Subscribe for 12 months with recurring billing - $199

Buy 12 months of subscription time - $199

 

Search Gold Prices
Gold Price
[Most Recent Quotes from www.kitco.com]
Our RSS Feed

Gold Updates by Mail

Enter your email address:

Follow Us on Twitter
« Ron Paul vs Paul Krugman: Who Is The True Prophet, Who Is The False? | Main | Bitcoin, not gold, has the Midas touch »
Wednesday
Nov272013

The HUI Has Penetrated Its June Lows, Gold and Silver To Follow

Background

The June low for the gold mining sector was believed to the bottom for gold miners and as such presented a buying opportunity for the precious metals community. At the time we greeted this event with some trepidation and described the capitulation as a capitulation of sorts, but not a final one.

In any bull market we have to climb the wall of worry and gold and silver did exactly that in the first phase of this bull market as many objectors denounced its progress. This wall of worry will always be with us as gold clings on in the hope that there is a U-turn coming and the bull returns with a vengeance.

The Gold Bugs Index (HUI)

The June bottom in the mining stocks produced a rally that took this index from 210 to 280 for a gain of 33%. Since then the froth has dissipated and the HUI has dropped back to close at 204 today. It could be that the miners have returned to retest these lows and the bulls may lend a hand here by making more acquisitions, thus providing some support. On the other hand if the miners lose support and the HUI continues to plunge, then the June bottom will join the ranks of the many false dawns that we have experienced since the heady days of a couple of years ago when the HUI traded at around 625. Since then the HUI has lost almost 70% of its value, a gut wrenching disappointment for gold bugs if ever there was one.

The fortunes of the gold and silver producers are largely predicated on the price of both gold and silver and so it goes that we must focus intently on their progress or lack of it, as the case may be. Although it has to be said that there are other factors that could adversely affect mining companies, such as a major stock market correction which would in turn weigh heavily on mining companies as they could be grouped with stocks in general and sold down accordingly.

Gold

 

Since the record highs when gold hit $1900/oz, gold’s story has been a dismal one. As of today gold is trading at $1241/oz for a loss of 34%. At the end of June the rout looked to be over as gold prices traded briefly below $1200/oz and then rallied to $1420/oz in August. However, this summer rally soon faded and gold drifted forming lower lows along the way, wiping out a lot of the summer gains. Gold is now within $40/oz or so of the summer lows and could easily test those lows in the coming weeks. Again that support level needs to hold for all who are invested in this tiny sector of the market.

On the positive side of this equation we have the robust demand for the physical metal especially from the Eastern part of the world. We are aware of the amount of gold that passes through Hong Kong on its way to China and those numbers are growing at a tremendous rate. China also imports gold through ports other than Hong Kong for which the numbers are vague, but could be considerable. The mints regularly report that they are temporarily out of product such is the domestic demand for coins and bars, and so we anticipate higher prices.

Silver

Silver followed gold to higher levels during the summer rally when it moved from around $18/oz to around $24/oz; it has since drifted lower and today it trades at $19.63/oz. So we can see that silver is also in retest mode and could test the summer lows in the near term. The demand for silver differs from gold in that it has many industrial uses such in the manufacture of solar panels and it could therefore hold its value a tad better than gold. However, when gold moves in either direction, silver tends to follow it regardless of the additional demands for its usage.

Conclusion

There are a myriad of positive factors that go into this mix of considerations when formulating our investment strategy: Physical demand, Debasement of currencies, Dwindling supply, Insurance against disaster, Backwardation in the paper market etc.

These are all good solid arguments and are supportive of gold and silver prices in most cases. However, the fact that the precious metals are struggling to gain any sort of momentum in what is traditionally their season for making gains does not bode well for a sustained rally.

The debasement argument has held good for some time and been supportive of the precious metals sector. However, the possibility of tapering still lurks in the background. A number of our readers have rebuked us for suggesting such a thing and they may well be correct. The new Fed head, Janet Yellen is said to be even more dovish than the outgoing Fed Head, Ben Bernanke. This may be so, but all along the Fed have said that they will remain data driven. Now, as our readers frequently point out, the employment numbers are riddled with low paying part time jobs and therefore this recovery is not strong enough to warrant any tapering of the current Quantitative Easing programme. We disagree on this point and are of the opinion that tapering will be introduced should the employment numbers continue to improve, but as they say; time will tell.

