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XMFSinchiruna (27.60)

Don't Give Up on Gold!

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37

April 11, 2012 – Comments (26) | RELATED TICKERS: CLGRF , PPP , BRD.DL

It's been a rough road for gold and silver investors lately, and the thoroughly distressed valuations pervading the related production and exploration entities is enough to try the patience of even the most seasoned market participants.

I am here to remind Fools that the purpose of a corrective pause in a long-term bull market is to periodically shake-out the weaker hands, and as long-term investors we never want to play that role. My longstanding readers will recall my discussions of the 2006 gold correction, which struck a short time after I increased my precious metal allocation from somewhere around 40% to roughly 70%. I recall feeling an odd sense of relief when I sold some positions into weakness to place a limit on my losses, but ultimately I ended up buying back some of those positions at higher prices as my ongoing research and developing understanding of the fundamental outlook enhanced my confidence in the inevitability of the next major breakout.

The lessons learned through that experience served me well during the 2008 crisis and associated collapse of the precious metals and their equities. I watched with unbroken confidence in the long-term bull market as that brutal correction erased more than half my portfolio's market value and sent my CAPS score careening from the top to the bottom of the pack. I learned a different lesson during that chapter, which was to always build a cash position into strength so that I would never again be forced to watch a stock like Silver Wheaton fall to $2.51 per share without having the means to average down into my position.

The current correction in gold and silver has put all these lessons into practice, though the brief nature of the early-year rally only permitted a modest accumulation of cash reserves, and they have mostly been reinvested at this juncture. But since every stock purchase of late has been accompanied by a feeling of deep satisfaction at the values thus obtained, I have no regrets for having essentially depleted my cash reserves here. Physical buying is very strong beneath $1,650, and would only get stronger if gold were to test the $1,550 to $1,600 range (which I am not saying will happen). Because of the technical damage imparted by the recent break below $1,650, any failure to recapture $1,680 in short order does indeed keep the $1,550 to $1,600 range within the realm of possibility. I do not consider anything beneath $1,500 even remotely possible, and I consider it far more likely than not that the $1,600 level will hold.

I wrote the following article for you, my community of fellow gold and silver investors here on CAPS, to offer an encouraging word of reassurance during a period of weakness that has rattled the confidence of many gold and silver investors. I encourage you to see straight through the noise portraying reluctance by the FED to engage in further QE, and to understand instead just how inevitable further easing remains given the prevailing circumstances. I intend to write a follow-up piece specifically on that point, but rest assured that further easing will come from the FED. Additional measures of an unappetizing scale will likewise be forced upon the European continent. None of these measures will solve the underlying structural deficiencies infecting the global financial system, but rather will only buy the central banks some time.

http://www.fool.com/investing/general/2012/04/11/dont-give-up-on-gold.aspx

While a few good reasons exist behind the dramatic underperformance of the precious metal equities to date, for the most part I believe that prevailing valuations are a result of unjustified indifference toward the industry by financial markets that have still not internalized the full scope and longevity of the ongoing bull market trend. The time will come when gold and silver do begin to exhibit characteristics of a maturing bull market through the increased participation of investors, and because that is likely to occur in the midst of a meaningful breakout in the underlying metal prices, the corresponding appreciation in the quality shares out of such a deeply impaired state is likely to yield gains on a scale that seems difficult to contemplate while we remain mired here in relative weakness. Rising costs are a problem, but nothing that higher prices can't alleviate. The prolonged nature of this impaired state, furthermore, will feedback into the supply equation as mine supply will not be able to meet growing investment demand without substantial investment capital behind every tier of the equity space.

The gold and silver equities have enjoyed a few brief moments of remarkable strength within an otherwise dismal trajectory, and in no way does that experience correspond to the end-stages of bubblemania that some bears wrongly perceive in gold. We have not only a complete absence of speculative froth in the equities, but a longstanding indifference that points to the opposite extreme. Meanwhile, the more noteworthy speculative froth in the paper gold and silver markets occurs on the short side. Until we find long-side commitment on a scale to match the price-crippling shorts, we will not have even reached the maturing stages of a secular bull market. In the meantime, savvy market participants, including sovereign banks in China and elsewhere, continue to offload physical supply while the high-frequency circus continues with its paper games.

