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Marco G.
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A veteran of the small cap wars, the Goombarh has survived both the glory and collapse of the internet boom and the 2008 bust. Now he is focused on oil, mining and commodity junior stocks. The world has evolved with the rising tide of demand from the emerging markets growth of their middle... More
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  • November Outlook for Action
    November 4th , 2010

    By:  Marco G.
    http://goombarhsedge.blogspot.com/

    Introduction

    After the passage of All Saints day, and All Soul's day, early in November  where one pauses to  remember and reflect on our past heritage, we now need to look forward and seek illumination as to where the markets are headed.  The two remarkable events of the mid-term elections and the FOMC pronouncements will serve as starting blocks for this scrutiny.

    US Mid-Term Election     

    As quite expected, the Republicans surged into the house, and gave a rebuke to our sitting President Obama as obviously, the electorate are unhappy with the state of the economy.   

     

    Naturally with these results, most observers are saying that the split houses will now be deadlocked and uncertainty will reign forthwith.  This uncertainty will be bad for the markets, they say, as the markets will not move on uncertainty.

     

    The author, has an opposing interpretation, in as this deadlock is actually good for the economy, only the markets will take a while to recognize this.  The deadlock serves to ensure no surprises to be sprung on the electorate, and as such will allow the private sector to get on and do their usual good work in the business of making money.  This election result will be a boon for the economy, as it is now just poised to embark upon another financially inspired revival.

    FOMC Offerings

    The FOMC made a statement offering to purchase $600 billion of Treasuries over the next 8 months on November 3, 2010.  They are back stopping the Federal government's budget deficit on a monthly basis only moving in as required.

     

    As Mr. Grannis, the Calafia Beach Pundit says:

     

    the FOMC has not only indicated that it is willing to undertake a substantial QE2 program if the need arises, but it is also giving itself some time to make sure that nothing gets greatly out of hand.

     

    This FOMC statement is bound to be miss-interpreted by the masses as inflationary, and sure enough, immediately in the day following, November 4, 2010, the precious metals enjoy a raucous up day. 

     

    That is the way with the markets, it moves with perception and not hard facts.

    Broad Markets

    The broad markets are in a continuation of the up move since September 1, 2010.  Both the S & P 500 and the Wiltshire 5000 indices have exhibited a broad based movement upwards, with no serious pull backs since.  In fact, in mid-October, both indices displayed a "Golden Cross", where the 50 day moving average crossed over the 200 day moving average.

    The leading index, the Toronto Canada based TSX composite is displaying the same exuberance only earlier.  The TSX started this up trend on August 25, 2010, and the "Golden Cross" for Toronto came one month earlier in September.

    In this time of year for the markets, investors both large and small take stock of their stocks and prune and purchase for the year ahead.  The author surmises, that with the help of the FOMC and the deadlocked government, that there will be no major pullbacks this year and that there are blue skies ahead in the year following.

    Santa will come early this fall, and he will keep on giving to the believers invested in the markets.

    Investor Stock Action

    The author is a believer in the commodities boom driven by the infrastructure builds in emerging economies and is therefore presently specialized in Commodities and Mining equities.  One only needs to examine the price charts of Copper and the Commodities Research Bureau (Pending:CRB)Index to see that both charts are showing remarkable up trends since June 2010. 

     

    In addition to the commodities trend, the precious metals have been streaking higher since summer of this year.  As I am typing, Gold is hitting new highs of $1382 USD and Silver is at $25.98.  The author ardently follows this sector and has postulated that Silver will outperform Gold in this trend. 

     

    The author's outlook for the general stock market is bullish.  The bullish general markets will make gains in the Commodities and Precious Metals sectors easier and higher.  The author's specific stock action is reflected in his "Six Silver Stocks" second article.

     

    Disclosure: The author is long mining equities.

    Important Disclaimer

    The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

     



    Disclosure: Long mining equities
    Nov 04 3:34 PM | Link | Comment!
  • Peak Gold or Andean Results Confirm Gold Corp Over-paying.