We also need to keep an eye on the European Union and the possibility of an introduction of negative interest rates and Japan where the new government have adopted an approach of printing more money in an attempt to boost their own economy. These actions will debase the Yen and the Euro which in turn puts upward pressure on the USD which has an inverse relationship with gold and so gold prices decline.

A more recent argument has been the increased activity in the options market whereby the 2015 Call Options have been purchased at a strike price of $3000/oz. We agree that someone is sufficiently confident of making a profit to purchase these contracts, but, on the other side of this trade there is someone equally as confident that they will be ones to make a profit should gold not achieve these price levels. This is more of a neutral action than one which supports gold.

Many of the miners have costs in the vicinity of $1200/oz so if gold prices fall lower than their production costs they will have real problems attracting investors and could face bankruptcy.

There is also some new money vying for our attention in the form of virtual money, Bitcoin.

The stock market in general is still booming and is considered by many to be the place to be thus taking funds away from the precious metals sector.

So it is down to us all to try and get the direction of the precious metals correct, in terms of the big picture, then the rest will fall into place, if we get it wrong then we could be faced with huge losses, so go gently whether you are a bull or a bear.

All in all we are still of the opinion that both gold and silver will retest the June lows and penetrate them as this bear phase continues.

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.

Subscribe for 12 months with recurring billing - $199

Buy 12 months of subscription time - $199

 

If you are new to investment in the precious metals sector then you can subscribe of our FREE newsletters regarding gold stockssilver stocks and uranium stocks, just click on the links and enter your email address and we will email you our articles along with other interesting posts.

Please remember to check your spam folder once you have subscribed to ensure that your verification has not gone astray and you are getting our emails.

As regular readers will know skoptionstrading has capped its membership, so the best we can offer you at the moment is to place you on the waiting list which you can do by sending me a short email at this address bob@gold-prices.biz and I will see that your name goes onto the list, thank you.

 

PrintView Printer Friendly Version

EmailEmail Article to Friend

Reader Comments (18)

"These actions will debase the Yen and the Euro which in turn puts upward pressure on the USD which has an inverse relationship with gold and so gold prices decline."

I do not agree with inverse relation, it is no longer true for some time already

November 28, 2013 | Unregistered CommenterGEKKO7

"Gold is now within $40/oz or so of the summer lows and could easily test those lows in the coming weeks. Again that support level needs to hold for all who are invested in this tiny sector of the market."

Why?

Will that ounce of gold you hold no longer be an ounce of gold?

If you're dumb enough to be playing Comex games, yeah. If you need to convert to clownbucks in the short term to do transactions, yeah, but otherwise, why should we care about the daily price if we know how the show ends...with the collapse of the inflated currency?

I've said it here before, but it is THE key thing to understand.

FAIL FAIL FAIL FAIL FAIL FAIL.... Extend that word string to hundreds and then thousands of entries and each one is FAIL. What do you think the chances are the next word will be SUCCEED? Information theory tells us ... not so good.

Well, every lousy stinking fraud of government mandated and controlled clown currency has FAILED. History...turns out it's useful after all.

So, what are the odds the clownbuck, the Euro, the yen, cable, and the rest of the Ponzi pretenders survive?

About the same odds as water on the stove freezing. I can happen, in theory. It has NEVER happened in practice. So, you protect yourself against the inevitable beatdown you'll receive from your currency becoming worthless by holding gold/silver.

Do you bail on that strategy when the price in any or all of these government issued currencies goes down in the short term?

Well maybe, if they're not increasing the supply aggressively and endlessly. If the central banksters are raising rates enough to keep real rates positive and are controlling the issuance of new debt/money, then you'd be foolish to be increasing your level of insurance, and you might even want to sell some.

Is that the case today? No. 180 degrees opposite. They're on a bender. They're on tilt. They've committed to a plan of inflate or die. AND, they're confiscating depositor money to bail in failed banks. They're nationalizing retirment plan assets in Argentina and Poland. The kleptocrats are in charge everywhere. Has there ever been a more propitious time to own real money than now as the system built on debt and paper teeters, and all their promises promise to just that...promises that can't pay off?

So, then, you have to ask why is the price going down? It never has before under anything remotely approaching such circumstances. Or has it?

Maybe not down, but it was suppressed and prevented from rising above $35 by the London gold pool in the 60's. That scheme was blown to smithereens when one whole helluva lot of gold was sold at artificially low prices and stockpiles became so depleted they had to say, "No mas." The result was the overt suppression ended and price went from $35 to near $800 in just over a decade.