So stand strong with gold and silver. I stand with you. Don't let up on the discipline that keeps you intent on permitting only the most attractive and most carefully vetted companies into your portfolios. Remember the feelings you feel in the midst of this correction, as that memory will serve you well the next time gold enters another inevitable corrective pause. When we do finally get a breakout, remember to raise some cash into strength in preparation for the next pause. That cash position makes all the difference between mere frustration and despair. $2,000 remains an absurdly conservative price target for gold, but one that I retain nonetheless until such time as we strike through it. Until then, and in fact for some time beyond, please, don't give up on gold.

26 Comments – Post Your Own

#1) On April 11, 2012 at 4:24 PM, leohaas (32.36) wrote:

"Meanwhile, the more noteworthy speculative froth in the paper gold and silver markets occurs on the short side."

Don't worry about that: short sellers are guaranteed future buyers!

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#2) On April 11, 2012 at 4:32 PM, XMFSinchiruna (27.60) wrote:

Well, you're right there, leohaas.  :)

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#3) On April 11, 2012 at 4:48 PM, portefeuille (99.65) wrote:

I am catching the gold bugs, hehe ...

100ozround - Metals and Mining Score: +5,260.59
bridgeboy0 - Metals and Mining Score: +5,163.48
silverminer - Metals and Mining Score:  +2,903.17
portefeuille - Metals and Mining Score: +2,107.70
portefeuille6 - Metals and Mining Score: +1,025.75
portefeuille4 - Metals and Mining Score: +878.07
portefeuille5 - Metals and Mining Score: +622.90
tmfsinchiruna - Metals and Mining Score: +482.79
portefeuille2 - Metals and Mining Score: +396.03
portefeuille3 - Metals and Mining Score: +271.05
portefeuille12 - Metals and Mining Score: -151.03

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#4) On April 11, 2012 at 4:54 PM, portefeuille (99.65) wrote:

#3 While none of the gold bugs is about to catch zzlangerhans or me in this "sector", hehe ...

http://caps.fool.com/player/zzlangerhans/sectors.aspx?astable=biotechnology&filter=all#biotechnology
http://caps.fool.com/player/portefeuille/sectors.aspx?astable=biotechnology&filter=all#biotechnology
http://caps.fool.com/player/portefeuille2/sectors.aspx?astable=biotechnology&filter=all#biotechnology

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#5) On April 11, 2012 at 5:28 PM, OHGtop10 (< 20) wrote:

The thing I like about PPP is that their by product cost is only 384. They can make money even if gold goes to 1000. But they make even more if gold goes to 2000. Also when you back out their cash per share you are buying PPP for 1.40 a share.  I also think Goldman has been more accurate on gold than Gartmen.  Goldman is neutral on the gold price in the short term and a buyer long term. 

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#6) On April 11, 2012 at 5:33 PM, XMFSinchiruna (27.60) wrote:

OHGtop10,

Goldman has a buy rating on gold with a 6-month price target of $1,840 per ounce.

Agree with the strengths you cite for Primero, with the caveat that the silver tax issue must be favorably resolved to preserve that cost structure in a rising-price environment. I think it will, but the market appears determined to await the outcome.

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#7) On April 11, 2012 at 6:15 PM, OHGtop10 (< 20) wrote:

Sinch, do you know the tax rate PPP is paying on the full price of silver?

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#8) On April 11, 2012 at 6:38 PM, portefeuille (99.65) wrote:

My fund has some "precious metals" exposure. There are currently 1100/900/1900/100/450/2900 GDX/GDXJ/SIL/SLV/SLW/TSXV shares in the fund with break-even of around 54.95/29.56/21.66/-88.06/42.64/15.10 USD.

 

The S&P 500 index is still following its rally trend line apparently. Not so sure about the price of "precious metals" ...

S&P 500 index (from here).



enlarge

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#9) On April 11, 2012 at 7:10 PM, TheDumbMoney (47.10) wrote:

Portefeuille, how long since you updated those ranges, or do they auto-update?  Looks to me more like the S&P is establishing a lower rally trend line, just to my naked eye.  Are your trend lines auto-updated including data from the last year?

