Saturday, March 26, 2016

A Look Back At The 4 C's: Commodities, Coffee, Crude, Copper

Sometime ago I correctly pointed out that a bullish declining wedge was developing in a number of commodities (DBC, JO, USO, JJC). If anyone is still keeping up with them, their break-out patterns I think have run their course and are now retracing. Next week is an interesting week as Northmantrader.com has pointed out with resistance on a number index charts such as the Russell and S&P being met and the possibility of a sharp turn back.

Coffee: JO
Coffee had one of the most aggressive downward wedges and as a result had a really strong breakout. It found resistance at the 38.2% Fibonacci retracement level and might return to $18.52 to $19.47.
Commodities: DBC
The declining wedge for Commodities ETF DBC was a little less aggressive but none-the-less it broke out and found resistance at the 50% Fibonacci level. On it's fall back we could see support at $12.96 (which corresponds nicely with a proposed channel support line) but also see it go as low as $12.48.
Copper: JJC
Copper ETF JJC made it all the way back to it's 38.2% retracement of $26.50 and is now gently falling back. Support might be at $24.95 which coincides nicely with a proposed channel support line, but if it breaks down support might be at $24.40 or $23.85.
Crude Oil: USO
Crude Oil ETF USO also had a very sharp declining channel which saw it breakout around $8.50 and find resistance early at the 61.8% Fibonacci level of $10.84. It's already beginning to come up to support at the $9.60 level, but support could also be at the $9.23 and $8.86 level depending on how bullish the U.S. dollar is next week.

Wednesday, March 23, 2016

Daily News Roundup: I'm sick of numbers defining me like GPA, my SAT score, the number of first degree murder convictions I have, my credit rating.

Business & Finance:
Credit Suisse CEO blindsided by Bank's risky positions (Bloomberg)
Bullard sees case for April hike as inflation set to pick up (Bloomberg)
The benefits of inflation: airships could be returning for commercial travel (The Economist)
Commodities:
Ethanol bust adds to U.S. fuel glut and losses across corn belt (Bloomberg)
Hinkey Point will be built, says EDF boss (The Telegraph)
TransCanada taps JP Morgan to sell more than $7 billion in assets to help finance Columbia Pipeline takeover (The Financial Post)

International Affairs:
Barak Obama brings a message of friendship and human rights to Cuba (The Economist)
Environment:
GE is building America's first offshore wind farm (Clean Technica)
China reveals plans to continue wind and solar energy surge (Business Green)

Art & Design:
Acura is taking the NSX to GT3 (Slash Gear)
Photographs of the Holi celebration in India (Design You Trust)
Freshly taped beer on the go (Hi Consumption)
Skateboarding taken to a new level (Cool Material)

Natural Gas: Excellent Short Opportunity But A Breakout May Developing

Just like clockwork Natural Gas (UNG) came right up against resistance at around $6.80 which represented a great opportunity to go short. What's beginning to form however is a bullish declining wedge. Natural gas has been beaten a lot over the last few years but it now finds itself priced more cheaply than coal!
On the weekly chart the bullish declining wedge is still seen but with a 'buy' signal on the RSI(5). If support is found on the line for the RSI(5) signal then a turn-around for natural gas going into May might be seen.

Monday, March 21, 2016

Silver (SLV): Shine Bright Like A (Silver) Diamond

One of the greatest weapons a person has is creating doubt in the mind of your opponent which has the effect of exhausting them with mental calculus about a particular attack or maneuver that wears them down more than any actual assault. We see this in investing and the stock-market all the time with false breakouts, gap-ups and divergences that seem to go no-where. The recent rally in gold I fear is an example of this - "gold bugs" have been forced to hibernate for far too long knowing full well that precious metals in times of uncertainty and increased voltality are an excellent store of value which has most recently resulted in the price getting driven up to nosebleed levels. I've been saying for a few weeks now that we need to calm down and have a healthy retracement before continuing onward.

One of the reasons I have not enjoyed this recent rally in Gold as much as the rest of the market is that historically in gold bull markets Silver typically leads. We may have witnessed a breakout from some long term channels on Gold's charts, but not Silver's. As we cast an eye towards silver's charts it has yet to follow gold's example by breaking out from it's long term downtrend. I would expect in the coming weeks that when Silver (SLV) breaks out (and it looks very close) Gold will follow.
I still love precious metals and I've been their biggest champion when I first started noticing signs of life last April, but after a bit of a correction by Gold and confirmation signal with Silver's breakout I think this rally may finally be underway.