     

    Introduction

    Andean Resources (ANDPF.PK, TSX:AND) issued a news release yesterday with results from their 72 drill holes since their previous July 19th release .  The results were interesting gold drilling wise but mundane in terms of adding spectacular value for Andean and only served to confirm what the author already expressed about Gold Corp (GG, TSX:G) over paying for this acquisition in this editorial here.

    In my previous criticism, the author asserted that Gold Corp was paying $1619 per reserve ounce for Andean’s kitty of 2.1 million ounces and that was way too much. 

    The author is not a geologist, and speculates that even if the new drill results will change all the previous NI 43-101 3.1 million compliant resources into minable reserves, the resulting price of $1096 per reserve Gold ounce is still too much.

    The high price per reserve ounce that Gold Corp is willing to pay is indicative of the large gold companies operating environment presently and serves to underscore their desperate battle to maintain their market value in the face of mined out reserves and increasing mining costs.

    Peak Gold or Mined Out Reserves

    Aaron Regent, president of Barrick Gold (ABX, TSX:ABX) the world’s largest gold producer made a surprising announcement last fall regarding their Gold mining business.  He told an English audience in 2009  at a Gold Conference in London that:

    “There is a strong case to be made that we are already at peak gold,” Regent said. “Production peaked around 2000 and it has been in decline ever since. And we forecast that decline to continue as it is increasingly difficult to find ore.”

    Global Gold output has been in decline since 2000-2001.  The declines average 5% per year and is a factor in the Gold’s price quintupling since then.   For example the production output from North America has decline by an astonishing 60% over the last decade. 

    The days of easy Gold discovery and cheap Gold production days are gone.

    Peak Oil or Rising Production Costs

    Mining with the moving and excavation of mountains of materials, is in itself is an extraordinarily energy intensive business.  Note the energy problems that surfaced in South Africa, last year, as Eskom their power utility, cut back their services and increased their service rates.  This caused the whole family of South African miners to suffer severe problems and reduced their market capitalization across the board.

    Noted economist Dian Chu recently penned in her Seeking Alpha article a prediction of $100 per barrel of Oil:

    But the longer term trend is clear as traders and fund managers want to be strategically exposed to Oil from this point forward, as the real upward move is just now starting, expect crude oil to hit $100 a barrel by January, and only going higher from there.

    Oil prices factor directly into mining costs and indirectly into the infrastructure and material movement costs of these large mining projects. 

    The only saving factor for the large Gold miners is that the market price of the Gold precious metal appears to be going up for the longer term.

    Market Reception of Large Cap Golds

    How has the market been valuing the share prices of these large Gold miners?  The author ran a performance chart for the gold ETF GLD, the large miners index HUI, the quality Gold miner Gold Corp, and the junior Gold miners ETF GDXJ as follows:  (click to enlarge)

     

    GG comparision Oct 7.jpg

    In this year-to-date price performance comparison, the GLD ETF, the red trace has gained about 22%.  The surprising fact is that the blue trace, the HUI large gold miners index has only gained about the same 22% as the Gold price.  Then we see that the green trace, Gold Corp was fairly equal with both GLD and HUI until September, when it drops off to show a total year-to-date gain of about 15%.  The Gold miners Junior ETF the GDXJ has gained a chart leading 40% for the year.

    Is this surprising to the reader?  Even with the higher Gold prices, and increased profits, the large miners, such as Newmont (NYSE:NEM) are reporting increased operating costs, and their share prices are stagnating.

    For a closer look at these miners during the recent Summer’s end run-up in the price of Gold, the author ran a second performance chart for the last six weeks as displayed following:  (click to enlarge)

    During this shorter time period the performers were in the same sequence as in the previous chart.  During the last six weeks, Gold has increased in price about 7.5% together along with the HUI index’s increase of 7.5%.  Note that the blue HUI line is more volatile relative to the red GLD line.  The HUI both undershoots and overshoots the red GLD price line.

