Bruce Pile

Massive Options Trade Signals Gold Miners (GDX) Is Set to Glitter

Don't look now, but silver just broke its bull flag pattern to the upside today. Gold and silver technicals seem to be signaling a big move soon either up or down - a lot of pent up energy ready to blow down or up.

The stock market rally detractors are assuming any bull move in silver automatically means a stoppage of the bull move in stocks. People are either fearful and buy PM or bold and buy stocks, right?. But let me point out that it is entirely possible for gold, silver, and the stock market to all move lovingly together in a raging bull market! Impossible you say? Well you need to look no further than our last big bear decline in '01-'03 to find an example of this. Look at what silver did from mid '01 to mid '04 and you see that it was in a mild climb channel during the bear market. But then, as we emerged into the stock bull market in early '03, silver moved into a much steeper climb into '04! Gold's action was similar.

That makes sense when you consider that, in the present case, you have the same 800 lb gorilla causing both the economic "recovery" and the dire threat of out of control inflation soon - namely the massive flood of fiat dollars.

Why Gold Miners Aren't Glittering

BxCapricorn has a good point about this market being left to the traders. The long hold money is out and too afraid to get back in. So we're seeing whatever appears to be bottoming or breaking out getting some inflow until it has a menial gain and then they exit, chopping down any emerging trend. About the only thing starting to gather buy and hold money is gold and gold stocks. The traders are putting these through a round of profit taking, but then they should be a good corner of what otherwise is a nearly uninvestable market.

Dennis Gartman on Gold, Oil, Government and the Economy

So he apparently is calling a bottom in the stock market saying stocks will be higher 6 months from now, much higher 12 months out, and higher still 24 months from now. We will hold him to that and see if he is right.

ETF vs. Mutual Fund: Two Ways to Invest in Gold Miners

An added thought to the above on gold stocks, there was a very fundamental reason for them doing well in past bull runs. Homestead Mining's stock climbed, but also their earnings and dividend payout climbed at something like a 40% annual rate over the first few years of the Depression. If they were selling clothespins as their business, their stock would have done well! It was not just crazy fear-mongering speculation.

If you look at the charts and valuation by cash flow of gold stocks today, you see quite a collection of what you would have to call pure value plays. The price-to-cash flow numbers of many gold stocks are running well below the average for the S&P 500. But unlike most of the rest of the stock world, their product is not suffering severe demand destruction. Yet the gold stocks have received the same thrashing, even worse, than the rest of the market.

ETF vs. Mutual Fund: Two Ways to Invest in Gold Miners

Gold stocks are typically thought of as a one dimensional play on inflation. But there is more to it than that. For example, in the start of the Depression with deflation raging, gold stocks did a fabulous climb. And it started even before FDR fixed the price of gold keeping it from possible deflation.

Gold seems to respond more to chaos and uncertainty than to the current inflation rate. After all the debate on CDS, bank conditions, deflation, and inflation, there is only one form of money not subject to any personal liability anywhere and thus not subject to default - gold.

Pamela Aden: Ready for a Rebound?

Many gold stocks, even though they've come off their Nov. lows by a lot, are behaving like a break-out group with a wide selection smashed down near levels they were at clear back at the start of the current gold bull market ('01,'02) only with much better operating cash-flow levels and sharply growing revenue. They are typically a group that is not good cash-flow-wise, but many of them are looking like value selections now.

NXG, Northgate Minerals, is a case in point with a price/sales at 0.5 and a preposterous price/cash-flow at 2.6! Yet the market has priced this one like a cashless piece of rubbish at $0.90. This odd pricing may be due to their some $72 million worth of problem auction debt with liquidity issues. Does anyone have any insight on why Northgate has been so apparently mispriced by the market?

Burst Bubble? Commodities' Long-Term Story Remains Intact

If you look at a chart for relative valuation between paper and hard assets over the last 50 years, it's clear that there is a powerful cycle at work with about a 15 year bull/bear phase. We seem to be clearly beginning a bull phase for hard assets that is just now getting going (only about 4 years into it). The cycle has yet to even revert to the mean.

As for the volatility that goes along commodities, you can either be the fast trader and try to anticipate each gyration and buy and sell around them (good luck with that) or you can dollar cost average into a line-up buying more aggressively after the corrections and adjusting the line-up only if the good areas of sector warrant it. You pretty much have to make up your mind which approach suits you and stay with it.

It seems to me that most fast traders anticipate 4 or 5 phantom corrections for each real one and wind up rotating in and out too much and being on the sidelines when a lot of the quantum surges happen when they least expect them. They chop the bull climb into bitty pieces of small gains to mix with small loses, which typically results in underperforming a more stable strategy. Not that there aren't traders who can do better with faster trading, but averaging better long term results this way is precarious to say the least.