The Vigilante's View on the Markets, Gold & Gold Stocks
Thursday, September 22, 2011 at 7:40PM Times like these are why we are dollar vigilantes. Talk is incessant about a possible collapse of the European Union - something which we consider to be a certainty. They can let it collapse now or paper it over again and see if they can keep that dead man walking a little longer.
Meanwhile, in the US, the talking heads in mass media look dazed and bewildered that, perhaps, the US is entering "back into recession". Almost all of them have been brainwashed at the Keynesian alter and actually think the US economy has been "growing". The truth of the matter is that the US has been in a depression since 2000. It's an highly inflationary depression, however, and it has managed to fool the great majority. They still listen to government statistics that are fallacious, such as the GDP (see The GDP is a Fallacy). But if they just opened their eyes and could see through the fog of decades of brainwashing and propaganda, they'd see that the true US unemployment rate is probably closer to 23%, over 45 million people are in today's version of soup lines (now called food stamps) and the US stock markets, in real terms (gold), are down 90% from their highs in 2000.
The scary part, for everyone, is that this depression is just getting started and the more they try to "stimulate" the economy, the worse it will get.
The great bearded one, the one who centrally plans the US economy, Ben Bernanke, added one word into his speech (the word "significant") when talking about downside risks and the lemmings all rushed off the edge of the cliff. It's confusing as to why they would listen to anything Bernanke says. Besides the fact that he is the leader of a criminal money counterfeiting cartel he also has been almost shockingly wrong on every prediction or forecast he has ever made.
Almost everything sold off today... even taking down gold and gold stocks with it. Let's take a look at what kind of damage was done to the assets in our portfolio.
Gold is now down to where it was about a month ago. Nothing too serious. Although if it goes much lower it could break support and could see a return to the $1500s. Perhaps even $1450. If that happens we will be shouting from the rooftops to buy. However, we hold gold bullion mainly for safety and as a hedge and so it doesn't matter if gold does go down another $150 or up $150... it doesn't mean we'd be selling now in either case. All it means is that we'd be collecting pop bottles on the side of the road to buy more gold at $1500.
Now, the thing we hold with hopes of significant profits is gold stocks. Let's take a look at them today. First, the majors:
A noticeable swan dive. Yes, that's for sure. But, just like gold, it just takes us to where we were a month ago after a nice rally that lasted all summer. Could it go down to 500? Sure. Anything is possible. And, again, if it does, we'll be borrowing money from relatives to put into the market. But, we think the gold stocks can rise from here even if gold sits around $1600... they are still very undervalued.
And, finally? Everyone is eyeing the juniors. We received a lot of email today saying how this is starting to feel a lot like 2008. Let's look at the TSX Venture Exchange (CDNX) which is a reasonable proxy for mining juniors. First, let's look at its chart since 2005.
The junior mining markets are the most volatile in the world and that is why we rarely have more than 15% of our entire portfolio in them... they can go up 1,000% but many of the stocks can also go to zero. This chart shows that as well as anything.
During the 2008 segment of the crisis, the TSX-V index fell from over 3,000 to under 700 in a span of a few months. It then more than tripled by March of this year and is off more than 30% since then. The question everyone is asking is if we are headed for that massive dive-bomb again this time around.
TDV subscribers know all of TDV Senior Analyst, Ed Bugos' past thoughts and research on this question and know that he is not expecting that. To add to Ed's analysis I submit this chart. This is a chart of the TSX Venture Index in terms of gold, not dollars.
This chart shows that in terms of gold, we are already near the 2008 bottom. And this at a time when gold has doubled in price in the same time frame, from $800 to over $1600. Can they still go lower? Sure. Anything can happen.
But, its more likely that they we will see 100%+ type gains over the next few months on the juniors. And, if the general public wakes up to what is going on, 1,000% and 10,000% gains aren't out of the question for certain juniors. Even just a return to where juniors were in 2007, versus gold, would entail a 500% pop.
Obviously we aren't yet at that point. But every day that central bankers try to paper over the obvious structural issues in their artificial, non-free market financial system we draw closer to a true gold stock mania.
This weekend Ed Bugos will have a full update to subscribers on what the action of this week portends and will look at opportunities to scoop up some gold mining stocks cheap. Subscribe to TDV today to keep abreast of all the action in the gold and gold mining shares and receive actionable info on how to take advantage of opportunities in the sector
Reader Comments (7)
"All it means is that we'd be collecting pop bottles on the side of the road to buy more gold at $1500."