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#10) On April 11, 2012 at 7:49 PM, portefeuille (99.65) wrote:

#9 No auto-updating involved.The green trend line was introduced in June 2009, the trend channel was introduced in 2010.

June 23, 2009, Ellipsis

June 26, 2009, Ellipsis

March 05, 2010, chart1

April 23, 2010, chart2

May 06, 2010, chart3

May 12, 2010, chart4

May 19, 2010, chart5

June 02, 2010, chart6

June 21, 2010, chart

September 21, 2010, chart

October 20, 2010, chart

November 04, 2010, chart

...

January 19, 2012, chart

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#11) On April 11, 2012 at 7:55 PM, portefeuille (99.65) wrote:

#9,10

-----------

On May 10, 2010 at 10:02 PM, portefeuille (99.79) wrote:

#37 You could start reading here. I simply noticed in June 2009 that a certain kind of curve is a nice fit to quite a few segments of charts I looked at (just look at the pictures included in that post). I think the current rally (the one that started in March 2009 for the S&P 500 index has a decent chance of "following that green trend line" for a few more months and a "slim chance" of following it for a few years. The grey lines are simply "1.1 * green line" and "0.9 * green line". They gave a decent trend channel when I introduced them and I think they still do. The chart obviously suggests "selling" when the S&P 500 index is at around the upper grey line and "buying" when it is slightly below the green line. The wiggly green line is similar to the usual semi-logarithmic chart of the S&P 500 index connecting the daily closing values with the "differentiating property" (suggested by anchak in comment #24 (and #25-28, hehe) here) that it is a spline interpolation.

I usually do not comment on the chart when I post it because there is usually nothing really new to say ...

-----------

(from here)

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#12) On April 11, 2012 at 8:33 PM, portefeuille (99.65) wrote:

No auto-updating involved.

I usually do not comment on the chart when I post it because there is usually nothing really new to say ...

So I have given a chart to the world that gives the trend line and trend channel for a few years. No need for long explanations or updating. Feel free to compare this to most other charts, hehe.

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#13) On April 11, 2012 at 8:45 PM, skypilot2005 (< 20) wrote:

Brigus Gold Corp. has posted the following presentation

April 2012

To view all presentations, please visit the following URL:
http://www.snl.com/irweblinkx/presentations.aspx?iid=4288058

Brigus Gold Corp.

Headline: Brigus Reports 26.83 Grams Per Tonne Gold over 15.50 Metres at the Contact Zone on the Black Fox Complex

Date: 04-10-2012

For a complete listing of our press releases, please visit the following URL:
http://www.snl.com/irweblinkx/news.aspx?iid=4288058

 

Major shareholders:

Sprott Asset Management, LLP; Van Eck Associates Corporation; Ruffer LLP; Baker Steel Capital Managers, LLP;

Universal‐Investment‐Gesellschaft; Hale Capital Partners; Sun America Asset Management Corp;

Perennial Investors LLC; Earth Resources; and Waterton Resources

March 2012 Presentation

http://www.snl.com/Cache/1500040335.PDF?D=&O=PDF&IID=4288058&Y=&T=&FID=1500040335

Sky Pilot

Official Web Link Assistant to Sinchi

I own a chunk of BRD.

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#14) On April 11, 2012 at 8:57 PM, TheDumbMoney (47.10) wrote:

I'm not the mathemetician you are Portefeuille, but I'm concerned about an algorithm conceived in June 2009 to fit a pattern then-existing, and which has not been updated since that time.  As you know though, I'm more broadly deeply suspicious of the predictive power of technical indicators such as this, particularly over a long time period.  So take what I say with a grain of salt.  But even in the post above that you quote, you state, it has "....a 'slim chance' of following [the green trend line] for a few years."  I would humbly submit you should think deeply about whether it still is following that trend line.

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#15) On April 11, 2012 at 9:31 PM, portefeuille (99.65) wrote:

#14 No mathematics involved. And no algorithm involved. I suggested a trend line and later on a trend channel and the S&P 500 index has chosen to do more or less what I predicted. I still find it slightly amusing that it has been a decent prediction for such a long time and I still give it a slim chance to remain a decent trend line for the next few years. I think with the additional data I would draw the trend line and the channel about the same way I drew them in June 2009 and in 2010.