Sunday, March 20, 2016

This Emerging Market Still Might Roar

Investors pile into Brazilian equities over bets on imminent regime change

Investors piled into Brazilian equities this week, as gains in commodities such as oil helped push emerging market stocks to the verge of a bull market. But it is the prospect of political change that is increasingly fuelling optimistic sentiment toward Latin America's largest country and the world's seventh-biggest economy. As the prospect of embattled president…

Thursday, March 17, 2016

U.S. Still Passing (Natural) Gas

U.S. Gas Pipeline Capacity Remains Short, But Anxiety Levels Abate

While natural gas pipeline expansion remains a critical part of building today’s U.S. infrastructure, it would appear that the announcement of numerous pipeline projects has calmed the anxiety of the industry, as attention is now focused on securing regulatory approvals for the proposed projects. According to the 2015 Black & Veatch Strategic Directions: U.S. Natural Gas…

Natural Gas Is The New Oil

For oil company, natural gas new 'engine of growth'

Pumps belonging to Huabei Oilfield Co do their work in the Inner Mongolia autonomous region. Besides oil, the company is also providing natural gas. Liu Xuezhong / For China Daily Businesses seeking alternatives in new energy as traditional fossil fuels run low Editor's note: Enterprise transformation has become a hot concern among many entrepreneurs at a…

Wednesday, March 16, 2016

Daily News Roundup: Fact, Donuts Are Healthier Than Crystal Meth

Business & Finance:
Fed scales back rate-rise forecasts as global risks remain (Bloomberg)
U.K. employment hits another record as wages climb (The Telegraph)

Commodities:
Kinross rally gets endorsement from TD and Scotiabank-led group (Bloomberg)
Oil companies bounce back after double whammy boost (The Telegraph)
Oil up 4% as OPEC firms up meet, U.S. gasoline demand soars (Reuters)
Peabody, world's largest coal firm, may seek chapter 11 (Fortune)

International Affairs:
Venezuela sets one-week shutdown to manage power crisis (Bloomberg)
Russia brings its planes home from Syria (The Economist)

Environment:
The world's carbon dioxide emissions have stablised (The Economist)
U.S. set to smash solar power records this year (Investors)

Art & Design:
Kazuyo sejima to design a reflective japanese express train (Design Boom)
Portraits of five year olds in Syria and have only known war (Design You Trust)
Sparky the sparrow taking a bath (Incredible Things)

Tuesday, March 15, 2016

I Don't Know About Ya'll, But I'm A Little Concerned About Tomorrow

Ambrose Evans-Pritchard penned excellent article this evening for the The Telegraph (US inflation rears its ugly head as global cycle nears danger zone) which has stated that with "so much fog in the air" in the U.S. with job creation, the Phillips Curve trade off between unemployment and inflation, and the labour market reaching NAIRU (non-accelerating inflation rate of unemployment) that it will not raise rates this week. However, Central Bank policy in the past has traditionally raised rates when "calibrating policy" and the output gap, so where does this leave us in the market? It's something that is being hotly debated and the ambiguity is palpable on both sides of the fence in this debate.

Looking at a couple of charts this evening in key sectors a reassuring picture is not being painted of where the market may be headed and the Federal Reserve announcement tomorrow might be a catalyst. The Small Cap ETF IWM has put in a bearish ascending triangle which broke today. Still in a large downward channel key indicators like MACD and TRIX are crossing over bearishly.
Energy ETF XLE also appears ominously positioned, too. It's downward channel appears to be getting wider due to the events of the last few weeks and needs to break resistance at $62.50 if this ascent is to be believed. Furthermore, one will also notice a bearish ascending triangle has also emerged. 
Finally, Biotechnology ETF XBI may have already broken down from it's ascending bearish wedge. I was hoping to short XBI when it reached the neckline at around $55.00 of the double head and shoulders pattern, but today may have negated that. Let's wait until another closer below the support line happens.
I don't know where the market is headed but some worrying signs have emerged!

