Bears Roaming through the Mines

By Brad Zigler

Gold and silver have had better weeks. Much better weeks, in fact.

Gold, basis the London morning fix, lost 5.3% for the week ending Thursday to end up at $900.75 per ounce. Silver skidded 7.9% to $17.09.

Gold and silver futures continued selling off in the overnight market after a brutal COMEX floor session that produced closing losses of 2% and 3% on Thursday.

The erosion of bullish sentiment was even more marked in the mining stock sector. The Philadelphia Gold/Silver Index (PHLX: XAU) gave up 10.2% for the week ending Thursday and now is testing support at its 200-day moving average.

Several issues in the broader AMEX Gold Miners Index (AMEX: GDM), have already taken on water due to short selling. The average short ratio for GDM's nearly three dozen stocks is 3.2, but nearly a quarter of the constituents have attracted particularly intense interest from bears. Not surprisingly, there's a strong correlation between short interest and price trend.

 

Higher-Than-Average Short Interest

Company	Ticker	Short Ratio	+/- 200d Mov. Average (%)	EBITDA ($mm)
APEX Silver Mines	SIL	22.0	-33.6	-29.7
Starbridge Gold	SA	11.5	-27.1	-6.4
Minefinders Ltd	MFN	9.8	-12.4	-17.4
Tanzanian Royalty	TRE	7.1	-13.3	-2.5
Crystallex Int'l	KRY	6.3	-27.4	-27.8
Royal Gold Inc	RGLD	5.1	-6.0	39.5
Gold Reserve Inc	GRZ	4.7	-25.1	-18.5
Hecla Mining	HL	4.6	4.8	84.3

 

Sooner or later, the selling's going to exhaust itself, but so far, traders haven't picked a spot to stand their ground. Given the dynamics of the trend that got COMEX June gold from $808 to a $1,021 peak in five months, they might just let the retracement go a little further. For now, the $876 level is the next downside target.

The pressure on silver this week notched up the gold/silver ratio 2.8% to 52.7-to-1. Basis the May COMEX contract, silver remains vulnerable to a test of $16.33.

 

Gold/Silver Ratio - ETF Version

 

Comments

[paultaut]

Bears only go into caves to hibernate...simplistic view.

[Marol]

If they're heavily short, why do they keep declining? (There are other examples.)

[dieuwer]

...and when the bears stormed into the mines, to their surprise, they found nobody there? "He? Where is everyone?" noted little bear.
"Where is the gold?" noted mama bear. "The mines are emtpy!" said papa bear.
Where to go now?
To the bullion banks then!
And so they went.
They stormed into the vaults of the bullion banks hoping to snatch some lousy people and have their gold too.
But to their surprise, they found nobody at the bullion banks' vault. "He? Where is everyone?" noted little bear.
"Where is the gold?" noted mama bear. "The vaults are emtpy!" said papa bear, increasingly pissed-off.
Where to go now?
To the ETF depository!
But to their surprise, they found nobody at the ETF depository. "He? Where is everyone?" noted little bear.
"Where is the gold?" noted mama bear. "I only see paper promises" said papa bear, even more pissed-off. They say: "this certificate is worth 10,000 ounces of gold." But there IS NOT GOLD!! Said papa bear REALLY ANGRY.
Where to go now?
Nowhere.
And the bears went back to their caves afraid there was no more gold to be had...