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« LBMA Chairman Tells Producers Gold To Plunge $400 In 2014 | Main | Martin Armstrong: Greece To Default in 2014 – Cycles of War – Presidential Elections 2016 »
Monday
Dec162013

The Dead Cat Dollar Outperforms Gold, Silver and The HUI

Background

It has been a very hard year for the gold and silver bulls as this tiny sector has been sold off to an alarming extent by investors who are currently disillusioned by the demise of both gold and silver and the knock-on effect that they have had on the precious metals producers. Gold and silver have had a long run of ‘year on year’ gains and so the expectation was that 2013 should be more of the same. Alas, a correction arrived driving the precious metals down and decimating the price of a number of mining companies as the chart below clearly indicates.


The US Dollar

The US Dollar was expected to behave like the proverbial ‘Dead Cat’ in that it would fall from grace and not recover, instead it has hung in there, having dropped and tested the ‘79’ level no less than 5 times over the last year or so, only to bounce back to higher levels. As an investment it has outperformed the precious metals sector, not by making any dramatic gains, but by managing to maintain its value against the basket of currencies that form the US Dollar Index. Governments and central planners across the globe are engaged in some form of QE with the view to cheapening their own currency and hopefully boosting exports. This race to the bottom involves a number of currencies rendering it harder for the US Dollar to fall further. Some would argue that the dollar has outperformed precious metals by the default of other currencies and not on the strength of its own attributes. Never the less, it has outperformed making 2013 a year to be in cash as oppose to being fully invested in gold, silver or the associated mines.

Gold and Silver

Gold and silver have been in decline since hitting their all-time highs in 2011. A number of rallies have taken place during this trek south only to lose traction and fizzle out. We are aware that China is importing gold at record levels, that money printing continues unabated, the paper market does not reflect physical demand, etc., however, the trend is down. The trend is your friend as they say and until it changes we need to tread very carefully indeed if our wealth is not to be decimated. Timing is crucial to the success of any investment and as much as we like gold and silver, now is not the time to buy.

Gold and Silver Miners

One look at either the HUI or the XAU will tell you that this is a disaster area. The HUI stands at 197 today, down from a 2011 high of 625, registering a gut wrenching loss of close to 70%. For some companies the cost of production exceeds the value of the product they are producing. Many are engaged in an efficiency drive and cutting costs wherever they can in order to keep the wolf from the door. The perception is one of a battalion under siege fighting a gallant rear guard action, which begs the question; is this the place for my hard earned cash? Has this rout exhausted itself yet and are there now bargains to be had? The lows that were made in June were thought to be the bottom; however, the HUI has re-visited those lows and penetrated them, so the search for the final low goes on.

Conclusion

There are many alternatives to the investing in the precious metals sector which are doing very well. As we have mentioned, the dollar has been a better place to be this year. The stock market in general has made record highs bringing riches to many. The recent popularity of something that has been described as new gold; ‘Bitcoin’ is vying for our investment cash as a possible store of wealth and a means of wealth transfer. Is it a credible alternative, we don’t know, but it is getting a fair amount of air time and stimulating much debate. Then there is that old chestnut, monetary policy and the shadow of tapering which hangs over the precious metals market. The Federal Reserve meet this week so Ben Bernanke’s words may give us some clues as what they have in store for us going into 2014. We would not entirely rule out some type of tapering even as early as this month.

The gold market has been very kind to us over the last decade so we would like to paint a rosy picture for gold in 2014, but we regret that we just cannot see it yet. Gold and silver need to remain above the June lows and rally to higher ground in order to restore investor confidence. We suspect that this will not happen and that they will penetrate those June lows in a move that could lead to a ‘final’ capitulation; something that we believe is missing from this jigsaw.

We will keep our gun powder dry, watch and wait until we are absolutely certain that this bear phase is over before we return to the acquisition trail. We currently retain a bearish stance and we will trade accordingly until this bear goes into hibernation.

Got a comment, fire it in, especially if you disagree, the more opinions that we have, the more we share, the more enlightened we become and hopefully the more profitable our trades will be.

Take care. 

In September 2011 the Gold Bugs index, the HUI stood at 630 as gold prices peaked, since then both have trended lower with the HUI losing about 65% of its value. The bottom has been called a number of times and after such a dramatic decline its difficult not to think that we are there now. However, as we all know the timing of any investment is crucial to its success and that is exactly what we are trying to do here, trying to pick advantageous entry and exit points. If you would like to know which stocks we are buying and selling please join us atStock Trader our premium investment service.