Monday, March 14, 2016

Guest Post: I Don't Want To Say "I Told You So" But....I Told You So

Take profits in gold equities, but be ready to buy more: BMO

Gold equities have been on a fantastic run so far in 2016 amid the rally in prices. Analysts at BMO Capital Markets think the time has come to take some profits off the table, as the second quarter is a seasonally weak period for gold. "We expect precious metals equities to outperform over the next 12…

Guest Post: OIl And The Reason Of Caution

Could oil's long, dark winter finally be over? Why there's reason to be pessimistic

Since the Saudis lopped off the head of oil price support in December 2014, energy investors - not to mention energy companies and the thousands of Canadians who work for them, or at least used to - have lived through a long dark winter of Game of Thrones proportions. IEA for the first time sees light…

Sunday, March 13, 2016

Gold Miners (GDX): Still too hot to handle

I called a fall in gold miners (GDX) way too early as I did not properly factor in the change the gold market is making at the moment by transitioning from "bear" into "bull." I was in a hellish trade which cost me dearly but I'm back in as the signs of a transition are beginning to mount. GDX is still severely over-bought and the COT report show the largest number of short positions by institutional investors in about 6 years. On the internet the number of calls by respected commentators and chartists are starting to grow louder and more numerous:
The 30 minute chart has clearly show a break from the long-term up trend to a series of channels that are gradually transitioning to a down trend. Already last week we began seeing a series of lower-lows.
The daily chart is the most confusing of the lot and provides the least amount of guidance except that a strong resistance line at about $20.75 is present and has rejected advances for the past five sessions.
The weekly chart is perhaps the most interesting with several resistance lines apparent. One is a channel line from GDX's decline going back to 2014 and part of a pattern going even further back to 2013. The second is a horizontal resistance line at $20.75 (mentioned above) and third coincides with some higher lows back in 2014 and 2015. The over-boughtness is also quite apparent on the RSI(5) index.
 
Let me be clear though, I am very bullish on gold and gold miners in the medium and long-term however pull-backs will occur and they can be taken advantage of both in the decline and the opportunity to buy more. This is strictly a near-term play.

Saturday, March 12, 2016

Daily News Roundup: I swear, at Starbucks people just speak jibberish like "I want a grande ice mocha no foam quad soy hexagon vortex over a hypotenuse"

Business & Finance:
China stocks chief vows decisive intervention if needed (Bloomberg)
The European Central Bank fires another salvo (The Economist)
Love affair with negative rates ends as central banks step back from global currency wars (The Telegraph)
Is there turmoil ahead? Why you should be factoring in factor ETFs (Financial Post)

International Affairs:
Trump calls off Chicago campaign rally after large protests (Bloomberg)

Commodities:
$19 billion default wave poised to come crashing down as debt catches up to oil boom (Financial Post)
The U.S. Canada war over gas market will heat up in 2017 (Bloomberg)
"Insane" iron ore rally peters out as futures slip back to $50 a tonne (The Telegraph)
IEA for the first time see light at the end of oil's "long, dark tunnel" (Financial Post)

Environment:
GE has figured out how to make solar power batteries using greenhouse gases (BGR)
UAE to lead in renewable technology (Khaleej Times)

Art & Design:
Highlights from the Geneva Auto Show (Slash Gear)
"The hills have eyes" - curved roof made of zinc (Design You Trust)
Sergey Kolesov: Obscure broken worlds (Design You Trust)
The Aviatore Veloce espresso machine (Hi Consumption)
Jeep Crew Chief 715 concept (Hi Consumption)

Wednesday, March 09, 2016

Guest Post: And Now Another Oil Hangover

Oil rally spiked: What's making crude prices drop after galloping over the $40 hump

After teetering around sub-US$30 per barrel since the start of the year, Brent crude prices have galloped over the US$40 hump, raising hopes of a sustained rally. But markets are pulling back once again after Goldman Sachs, an influential oil soothsayer, poured cold water over the rally, citing continued oversupply. "Only a real physical deficit can…

Before the Bell: Treasuries (TLT), Short High Yields (SJB) and the Smell of Fear

I'm beginning to smell a little fear in the market so I check in with my Treasury (TLT) and Inverse Junk (SJB) charts. TLT right now seems to be making a bullish declining wedge with indicators either in the process of turning up or poised to crossover. RSI and Stochastics are already showing signs of life but longer term indicators like the momentum (MACD) indicator still need some time. There's a hint that this week may be the time to be making placements on a downturn in the market next week. A few more days seem to be required to facilitate the transition. Why next week and not this week? The 50 and 100 week moving averages on the $SPX and $RUT are both imminently ready to make a bearish cross-over.
When I noticed this I also became curious about Junk Bonds and realized the chart for Inverse Junk Bonds (or short high yields, SJB) had an overall pattern that looked suspiciously similar to $VIX. SJB is approaching a long term support line with indicators that appear very positive at the moment with an overall trend that is quite positive.