So, why is the price going down now? TELL ME. GIVE ME A LOGICAL REASON WHY, WITH THE RECORD BREAKING DEMAND FROM CHINA, ET AL AND SO MANY OTHER HARD ASSETS GOING PARABOLIC ON THE UPSIDE...WITH REAL RATES NEGATIVE...WITH THE MONEY SUPPLY RAMPING TO THE STARS WITH NO CHANCE OF THAT TREND EVEN BEING SLOWED DOWN MUCH LESS REVERSED...IS GOLD GOING DOWN?

The only somewhat compelling argument you could give me would be that gold investors are sniffing out a deleveraging "deflationary" debacle coming, but if that's the case, why is everything else that would be hurt by a liquidity squeeze doing so damn well?

No, there's one reason and one reason only. The price is being gold pooled again by the sleazemasters at JPM (with 12 active investigations currently going on into their criminal activities), undoubtedly at the behest of the Fed/Treasury and the BIS.

They can't allow the price of gold to scream to everybody that there's a problem in Ponziland by rising relentlessly and in an accelerating fashion as it was doing from 2001 to 2011. So, they resort to selling (mostly) naked short on the Crimex a whole lot more gold that they could ever hope to deliver to drive the price down.

They do this by entering huge sell orders "at the market" which are executed all at once, always at times when there's no depth to the market ... usually in the wee hours. They eat through all the bids and create waterfall drops, which then triggers stop losses and discourages the likes of you and others who slavishly rely on what the charts are telling you. When markets are manipulated this heavily and this overtly, the charts don't mean anything that JPM doesn't want them to mean. By still referencing them and acting on their phony signals, you become a pawn of the bastards and an unwitting enabler of their scheming.

IT'S A COLLOSAL SCAM.

Buy gold! Keep buying gold! Don't sell any till they do something concrete to defend the various currencies vs trashing them. Forget timing.

When this Ponzi crumbles, you can put away your charts for good. We'll get a rocket shot in price to the point where price per clownies will become meaningless. All that'll matter is how much real money you have in the form of gold and silver. Any ounces you still wish to buy won't be available at any price.

That day may come soon or it may still be years away, but in historical terms .... that's tomorrow.

November 28, 2013 | Unregistered Commenterfallingman

The recent slightly lower low in HUI, which your article claims does portend lower lows in Gold and Silver prices, is simply a Bear Trap that shakes out weak hands, and serves as the "Sun" ( a pivot point whose arc controls prices ) which projects a short term top in HUI in late Jan 2014 , when NEM will be at $42 per share, and HUI will make a similar percentage up move to about 320. Look to it !

November 28, 2013 | Unregistered Commenterjames

So, why is the price going down now? ----- because the weak hands are still selling it.

The trend is your friend as they say and as long as it is going down I don't see the need to buy it as it is getting cheaper.

Sure we wont id the exact bottom but I'll be happier knowing that the bottom is behind us, before adding to our holdings.

November 28, 2013 | Registered CommenterGold Prices

You said:

…but, on the other side of this trade there is someone equally as confident that they will be the ones to make a profit should gold not achieve these price levels.

While I don’t put any stock in someone’s bet that gold will surpass 3000 in 2015, I think you’re characterization of that option purchase as “neutral” is wrong. To say that someone else took the trade because they had equal confidence that gold would not surpass 3000 isn’t necessarily true. You don’t know that there was a “natural” call writer on the other side of that trade. If a person wants to buy 3000 calls, HE GETS THEM no matter what. There doesn’t have to be 3000 currently up for sale. A market maker has to step in and fill that trade. So how does he set the price? The Black-Scholes model, most likely. But guess what; the BSM does not take fundamentals into account. It will grossly undervalue options at bottoms because it doesn’t try to decide if a bottom is close by. Same for tops. And it doesn’t consider the possibility of black swans. That dude that bought 3000 calls might think Japan’s bond market is going to blow up soon, or some other disruptive event will happen. He may even have inside information. Maybe he works at a large bank and knows they aren’t going to make it thru the next 18 months.

The bottom line is this: The person on the buy side of the trade has conviction, and may know something the market doesn’t know. But the person on sell side of that trade need not have anything but a calculator.

November 29, 2013 | Unregistered CommenterDon

Bob,

As all of the markets at this point and time the PM market is totally manipulated.

Until the Crimex and LBMA are dismantled by people taking delivery the charade will continue.

The Boyz want AU to be at or below 1K so that some of the big miners go bankrupt and they are able to buy them on the cheap.

