That’s cutting it pretty fine.
The DJIA dropped over -180 points and the major market indexes fell by an average -1.5%, but the Goldminers ($XAU) lifted +1.5% and $GOLD lifted +$13.50/oz on the day. My monitor showed some very good gains:
AMEX:
(GSS) Golden Eagle Res +3.5%
(MFN) Minefinders +5.3%
(NG) Novagold +2.2%
NASDAQ:
(PAAS) Pan American silver +5.0%
(RGLD) Royal Gold +3.6%
(SSRI) Silver Standard +1.1%
NYSE:
(ABX) Barrick +2.6%
(AEM) Agnico-Eagle +6.5%
(AUY) Yamana Gold +2.0%
(GG) Goldcorp +2.8%
(HL) Hecla +2.3%
(IAG) Iamgold +1.9%
(KGC) Kinross Gold +3.1%
(NEM) Newmont Mining +1.3%
(SLW) Silver Wheaton +4.0%
Toronto:
(AUREF.PK) Aurelian +3.6%
(GEAFF.PK) Gold Eagle Mines +2.3%
(KRY) Crystallex Intl +4.3%
[LMA] La Mancha Res +3.2%
(UXG) US Gold Corp +2.6%
(WGW) Western Goldfields +3.6%
But please don’t misconstrue my words. I am not calling for the start of a renewed Bull phase for precious metals or goldminer shares. At least not yet.
There has been a lot of technical damage done that must be repaired, which simply means a new cycle bottom must be constructed where the Bulls and the Bears come into balance, for a while. That period may cover a week or a month; we’ll have to wait to see.
Now is the proper time to study the quality of the goldminers and explorers to assess their future prospects. Don’t waste it. More to the point; don’t waste your precious time reading the back and forth nonsense from the newsletters and chat boards. The only thing important to you is found in the market price and volume data and in the fundamentals and quant data contained in the research reports from Wall Street and Bay Street.
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This article has 16 comments:
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Mark Anthony
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310 Comments
My Website
Aug 19 01:29 PMOne thing you should pay attention to is not just the massive physical metal redemption request of the ETF Securities platinum fund, but also the fact that the actual trade volume of the shares are way much lighter than the redemption requests. So the redemptions of the physical platinum metal are NOT investment funds unloading, but rather they must be industry users who hold shares tender the shares to redeem for the physical metal.
Another thing is on August 7th, the US government suspended sales of platinum from the defense strategic stockpile inventory. This is something that never happened before in 20+ some years since the end of the Cold War. You must understand that platinum is a critical war time material. Read this for the discussion:
seekingalpha.com/artic...
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John Apodaca
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4 Comments
Aug 19 01:44 PM-
Frankfurt/Hessen
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12 Comments
Aug 19 02:05 PMSame is with gold/silver and anything else.
On who waits to be in the wave on the bottom or short on the top,gets older by 10 years at least,I am trading in and out and make a super good living in high end part of Frankfurt,last weeks profits will buy me a Rolex Daytona gold,I didn't got older while living with the markets and waiting for miracles,I embrace reality and make small profits here and there,my losses are even smaller but in the end of the month it all adds,while you will be talking forever whether it is a bull or a beart,I will make my money on a trading ranges,let the market decide the direction I will adjust to any new reality.
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gigem77
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99 Comments
Aug 19 02:13 PMThe dollar is attached firmly to the continued crap out in the financial sector. FNM and FRE are headed for government takeover and their shares will go to zero. Will LEH fail? WM? When the FDIC needs more money, what will the effect be on the dollar?
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phdinsuntanning
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433 Comments
My Website
Aug 19 03:39 PMIn consequense someone is buying the physical thing and those poor
PHPT.L holders are getting a useless piece of paper. No wonder all these ETFs are dying, the metal is going somewhere else...
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Greg Pinelli
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584 Comments
Aug 19 05:36 PMIF...supplies were tight and demand was level we wouldNOT have seen a 43% drop in palladium and a like drop in Platinum.
Why Mr. Anthony has a website is beyond me...his Alpha articles are scattered and largely incomprehensible..and he doesn't seem to understand metal market basics.