Monday, March 07, 2016

Before the Bell: Semiconductors (SMH), Technology (XLK) and Small Caps (IWM)

Things are looking a little stretched at this point. It's great that everything has been swell, but the swelling needs to go down. Several technology related ETF's are in bearish ascending wedges with stochastics and RSI indicators at nosebleed levels. Some very slight divergence has begun to emerge on the MACD indicators as well. In Technology's case (XLK), the trading range has been very narrow for over a year now, but it now finds itself coming up to a resistance line made up lower-highs from December.
The most worrisome ETF at the moment are the Russell Small Caps (IWM) which is also in a bearish ascending wedge. I can appreciate that the EMA's are poised to cross over but the ascent to this point has been nothing short of miraculous.
From the charts below which are provided courtesy of NorthmanTrader.com we can see that VIX is seemingly at the beginning of another parabolic curve and the weekly chart for the Russell is at a serious resistance point with 100 and 200 moving averages about to cross over for the first time in years!

Guest Post: Gold Committment of Traders (COT) Report at Nosebleed Levels

PM SECTOR update - not a Flag / Pennant, but a top - NEW LONGS ABOUT TO BE FLEECED...


Many analysts and writers have described the pattern forming in the past couple of weeks in gold as a “bull Flag or Pennant” with some appearing to be “playing to the gallery” – i.e. telling their audience what they want to hear, which is that gold will continue to go up. I, on the other hand, decided that the triangle that had formed was not a continuation pattern, but a top, and said so about a week ago. So, as you will readily understand, I was not looking good when gold seemingly broke out upside on Thursday, and came in for considerable flak. However, on Friday there were some dramatic developments across the sector which look set to vindicate my stance.

When you buy a used car it is not enough to look at the clean shiny exterior and decide as many do, that the car is good – you have to know what its internal state is – the condition of the motor and the transmission etc. which means you have to poke around and dig deeper. In the same way it is not enough to look at the price pattern in something like gold and say “It’s looks like a bull Flag and therefore it is a bull Flag” – you have to know what’s going on beneath the surface - in the “internal plumbing” of the market so to speak, and we do this by using COT data and the volume pattern, and as we will see, the internal state of this market is not good at all and calls for a sharp drop soon that will take most by surprise. There are a number of compelling reasons to expect an intermediate correction in the Precious Metals sector imminently that could be severe, which we will now proceed to look at.

Starting with the 1-year chart for gold, we see that it has made a parabolic slingshot advance that has brought it to the trendline target shown, where the advance hit a wall. Many are expecting the choppy action of the past couple of weeks to be followed by another sharp upleg, but that looks highly unlikely for several reasons. In the 1st place, look at how steep the parabola has become – even if gold has started a new bullmarket, do you really expect it to just go up vertically, like a rocket, without any reactions or periods of consolidation?
If you think that gold is going up from here, I suggest you take a trip down to your local skate park and watch the kids in action. See what happens immediately after they zip up a ramp that becomes vertical – if they are good they might work in some turns or spins, like the triangle on our gold chart, but after that it’s kind of difficult to resume the upward path. Take a look at the following picture and rate the chances of the skater going vertically upwards from this position. Not very high are they? – so why do you think gold should be any different after its vertical ramp?
Another important reason why the triangular pattern of the past few weeks is not viewed as a valid Flag or Pennant, is that the volume pattern is not consistent with it being one. Volume should die back steadily to a low level as the pattern forms, and clearly it has not, as we can see on the 7-month chart for gold below. Thursday’s supposed breakout from the Pennant, which is viewed as false, did not make it past the target line projected from the peak of last August, then on Friday a “Spinning Top” candlestick appeared whose bearish implications are magnified by the fact that it occurred on multi-month record volume, and confirmed by very bearish candles appearing all over the sector at the same time.
The latest gold COTs are a disaster with Commercial shorts, which were already high a week ago having piled up even more, and since this data is for Tuesday night’s close, you can bet that they went even higher on Thursday’s advance to new highs. Now, I’ve heard the justification that they reach higher peaks in a bullmarket uptrend, but even so, taking the other factors detailed here into account, this looks bad – and it won’t be the Commercials on the losing side if gold if now proceeds to drop.
Click on chart to popup a larger clearer version.