AU's day will come. But not tomorrow.

Keep the faith,

November 29, 2013 | Unregistered CommenterFred

Dear Sir,

I found your article interesting. Perhaps you are right, but something tells me that you seem to ignore the basic factors for a continued lasting rise in property and share prices : real wealth creation. There is hardly any in the US nor Europe and the Western world, due in great parts to outdated and unadapted bureaucratic political systems, is not likely to improve. Like a cancer patient slowly rotting up. No amount of borrowed or newly printed money nor manipulated figures on unemployment or inflation will heal the sick. Where I may agree with you is that the dying may well take longer than most gold bugs ever thought, but die he will !

I tend to follow facts rather than theories, but there are those who believe that to crack the last obstacle for a new World order : the independant states, they need to be ruined. If this is true, we are of course heading right for the wall, all is now set for this to take place. It is not impossible that there is some truth in this, but even without it, nobody has survived - that being an Empire, state or company by keeping spending well over budget and as a consequence borrowing or printing enormous amounts of money without creating lasting real wealth.

Somehow personally, I feel better having money in physical gold than property or shares whatever the current downfall in value; when the call of death arrives, it will hit hard and the crises of 2008 will seem like a 'walk in the forest' to use a French expression.

Thanking you again for your article,
Best regards

November 29, 2013 | Unregistered CommenterSteen

Don,

We have years of experience trading options and over the last 4 years our subscribers have enjoyed a return of 827%.

Now if you place an order for 3000 call options and there are 100 for sale at your bid price, then you will get exactly 100 contracts. The market makers do not exist to fill any old order at any price, if they did we would all be rich.

To assume that the buyer knows something that a seller does not know is simply that: an assumption and nothing more.

Buyers and sellers balance out when the price suits both parties, so this purchase remains neutral in our humble opinion.

November 29, 2013 | Registered CommenterGold Prices

"So, why is the price going down now? ----- because the weak hands are still selling it."

You're partly right of course. Weak hands have become discouraged and have sold and continue to sell.

But you have to ask why are they discouraged? Why are they selling?

WHY? What's the motivation? What are the fundamental reasons for them to be selling given the backdrop I outlined above?

There aren't any. They're selling because price keeps going down because somebody keeps bashing the price down. Mission accomplished.

When I say, buy gold and keep buying gold, I'm, not ignoring what the cartel is doing. I'm talking about dollar cost averaging. I should have said keep accumulating and don't worry so much about timing.

The bottom line here is that the charts may provide a useful way to monitor what the cartel is doing. So sure, use them for that. I do. But they're utterly worthless as a gauge of true supply and demand. To contend that they do or pretend that they do strikes me as engaging in denial.

These markets are down because they're manipulated. End of story.

Maybe you should start telling THAT story.

November 29, 2013 | Unregistered Commenterfallingman

dollar cost averaging - Iv'e tried in the past and it didn't go so well for me. Nick Leeson also tried at Barrings and look how that finished up. To average down assumes that you have the right vehicle and that it will turn around, if it doesn't then the loses are tough to swallow.

November 29, 2013 | Registered CommenterGold Prices

Nice balanced column. I only want to make one comment.

Yes, your option buyers are betting that gold will close over $3000. But the other side of that trade does not necessarily believe that gold is going down. They might be thinking it will top at only $2950. Largely irrelevant to us!

November 29, 2013 | Unregistered CommenterMike

Yeah, I'm willing to bet big that what we're seeing is nothing short of a full out suppression of the gold price using whatever means necessary. If I'm right, that means they're selling gold at artificially low prices. You'd be crazy not to call their bluff and buy whatever you can,sit back, and wait for the scheme to unravel.

I understand that isn't as exciting as trading options, which is a fine strategy, but there are other perfectly legitimate strategies.

If I'm wrong, I own gold in a world gone crazy. I'm fine with that.

To believe owning/buying gold is a bad move here from a longer term perspective, you have to believe two things. One...the market isn't being manipulated and therefore the prices you see reflect actual supply and demand forces. And two... the Fed and the world's central banks aren't hell bent on destroying their currencies so they can "stimulate consumption" and allow debt to be paid off in phunny money for cents on the dollar.

I think you have to be either completely blind or have a vested interest in denying that manipulation exists on a grand scale to believe the first assertion. I completely reject the idea that the futures market isn't completely rigged. And talk about watching charts to give you signals, I see what they're doing with QE. I can see how they're blowing out the Fed's balance sheet.