I'd also argue with Mr. Cara that what we are seeing could even remotely be seen as a dollar bull. It's...if anything..a response to Euro slamming..the US dollar will get over this short lived reflexive move up soon..and resume it's very long forward looking slide. Uranium..silver (especially) and palladium have great upside potential after a very brief levelling period...October/Nov sounds about right.
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User 245744
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3 Comments
Aug 19 05:46 PM-
fxtrader07
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618 Comments
Aug 20 06:01 AMt wat to hear and talk about it - but they are, plain to see for evberyone who cares to really look at them. Surprisingly, for all your talk about the manipulative practices of the HB&B you go out of your way to dismiss the same manipulation in the much smaller, much tighter controled by the HB&B and hence much easier to manipulate precious metals markets. gop figure, something doesn't add up here.
@Georealist: I disagree with a couple of Mark's points but, he does some really thorough research and some of his observations are spot on. You, on the other hand, argue with bias and opinion, but very light on facts. The comes futures markets have almost ZERO relationship with real physical demand for gold, silver and palladium. Any major bullion bank can hammer and lift prices there at will - even more so if they compine theiur efforts, what they very often do.
or are you to tell me that all of a sudden, one August afternoon real demand for gold and silver fell so sharply to warrant a 30% haircut in prices? LOL!
btw, real silver dealers report very long delays in delivery, the us mint has suspended to issue silver coins(!!) the perth mint has hude tzime lags delivering silver to clients that supposedly had all been stored already - go figure.
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sandspider
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52 Comments
Aug 20 01:34 PM-
Summy
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3 Comments
My Website
Aug 20 03:34 PMI'll see if I can dig up some documents I saved from Stephen Jen in 2004 (I used to work there). He essentially said the bear market in the U$D was over. You won't find this online... It's burried back with the guys who said crude oil had an "Iraq War Premium" when it fell back to the $20's in March of 2003. Remember, MS and other institutions underwrite and sell bonds. I don't think anyone needs to be a rocket scientist to see there is no shortage of debt coming on to the market (the bubble as the market cap for derivatives exceeds 550 trillion and the US Bond market is estimated to be twice the size of the equity market). The "slowing economy" spin is good for the bond salesmen. I agree with USA, Inc being a sick company but there are other parts of the world which are growing economically.
There are very few quality gold deposits coming online. Much the same for copper or silver. Listen to the CEO of FCX... Here in the USA we've got plenty of guys in suits selling mortages and annuities and very little geologists or engineers in the world of making "things" so the confusion of this matter is understandable. It's also significant to note how many americans trust the information portrayed to them my Wall Street and the major media. The Wall Street Journal removed all their long term charts on the "Money & Investing" page... A picture of the U$D going down and commodities going up might help draw some different conclusions:
1. If the U$D goes down... what is it decreasing relative to? Answer: The .USDX is over 50% the Euro and 5 other currencies so the .USDX might not be the best indicator. I would think the best indicator would be the physical bullion market (which is very small at this point but will sometime grow to be the market like 1980).
Short term guess... I think we might all have the Amero in 2012. WHat would get us there? A U$D crisis...
www.youtube.com/watch?...
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gigem77
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99 Comments
Aug 20 05:13 PM-
Alan von Altendorf
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355 Comments
My Website
Aug 20 10:49 PM-
gigem77
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99 Comments
Aug 21 11:13 AMThe forward hedge book is smaller than it has been in a decade. ABX still has a sizeable hedge, but most have reduced or eliminated their hedges altogether. Companies like AUY hedge their base metal production and leave their gold fully unhedged.
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Summy
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3 Comments
My Website
Aug 21 01:29 PM-
Diegojames
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83 Comments
Aug 24 11:27 AMI am LONG with GG :Goldcorp, BHP, CCJ:Cameco, ABX:Barrick and GMO .
It appears a re industrialization is arriving with new power generation of all types, growing economies everywhere and a suspicion of paper currency.
This should be BULLISH for metal commodities and industrial producers of heat exchangers and condensors. Any companies in mind as investments?
Diego
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AXJ
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1 Comment
My Website
Sep 04 01:37 AM