Our next chart shows that there aren’t many investors left to turn bullish on gold stocks, which is clearly a dangerous situation. The Gold Miners Bullish Percent Index has ramped from about 14% to 72% is just 6 weeks…
They’re nearly all in – so it’s fleecing time again!
A group of new longs contemplates their fate…
Now we will take a look at concurrent ominous developments across the sector late on Friday, which all point to the same thing – a breakdown and drop. We start with the 3-month chart for the Market Vectors Gold Miners, on which a very bearish prominent “Gravestone Doji” appeared…
As Steve Nison writes in his terrific book “Japanese Candlestick Charting Techniques” – “The gravestone’s forte is in calling tops. The shape of the gravestone doji makes its name appropriate. As we have discussed, many of the Japanese technical terms are based on military analogies. In Japanese candlestick literature, it is said that the gravestone doji represents the gravestone of the bulls that have died defending their territory.” So there you have it.

The very same candlestick also appeared on the Direxion Gold Miners Bull 3X Shares chart…
As you would expect the inverse candlestick, a “Dragonfly Doji”, appeared on the chart for the Direxion Gold Miners Bear 3X Shares ETF, and what was notable here also was that volume exploded to titanic record levels, a sure sign of a reversal…
Silver and silver related investments also showed reversal candles, with a fine bull hammer appearing on the chart for ProShares Ultrashort Silver, right at support at the February low.

Finally, the “Moron Index”, a proprietary clivemaund.com indicator, has spiked over the past couple of weeks. This is carefully calculated on the basis of the number of Emails I get from people telling me that I am wrong, and laced with insults and profanities. This is usually a very reliable indicator, since such people, by their very nature, are led by cheerleaders, and thus invariably end up on the wrong side of the trade.
 
Conclusion: we are at an intermediate top, and recent new longs will end up being fleeced.

End of update.

Friday, March 04, 2016

Daily News Roundup: Extroverts be all up in my hasmter ball

Business & Finance:
U.S. stocks longest rally since October (Bloomberg)
Spain foreclosures drop most in 7 years as economy grows (Bloomberg)
Debt explosion awaits unless policymakers defuse demographic time-bomb, warns IMF (The Telegraph)
U.S. adds 242,000 jobs, exceeding expectations (Barron's)
This is a "suckers rally" according to Stockcharts.com (Barron's)

Commodities:
Gold soars into bull market as global growth fears mount (The Telegraph)
Oil market update (Clive Maund)

Environment:
China's renewable energy sector surges while coal consumption drops (Green Tech Media)
India plans to add 12 GW solar power, 4.1 GW wind energy capacity this year (Clean Technica)

Foreign Policy:
Only the IMF can save Brazil (The Telegraph)
The prospect of Trump versus Clinton is grim (The Economist)

Art & Design:
360 degree view inside New York's $4 billion World Train Center train station (Bloomberg)
The 13th Annual Smithsonian.com photo contest (Design You Trust)
The Morgan EV3 concept (The Awesomer)
Got wood? Toyota Setsuna concept (Uncrate)


Thursday, March 03, 2016

Guest Post: Gold in the long term? Definitely 'yes,' but short term, 'not so much'

Getting Ready for Gold's Imminent Comeback by Senior Economic Geologist Nigel Maund (originally published on www.clivemaund.com)

Introduction
The astonishing strength behind the most recent rally in gold is known to all readers. Also, the reasons behind gold's change in fortune have been well documented by such writers as Michael Pento, Egon Von Greyerz, Peter Schiff, Marc Faber, James Turk, Rick Rule and on this site by Clive. Hence, there is no need to discuss this here. Suffice it to say that the scale of the developing global financial and economic crisis has no historic precedent. Furthermore, such is the parlous state of the Central Bank based global banking system that interest rates can no longer be used to stimulate or correct the excesses of a world drowning in an ocean of debt where the lifeblood of the economy is being absorbed by unproductive banks and financial institutions and enormously bureaucratic, inefficient and vastly oversized governments hooked on a battery of taxes ranging from graduated personal income tax, corporate tax, value added tax, capital gains tax, death duties, habitation tax, stamp duties and so on and on. Indeed, so complicated have tax systems become that the 2016 tax guides for the UK, US, Canada, Australia and Europe virtually rival major encyclopaedia in size. The misallocation of capital and resources has reached epic heights with taxation, debt, corporate and unprecedented personal regulation and loss of liberty closely akin to Communist Russia and other dictatorial regimes. To say the world has never been in such an appalling mess would be putting matters mildly. The reader is highly recommended to read www.zerohedge.com which daily documents how things really are, rather than the totally misleading Orwellian "Disney World" like fantasy presented by the mainstream media.
 