I just let open office draw a trend line ("insert" -> "trend lines ..." -> "power") for the data shown in the semi-logarithmic chart.



enlarge

In June 2009 I chose a * t^b, where a = 1/15 and b = 0.37.

In April 2012 openoffice chooses a ≈ 0.08 nad b ≈ 0.325.

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#16) On April 11, 2012 at 9:35 PM, portefeuille (99.65) wrote:

#9,14,15 So, yes, the black line (drawn by openoffice using all data (781 trading days)) is slightly below mine (chosen in June 2009 with around 75 trading days).

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#17) On April 11, 2012 at 9:41 PM, portefeuille (99.65) wrote:

nad

and

 

A similar chart for the NASDAQ Composite index (all that was needed was changing a from 1/15 to 1/13 as the NASDAQ rally is a little steeper than the S&P 500 one. b is still 0.37.).



enlarge

(from here)

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#18) On April 11, 2012 at 9:49 PM, XMFSinchiruna (27.60) wrote:

Hey Portefeuille,

If you wanted to hijack my blog post with a barrage of completely off-topic crap, all you had to was ask.

Of course, I'd have said "no"! 

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#19) On April 11, 2012 at 9:50 PM, portefeuille (99.65) wrote:

#14 If you really do not like following some "silly" trend line you could still "follow" my fund or some of the "caps" game calls made by my players. I have a feeling that will remain "somewhat helpful" for a few more years ...

I'm not the mathemetician you are

I am a theoretical physicist, by the way (see this post).

portefeuille.

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#20) On April 11, 2012 at 9:51 PM, portefeuille (99.65) wrote:

#18 those gold bugs, hehe ...

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#21) On April 12, 2012 at 9:38 AM, whereaminow (24.34) wrote:

Lol $1650 gold is a cause for panic for some? It's funny how far we've come.

David in Liberty 

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#22) On April 12, 2012 at 10:44 AM, XMFSinchiruna (27.60) wrote:

Ed Steer kindly included my article in his Gold & Silver Daily:

http://www.caseyresearch.com/gsd/edition/risk-having-sold-most-its-own-imf-now-lauds-gold-safe-asset

For those not already taking advantage of this free daily column, I consider it an invaluable tool for serious pm investors.

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#23) On April 15, 2012 at 11:03 AM, RVAspeculator (30.06) wrote:

Sinch,

The amazing part to me is some of these mining shares are trading at or near 2009 lows yet gold is still in the mid-1600's.   GDXJ set a lifetime low on Friday.  By the way these shares are trading you would think gold was below $800.   Not extremely bullish on gold but this does not make sense to me...   I still think gold will outperform the S&P (like always) and is still in an uptrend but could have more downside.

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#24) On April 16, 2012 at 9:18 PM, skypilot2005 (< 20) wrote:

Sinchi,

Numerous positive ramifications for both companies, I. M. O:

 

http://finance.yahoo.com/news/endeavour-silver-aurico-gold-sign-225010737.html

Endeavour Silver and AuRico Gold Sign Definitive Agreement

In Respect of Endeavour Silver's Acquisition of the El Cubo Silver-Gold Mine and the Guadalupe y Calvo Silver-Gold Project From AuRico Gold

4/15/12

 

Sky

I own a lot of AUQ

 

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#25) On April 17, 2012 at 7:29 AM, skypilot2005 (< 20) wrote:

http://finance.yahoo.com/news/endeavour-silver-aurico-gold-sign-225010737.html

“AuRico Gold is now directing all of its attention to delivering value for shareholders from its three operating mines, including Young-Davidson where first production is imminent, and its development pipeline in Mexico and Canada”

First production imminent………

http://www.snl.com/Cache/1001165242.PDF?D=&O=PDF&IID=4288058&Y=&T=&FID=1001165242

Brigus Gold Reports 5.95 Grams Per Tonne Gold over 56.7 Metres from the 147 Zone on the Black Fox Complex

Sky

I have some shares of BRD in my glove box.

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#26) On April 17, 2012 at 12:34 PM, SN3165 (< 20) wrote:

you better fill up that glove box and  perhaps the trunk ! lol

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