Excellent web site. I have always been a believer in PM and am doing quite well. Enjoy reading the email reports! Regarding the two quoted comments above, made me laugh! Enjoy the real 'talk' and down to earth truth. Keep up the great work, wish you would expand and include more material.
Again, Thanks!
http://seekingalpha.com/article/295359-gold-has-broken-technically-and-the-selling-will-be-scary
It's actually funny how desperate some people are to see the USD survive.
Thanks to Chris H for that link at Seeking Alpha (I am a member over there). I have added a comment to the article:
http://seekingalpha.com/article/295359-gold-has-broken-technically-and-the-selling-will-be-scary
Eric,
I think your analysis is smart - you have covered the bases. My critique is that you are using a rear-view mirror. We are not replaying 2008-09 in gold, though we could do in stocks (the bad news is pointing to recession).
Operation Twist is not inflationary, in that it does not expand the money supply. However, it moves money into the MBS market, and will presumably stimulate the mortgage refi trade. That of course does free up a modest amount of spending money, which will work its way into the consumer markets (at the expense of the banks, who will be collecting lower levels of interest on the refis.
However, look at the fundamentals, Eric. Is the collapse of the monetary system as we know it not gold bullish?
Of course, anything can happen short-term, and I understand why pinched investors sell their winners. But then you've gotta think, in a recession, where are your next winners going to come from? Then I'm with most of the crowd that has amassed here.
If I were to start picking my expected winners for 2012, I'd have to nix general equities, the banking sector, the USD, etc. What is left? Real interest rates will stay low in a recession. And when and where does gold thrive? Right in that sweet spot.
What then is the argument for gold stocks? Try running the CDNX ratio chart over GOLD. We have already hit the bottom in the small cap miners in gold terms. That implies that the way from here is up. Add to that the new mutual fund buying in the large miners. And where are they going to go in a recession?
Who is it that has been saying gold stocks will be the next utilities - Jim Sinclair? Yes:
http://www.tfmetalsreport.com/forum/1944/jim-sinclair-will-result-producing-gold-mining-shares-becoming-utilities-2016-onward
I think he has got it. With the big miners now paying dividends, and doing fine in terms of revenue and profit growth, and with the Yen, Euro and USD in their death throes... Hey Goldcorp, Yamana and Newmont are now utility stocks!
Last but not least, what technical guy is not going to look for those gaps to be filled in the above charts? October is weak seasonally for gold. A few weeks' of underperformance and base building is reasonable to expect.
But the technical analysis has to be informed by fundamentals. My fundamental analysis tells me that currency collapses and bank failures are gold bullish - to a very high degree!
I don't think gold stocks are a game at all.
Reading your posts one after another, and taking notice how much I agree with you on everything,
I can't believe you are playing with gold stocks.
When these socks shot up, do you believe the United States government will allow you to cash you profits?
While I certainly believe that the USGvt has no loyalty to anyone but to itself, which do you think it would prefer to reap first: the retirees, the unions, the social security drawers, the 401k owners, or may-be gold stock owners? Will the USGvt not nationalize gold mines when the economy and dollar collapses? What about other countries? Which one would not consider declaring it's mines "the matter of national security"?
The way I think of these matters is that my axiom is that any government will always reap off anyone it can, and break any contract, unless there is a good reason not to do so.
Is there such a reason, as far as gold stocks are concerned?
In general the sober government realizes that it cannot fund and govern the economy and this is why it leaves some meat on the bone for the DOW stock holders, for instance*. However, this hasn't been the case with things attracting strong interest of the governments. Say, NASA, or FED (I hope you don't believe that it is "privately held").
Once collapse is imminent, and the gold stocks are following POG, why wouldn't the government taking an advantage of gold mines?
* Although even here, we can see that the stock market is a scam. We are hoarded to the stock casino, because otherwise we would lose out on inflation (this means someone wants us to be there, as they could have easily stop inflating). However, after taxes, our gains in stock market still under-perform in view of real inflation, while winning (hopefully) in terms of official inflation. This means, that even in general stock market, everyone is set up to lose, it is a giant vacuum, while we think that it is a way out of inflation tax.
With this in mind, do you suppose that there will be an exception made for few thousand of "speculators", many of them foreigners, who are about to make real gains?
Yes, I agree that the US Government will likely try to takeover gold mines or tax gold companies... that is why we rarely ever buy gold companies who have the majority of their assets in the US... and most of the stocks we buy are listed on Canadian stock exchanges. One of the key things we say is that it is incredibly important to have your gold stock portfolio geopolitically diversified to guard against government depredations