The latest proposals of the Central Bankers, led by the very desperate Bank of Japan and the increasingly desperate ECB moving ever deeper into Negative Interest Rate Policy (NIRP) country, after years with Zero Interest Rate Policy (ZIRP) and QE1, 2 and 3 from the US Fed, testifies to the absolute lack of options left on the table and maniacal nature of the elite in their pursuit of Global Government and control of the planet and the sustaining of the surreal "all will be well" and "strong economy" nonsense purveyed on all controlled media outlets to the Joe Public.
To add to the systematically unravelling economic and financial shambles, the world is now faced with not one imminent "black swan" event but an entire flock of them hitting almost simultaneously, as follows:
  1. The collapse of the BALTIC DRY GOODS INDEX (BDI) to its lowest level in history – down from over 11,500 to 290 last week – a staggering fall of 97.50%, thus recording a virtual collapse of trade in major commodities lead by oil, gas, coal and iron ore as most notably the Chinese economy as well as the world economy generally implodes, coincident with the extreme loss of money velocity. Put simply the world economy is seizing up, as shown on Figure 1 below;
Figure 1: The greatest collapse in the bulk tonnage freight index in global history. The Baltic Dry Goods Index falls from its zenith of nearly 11,000 to todays 290. This is the clear harbinger of economic collapse and the effective seizing up of the global economy.
  1. All major global equity markets are in a bear market and moreover it's only just begun. Falls so far are off their peaks at between -12% and -20%. On this site, we are expecting at least a further 30% - 50% fall in these markets during 2016. The fall on the S&P will be the most spectacular with a 60% decline probable from its 2015 peak, as shown on Figure 1 below;
Figure 2: "STARING INTO THE MARKET ABYSS IN 2016". A graphical history of 20 years of crass monetary policy by the Central Banks and the enormity of market bubbles created (equities, T Bonds, Derivatives and Real Estate).
  1. Commodity markets (the CRB Index) are down some 85% to 90% and many major mining stocks are down between 65% (RTZ) to 90% (VALE and Freeport MacMoran FCX).
  1. The war in Syria and Iraq which has gotten steadily worse with the stakes getting ever higher threatens to turn into an all-out proxy war between Saudi Arabia, Turkey and Russia and Syria, with the US and UK waiting for the go signal to come in behind its Muslim allies. The US, Israel, Saudi Arabia, the UK, France and Turkey have been planning this one for years. Russia entering on the side of Syria (the elected Government, despite how President Assad is presented in the syndicated and biased Western media) against ISIS and Al Nusra, plus a host of other "legitimate" (US and "Allies" supported) opposition groups all funded and militarily supplied by the West and Saudi Arabia has been a game changer for the US, UK, EU, Turkish and Saudi Arabian planners. However, the US led coalition, Turkey and Saudi Arabia always knew that there was a chance that Russia could militarily support Syria.
Currently, a very dangerous escalation has been precipitated by the imminent fall of Aleppo to the Syrian forces. Saudi Arabia and Turkey could send in ground troops and aircraft based in Turkey to "attack ISIS" a Saudi and CIA backed creation, but everyone knows their prime targets are to: 1) depose President Assad and replace him with a puppet Government; 2) neutralize Russia's influence in the region; 3) meet Israel's regional strategic agenda to neuter and control the Arab States in the region; 4) take control of the important Kurdish controlled Iraqi oil fields of Mosul and Kirkuk and those of Southern Syria, currently being pumped out and sold by ISIS and the Turks.
  1. Finally, as if all this were not enough, China has been militarizing its newly built "islands" in the Spratly Island Chain in the South China Sea, jointly claimed by the Philippines, Malaysia and Vietnam. The Spratlys, besides being the potential site of major oil and gas fields containing billions of barrels of oil and trillions of cubic feet of natural gas, sit astride the world's greatest trade route between Japan, China and the Indian, African, European and North American markets where some US$ 5 trillion in goods passes every year. This has all the makings of a major conflict flashpoint between China, the US, Australia, the Philippines, Malaysia, Taiwan and Vietnam.
Simply put, the situation for gold has never looked better in history, and this site believes that the next few years in the gold market may be the greatest the yellow metal will ever experience. Given the scale of the: 1) financial imbalances especially within the equity, bond and derivatives markets where risk levels are rising at an exponential rate; 2) colossal misallocation of resources and dislocation of society; 3) massive wealth imbalances due to monstrous redistribution of wealth into the hands of the few at the expense of the majority with all the inherent socio – political risks this implies; 4) most companies and individual people are submerged under unprecedented colossal debts from students to real estate mortgage holders; 5) growing and very serious geo-political risks from Estonia, Ukraine, Syria, Turkey, Iran, Afghanistan, Pakistan to the South China Sea and Korea, the stage is set for enormous upheaval not seen since 1914 and 1939. Against this unique and horrifying global canvas, gold is set to experience a resumption of its bull market and reach unprecedented valuations as the global markets face a brutal rebalancing in a world that is now a "tinder box" set to explode into war and conflict.
 