    Gold Corp’s price went nowhere and stayed the same.  The market is showing uncertainty about the value of Gold Corp purchasing Andean Resources.

    Finally though, look at the performance of the GDXJ ETF.  This collection of 60 junior Gold companies with market capitalizations of mostly under $1 Billion dollars shows a spectacular leverage to the price of Gold.  The GLDJ shows a 15+% increase relative to Gold’s GLD about 7% increase for a leverage of about 100% more gains. 

    This second look serves to confirm the first chart’s observations. 

    Conclusions

    Peak Gold together with Peak Oil is upon us and may force investors to look at the precious metals markets differently.  The irrational or possibly rational market is not valuing major Gold producers as good investments presently.  The price charts evidence shows that investors might just as well just place their monies in the Gold metal itself, as the major caps are certainly providing no leverage at all to the metal price.   Investing in the gold equities would also bring on extra companies’ risk such as exhibited by Gold Corp with their acquisition of Andean and the resulting price decline. 

    The second piece of price performance evidence is that the junior Gold producers are hot.  They as a group are providing investors with a doubled leverage to the underlying Gold price.  This should be noted by astute investors, as this junior Gold producer segment is where the market valuation changes are happening right now. 

     

     

     



    Disclosure: no positions
    Oct 07 10:40 PM | Link | Comment!
  • Trading the Gold Bull – NOT!

    Trading the Gold Bull – NOT!

    By: Marco G.

    October 5th, 2010

    http://goombarhsedge.blogspot.com/

     

    The author shows a few pictures and summarizes the Gold Bull for our readers. 

    The 24 hour chart for Gold priced in USD is quite interesting this morning.  (click on figure to enlarge)

    Live 24 hour Gold ChartPundits attributed the Gold price action to the twin surprises enacted overseas last night.

    From Japan:

    “The central bank yesterday cut its benchmark overnight interest rate for the first time since 2008 and pledged to hold it at “virtually zero” until officials foresee a sustained end to deflation.”

    From Australia:

    Australia’s central bank unexpectedly left its benchmark interest rate unchanged for a fifth straight month, triggering the biggest drop in the local dollar in almost two months amid signs of cooling domestic demand.

    Gold reacted by increasing in value to the twin currency drops overseas.  Using the GLD ETF as proxy, the chart is below.  (click on figure to enlarge)

    The upward rising trend shows no backing off, remaining strong since the beginning of August 2010.  In fact, looking closely, Gold seems to have gapped upwards this morning, in the turquoise circled action.

    Looking at the Gold equities, an examination of the impacts on the large gold miners (15 unhedged mega cap gold miners) index the HUI is following.  (click on figure to enlarge)

    The large miners have not been performing very well recently, even with the rising prices of Gold.  This index was sluggish and not leveraging the underlying Gold prices.  The chart above in the turquoise oval shows that this index may have just broke through a triple top in the charts.  Maybe these large cap miners will now do some catch up.

    Then, looking at the overall markets, the chart of the SP 500 index is following.  (click on figure to enlarge)

     

    The SP 500 is also on the rise this morning, continuing in the rising trend since the beginning of September.  Its interesting that both the general equities market and the precious metals market are both rising.

    Summation of Gold Bull and Rising Markets

    Based upon the above and previous commentaries, the author posits:

    1.      Gold Bull markets can not be traded, or you will be left behind.  As shown on the chart, there have been no serious declines.  The Gold Bull market is now happening.

    2.      Equities leverage the gains of the underlying precious metals.  Even the laggard large cap equities are now starting to move upwards as is now happening. 

    3.      Junior equities will provide the best gains, leveraging the underlying metals prices as is now happening.

    4.      Silver will gain more than Gold in this round, as is now happening

    5.      Best gains are realized when the general markets are sound, as is now happening.

     

     

    Disclosure: The author is long junior mining equities.

    Important Disclaimer

    The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.




    Disclosure: Long Junior mining equities
    Oct 05 12:13 PM | Link | Comment!
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