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Reader Comments (4)

Bob
Please write an article on bit coin. This is something that I don't quite understand and maybe a lot of your patrons are also uninformed about. How does the whole thing work ? and how can person put a few bucks down on it? this may not be a gold or silver topic but then again you don't always post something that is entirely about either metals always about the politics that affects the market and other peoples articles as well.
Is bit coin based on Ponzi scheme mechanics?. Seems like it.

December 17, 2013 | Unregistered CommenterDoug Grant

Dear Mr. Kirtley,

Thank you so much for your article on Kitco today. You write superbly, and it is a pleasure to read your material.

I have a lot of physical gold and silver, and indeed it has been a very discouraging and gut-wrenching two and a half years since the high of $1,927 for gold in the fall of 2011. However, I am hanging in there. I think gold will fall to $1,100 or even a little lower, (thus making a 50 % Fibonacci retracement, for want of a better explanation), and then gold (and silver) will explode.

The US money is printed toilet paper, the banks are insolvent, only being kept alive with QE transfusions, capital is being destroyed by ZIRP, and the rats are scrambling to desert ship with nowhere to go but into the water. Yet the "powers that be" keep devising new stop-gap schemes to prevent the inevitable, and so we wait and suffer.

COMEX is nearly out of physical inventory with hardly any gold left in their vaults. How do you post a price for something when you have no inventory? "The Mercedes costs a quarter of a million dollars, but sorry, we don't have one in stock." To me it is that ridiculous. I think COMEX and its stated gold price will "go dark," and COMEX will become an empty room once their inventory is totally exhausted by people demanding physical gold for their paper certificates. COMEX does lots of tricks to make people take paper dollars with a premium, but smart people will not take that toilet paper. So they go to litigation, and some get their gold, others less persistent take the almost worthless cash.

After a while new channels will develop for buying and selling gold at its real price, which at this moment, is worth about two and a half time its COMEX stated price, and then gold (and silver) will ascend to unbelievable amounts in dollar terms as the dollar becomes further worthless as the Bernanke-Yellen printing presses run night and day, printing worthless coupons called dollars so as to prop up the insolvent banks and the grossly overvalued stock market.

Well, in a nutshell, that is my opinion. Behind all that is the incredible fraud, theft, deceit, ad infinitum, that the USTreasury/WallStreet goons/bankrupt bank officials/narcotics-money laundering operations (the US military bases around the world facilitating)/ etc., etc. are doing. The derivative losses the big banks will suffer as the 10-year T note pushes to 3.00 % (and beyond, I think) again for the second time this year, will cause one of the big western banks to fold. My guess is it will be Deutsche Bank, but whatever when a really big bank goes down, it will drag several big banks in Great Britain, France, and the US down with it. (All the western banks now are lashed together, so if one bank goes overboard the others can pull it back on board, but if a really big bank goes down, it will pull overboard many other banks to which it is lashed -- sailor terminology, if you get my drift -- no pun intended).

Well, I could go on and on with my rant, but I will stop and send this to you in support.

Many thanks for your exceedingly well-written and thought-out article

Sincerely,
Charles

December 17, 2013 | Unregistered CommenterCharles

Good Day Doug,

We are monitoring Bitcoin as it is a very interesting idea. The Alchemist's have been trying to make gold for centuries and have failed. However, we live in the internet era and the younger generation do everything on-line.

I'm a bit long in the tooth so I'm searching for the risks/ scam/ponzi/ type of trap. I heard recently that they are doing more business than PayPal which if true says something. On a lighter note I would hate to run my system software for clearing out the bugs and find that the coins went to.

We will keep you posted as it could certainly challenge gold as an alternative.

Take care, Bob K

December 18, 2013 | Registered CommenterGold Prices

Good Day Charles,

A 50% Fibonacci retracement would take gold down to $963/oz, so we could a little more to go on the downside.

The COMEX can continue to use dollars as settlement until they run out of customers. Remember the ABN AMBRO Bank sent their clients a note saying that they would be paid out in cash if they wanted to redeem their gold holdings and gold did nothing. So we already have a template for such actions without gold heading for the moon.

Money printing has been with us for some time now and gold over the last 2 years or so has been in decline.

Sure the banks are in trouble and so the central planers rely on QE, but as we know, liquidity is not a remedy for insolvency.

Keep your rants coming and take care out there, bob K

December 18, 2013 | Registered CommenterGold Prices

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