GOLD – GETTING SET FOR THE GREATEST BULL MARKET OF ALL TIME
Prior to the New Year, the US$ had been experiencing a bull market rally for some 15 months whilst almost all other currencies had been in decline, especially those whose economies were seriously exposed to the fortunes of commodity prices like, Brazil, Russia, Kazakhstan, Venezuela, Nigeria, Saudi Arabia, Canada and Australia. Effective currency devaluations of the order of 30 to 40% have been the norm. For Australia the A$ has fallen from US$1.10 to today's US$0.70 a loss in value of some 35%. The Canadian $ (the Looney) has experienced a similar devaluation. Hence, for those gold producing companies whose mining operations are located in Canada and Australia in TSX or ASX listed companies, the gold price in their local currencies has actually appreciated and with it their profit margins. As discussed in my earlier article on The Best of the Australian Mid-Cap Gold Producers, these companies have been in a bull market since November 2014, and their stocks have seen rises of between 75% and 110%, whilst the general markets have now entered clear bear market territory.
Figure 3: A 15 year chart of the XAU index with key historic events annotated. The current gold "break out" is indicated at the juncture of selling exhaustion in the XAU and the imminent weakness and collapse of the US$ and the major equity markets.
In the early phase of the return to the gold bull market, whilst the gold price breaks above the falling 200 and 300 day moving averages (MA's) and overcomes various inherited resistance levels around US$ 1,250 and 1,350 / ounce gold prices, it is wise to build portfolios in companies that have the following main characteristics:
  • Low debt exposure especially substantial longer term liabilities;
  • Carry a good cash balance of greater than C$ or A$ 20 million;
  • Have operating cash costs of between US$ 450 – 650 / ounce;
  • All in Sustaining Costs (AISC) per ounce of gold produced of between US$ 800 – 950 / ounce;
  • Gold reserves of > 8 years of current production;
  • Are valued at little more than the companies "Enterprise Value" and sometimes less than this. This is a clear buy signal in the emergent gold bull market;
  • Are leveraged to the US$ gold price and may have been seriously undervalued like RSG in Australia which operates its largest producing assets in West Africa;
  • Do not invest in gold producers operating in counties offering increasing Sovereign and business risks such as Turkey, Greece and China for example; and,
  • Have strong Board of Management with track records of success in the gold mining industry.
Other issues to watch out for are any precipitate falls in a company's stock price due to mistakes with ore resources such as Regis Resources Limited (ASX: RRL) or companies that operate mines in areas where weather events may cause flooding of open pit mining operations and temporary mine closure impacting on production. RRL has addressed its issues and is now back on track, but nonetheless it was punished in the markets for ore resource problems and flooding of its operations.
 
Amongst the mid-cap gold producers, the Australians comprise the overall best investment right now and are actually better than comparable Canadian companies of similar overall specifications in terms of reserves, ounces of gold produced and cash on hand. The differences lie in the geology of the Australian gold deposits in terms of their overall recovered gold grades and their impact on Cash Operating and AISC costs and the typically better profit margins of the Australian producers. Of the major Mid Cap Canadians, Agnico Eagle Mines Limited (AEM, TSX: AEM) is the biggest company in terms of its market capitalization and its enterprise value, overall resources and in terms of the size and grade of its world class core mines at La Ronde – Penna, Bousquet and Canadian Malartic (which it shares 50%:50% with Yamana Gold Inc). AEM is arguably the King of the Canadian gold mining mid – cap producers and demonstrates great strength in depth in all aspects of the business. AEM has the scope to grow into another Barrick Gold Inc. only it is stronger at the level of its Management and has vast operating experience in this difficult industry. AEM also carries significant leverage, although the debt is readily serviceable given AEM's cash flow from 1.6 Moz annual gold production at an AISC of US$ 880 / ounce and stands at 20% of its market capitalization.
 