Everybody can. That's exactly why they're suppressing the gold price, so it won't set off alarm bells.

"To average down assumes that you have the right vehicle and that it will turn around." Correct.

Normally, I would not average down. This is a special circumstance. Those who buy anywhere in here will be richly rewarded.

Time will tell.

If someone could give me an actual reason why gold would be going down under these circumstances, I'm all ears. Haven't heard one yet.

December 1, 2013 | Unregistered Commenterfallingman

Robert: Thank you for inviting comments.
I disagree with some of your thoughts, in particular your thoughts about tapering. QE began as a temporary measure to correct a serious problem. I’ve heard that we’re getting unemployment under control, but it’s not true. There has been a dramatic decline in full-time, high paying jobs. College graduate working at part-time, low wage jobs are counted as employed, while people who’ve given up trying to find work are ignored in unemployment statistics. By inflating the numerator and deflating the denominator in unemployment calculations, one gets an artificial statistic. Moreover, because fewer people are earning enough to pay enough taxes to balance our federal deficit, and because the costs of Social Security, Medicare and Medicaid are increasing, our federal deficit can only worsen.
When Bernanke and Yellen claim the decision to taper will be data driven, they ignore that the data about our federal deficit will never get better.
Am I claiming they’re liars? They’re politicians, and politicians would commit political suicide if they couldn’t figure out ways to say things in ways that calm the masses. If you can stomach learning about politicians, get a copy of “This Town,” a penetrating expose about how Washington DC works behind the scenes. The big joke in DC is “we’re all patriots.” Why is that funny? The politicians, lobbyists and consultant who inhabit DC care primarily about money and power, and about surviving where money, power and action converge.
Ever wonder why we pay twice as much (as a % of GDP) as other developed countries, while the quality of the health care we receive is no better. The Left would point at the pharmaceutical and health insurance industries, while the Right would point at the massive cost of emergency room visits, but the truth is that our health care system is mired in a web of vested interests, each positioned to cash-in at the expense of our economy.
Your article points out that China is buying lots of gold. Doing so lessens their massive exposure to US Treasuries. Less obvious is that China might well be suppressing the price of gold. China has more than enough wealth to control the world’s precious metals and precious metals mining companies, and suppressing prices would let them buy more for less. We don’t know whether China is manipulating the POG, but GATA has made it clear that someone is keeping the POG artificially low.
I’ve been watching you-tube interviews of supposed precious metals gurus and reading what they’ve written. Collectively, their message is like a “tale told by an idiot; full of sound and fury, signifying nothing.” Their projections about the POG range from $800/oz to $50,000/oz.
My gut tells me something is wrong when experienced and intelligent experts seem to be guessing. Maybe they’re nervous about the erratic state of our economy. Perhaps we’re approaching a tipping point.

December 2, 2013 | Unregistered CommenterRobert

The reason that gold is going down is that there still weak holders who are parting with it as they become too dispondant to hold through this bear phase and we still have nott had that 'final' capitulation that's is required for a decent wash out, enabling us to start again.

December 2, 2013 | Registered CommenterGold Prices

Silver is down $0.70 so far today, its not looking too good out there,
take care these are treacherous trading times.

Gold is down $32 and the HUI has just penetrated 200 to stand at 198, down 10 points.

December 2, 2013 | Registered CommenterGold Prices

Fred,

If you are absolutely sure that the gold market is rigged then why would bet against it?

December 2, 2013 | Registered CommenterGold Prices

Again, the weak hands argument is correct to a degree, and I get that selling usually begets more selling, but when I ask you to tell me why the price is going down, you offer nothing fundamental. You say market action is causing people to become despondent, thereby confusing effect with cause.

What caused the price drops that cause the weak hand to become despondent?

This is like saying a guy is wearing a cast because he has a broken leg. And why did he break his leg? It's one thing if he slipped and fell. It's another if a goon took a pipe to his kneecap.

JPM is that goon. THAT's why price is down from the $1,550-$1650 level.

December 2, 2013 | Unregistered Commenterfallingman

This slide in prices has been going on for 2.5 years and there doesn't appear to be an end in sight.

The stock market is going up so its a huge temptation to change horses even at this late stage.

Production costs and selling costs are neck and neck, so earnings are not looking attractive and many will suffer loses leading to more selling.

The bottom is not in yet and we wont be buying until we see it.

Take a lot care out there this battering is not over yet.

December 2, 2013 | Registered CommenterGold Prices

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>