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Przemyslaw Radomski, CFA
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Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same. His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the... More
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  • Sunshine Profits: Betting On Mining Stocks' Higher Prices May Not Be Such A Good Idea 0 comments
    Jul 30, 2012 10:26 AM | about stocks: GLD, SLV, GDX, UUP, UDN, SPY, DIA, DGP, DZZ, DGZ, UBG, UBM, USV, PTM, PTD, JJM, JJN, IAU, GDXJ

    Betting On Mining Stocks' Higher Prices May Not Be Such A Good Idea

    Based on the July 13th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

    All the fundamental factors that have made gold such a stellar investment for the last decade are still intact. Fiat money is still being produced on easy street around the world, which in turn fuels worries about the dwindling purchase power of the currencies; central banks are still accumulating gold; real interest rates are still negative so investors don't give up any interest rate by investing in gold.

    However, there are several things that have been affecting gold negatively over the past few months, much to our dismay. One of them is the dollar's strength against the euro and gold's recent tendency to move inversely to the dollar and in line with more risk-linked assets. This has undermined some of its safe-haven appeal.

    You can observe that for example in the HUI Index. Gold stocks are not only declining, but they once again do so faster than gold.

    Let's take a look at the HUI Index chart (charts courtesy by http://stockcharts.com; if you are reading this essay on sunshineprofits.com, you may click the above chart to enlarge.) The miners have moved lower, declining for six consecutive days now. On Thursday, they closed below the 400 level. This is an important and bearish development.

    The bullish, intra-day reversal seen on Thursday does not change the medium-term bearish picture which is in place here. A pullback has been seen recently following the significant March - May decline and it seems that a continuation of the decline may now be seen.

    This is in tune with what was seen in 2008 but declines and rallies are less volatile this time as they are taking more time to play out. Nonetheless, the bearish implications remain, and mining stocks' investors should seriously consider limiting exposure if this has not yet been done.

    Let us now move on to miners to gold ratio chart to see if miners are really underperforming gold.

    In the chart (if you are reading this essay on sunshineprofits.com, you may click the above chart to enlarge), we see that the ratio declined heavily this week. This means that gold stocks declined much more than gold.

    The ratio also had a pullback in 2008 - consequently, what we have seen since May is not overly surprising. The trend remains down and right now we appear to be in another wave lower within a bigger downtrend.

    To finish off today's essay let us have a glance at our in-house developed technical indicator that was designed to detect extreme situations on the precious metals market.

    Looking at the SP Gold Stock Extreme #2 Indicator, we see that it has suggested at least a temporary rally in the mining stocks - the indicator moved below the dashed line based on Wednesday's closing prices. The intra-day decline on Thursday followed by higher prices later in the session may have been what was suggested by this indicator a few days ago - the second part of the session.

    Maybe more short-term rally will be seen or maybe not - at this time, it is unclear in our view as we have already seen a rally - in the final hours of Thursday's session.

    Summing up, the outlook for the mining stocks is bearish for the medium term. The short term is a bit unclear based on the intra-day developments seen on Thursday. While situation in the mining stocks is important, the situation in Europe and in the main currency indices is truly critical as far as impact on precious metals sector is concerned. This is one of the things that we discuss in today s Premium Update.

    To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.

    Thank you for reading. Have a great and profitable week!

    P. Radomski

    Editor

    www.SunshineProfits.com

    * * * * *

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for

    Gold & Silver Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits' Premium Service gain access to Gold Charts, Gold Investment Tools and Analysis of Gold & Silver Prices Naturally, you may browse the sample version and easily sign-up for a free weekly trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

    Stocks: GLD, SLV, GDX, UUP, UDN, SPY, DIA, DGP, DZZ, DGZ, UBG, UBM, USV, PTM, PTD, JJM, JJN, IAU, GDXJ
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