Yamana Gold Inc (AUY, TSX: YRI) carries a large debt burden amounting to 100% of its market capitalization and 55% of its Enterprise Value. This serves as a major drag on the stock price and its overall profit margins generated due to debt servicing costs. Also, the quality of its gold deposits, excluding Canadian Malartic, are best described as technically marginal and all require a significantly higher gold price before AUY can breathe more easily.
 
Detour Gold Corporation (TSX: DGC) is totally focussed on its large, low grade, open pit mine at Detour Lake, Ontario, where it produces some 500,000 ounces per annum at relatively high cash costs of US$810 / ounce and AISC costs of US$ 1,130 / ounce. DGC is highly leveraged to the gold price and hence it will advance strongly with the gold price. It benefits from the weak C$. DGC also has the advantage that it carries no debt and has not hedged its gold production.
 
Of the Australian mid cap producers, there are two plays which are quite different. The 1stTier Mid – Caps which includes Northern Star Resources Ltd (ASX: NST), Evolution Mining Limited (ASX: EVN) and Oceana Gold Corporation Limited (ASX and TSX: OGC), have all recently advanced strongly and now represent safe investments to trade on the "dips" and sell on the "highs" or merely hold longer term. However, their upside profit potential as they are now already at an elevated level is in the order of 150 – 300% depending on how high gold goes in the coming resumption of its bull market. However, amongst this group, OGC could really appreciate given its low cost production profile and the eventual bringing on stream of the large, low cost, open pit Haile gold project in South Carolina, USA, which will bring OGC's annual production up to > 500,000 ounces per annum and make it one of the lowest cost mid – cap gold producers in the world.
The real upside in the Australian mid-cap gold producers will come in those companies that have been largely ignored by the market for several reasons as follows:
  1. Their gold producing mines are located outside Australia in a US$ dominated regime such as West Africa (Resolute Mining Limited ASX: RSG) and, therefore, they could not benefit from the onshore Australian $ gold price;
  1. Their cash operating and AISC costs of gold production are at the higher end for the industry, such as Silver Lake Resources Ltd (ASX: SLR) and, therefore, profit margins are reduced;
  1. In view of the recent ISIL (DAESH) terrorist actions in such countries as Mali (Bamako) that their gold assets are considered to be located in counties with high Sovereign and business risks (RSG whose flagship Syama gold mine is located in Western Mali).
A series of 4 articles, Parts 1 to 4, are currently being produced on this site appraising the technical fundamentals of the mid cap Canadian and Australian gold producers. The reader is referred to Part 1 and Part 2 already published on the site for subscribers only.
Finally, it is too early to gamble on the gold exploration companies as few of these have any defined resources. The ones that have defined NI43-101 or Aus.IMM JORC compliant gold resources of any significance would be worth investing a modest portion of a portfolio in but careful due diligence is recommended of the company's financial state and of the project itself will be necessary. We will be looking at some of these companies for subscribers very soon.
 
Be aware, the recent gold rally is probably now experiencing a pull back before it takes off and attempts to break free of the 200 day moving average and the 50, 100 and 200-day MA's move into bullish alignment and start a clear uptrend. Readers should be on the watch out for this important technical development.
END OF REPORT
24th February 2016

Wednesday, March 02, 2016

Guest Post: So in the American elections it's down to voting for a fake tan/comb-over or Goldman Sachs

Clinton and Trump victories both seen as bullish for risk

When the votes are counted for the U.S. Presidential election in November, the odds are that investors should be able to count on a bid for risk assets. A new report from the team at Deutsche Bank, led by credit analyst Dominic Konstam, laid out the potential implications under a victory by each of the leading…

Tuesday, March 01, 2016

Consumer Staples (XLP): Double Trouble

Trouble is brewing on the market stalwart ETF Consumer Staples (XLP). While making my random glances across my charts this morning I've noticed a bearish ascending wedge on the daily chart and the 30 minute chart. This comes at a time when the S&P is feeling a little overbought and the greater market seems to meandering aimlessly.
On the the 30 minute chart we see XLP breaking down from a well established bearish ascending wedge (I've put in a possible support channel line in case it bounces a second time).
The daily chart show a much larger ascending bearish wedge that has been developing since August. We already have three taps on the upper resistance line with it currently making it's fourth. Two trading sessions ago we had a very strong rejection of a break above with a large downward candle being put in. Consumer Staples (XLP) looks like a short/sell at the moment.