update 2 --  trotsky, 12:06:06 02/27/12 Mon [1]
Gold and Gold Stocks - Same Old Song?
We revisit the technicals, fundamentals and sentiment data of precious metals and gold stocks, which were last extensively discussed in late December on occasion of gold's correction low.
Unfortunately one can not really say yet whether the recent advance is part of a corrective sequence that will become still more drawn out and complex, or if it is the beginning of a new impulse wave up. As is often the case, arguments for both interpretations can be found. However, a number of things are certain: for one thing, sentiment is far from frothy - on the contrary, it continues to be marked by a mixture of caution and disinterest. For another, the lower degree waves in smaller time frames do look like impulse waves. Meanwhile, it is not quite clear whether gold currently trades as a 'risk asset' or a 'safe haven asset' - as you will see, one can actually find support for both theories.
The biggest fly in the ointment remain gold stocks, which have hardly budged in the recent rally. The market is demanding perfection from gold miners: a small earnings miss and the stocks concerned get beaten down mercilessly. A huge leap in earnings above expectations and nothing much happens. If you wonder why, you only need to consider mainstream Wall Street research of gold stocks, which at times seems patently absurd. As an example, Harmony beat the consensus earnings estimate by 53% and the Citigroup estimate by 82%. The conclusion of Citigroup's analyst, after his epic estimate fail was blown out of the water: 'maintain sell rating' (the very same thing happened with GFI).
The reasoning behind the sell rating? 'Higher earnings were boosted by high gold prices'. Well, duh.
Naturally, as WS analysts have said nearly every year over the past decade, these high prices 'won't be maintained'. No explanation is provided as to why that should be so - we are supposed to take it as a given. So the highest margins in history and a slew of record earnings by some miners are not enough to get analysts to lift outright 'sell' ratings. You can imagine what they have to say about the gold mining firms that have produced misses or have provided lukewarm guidance. No wonder then that gold stocks remain stuck in the mud: apparently it is widely assumed that everything will remain the same (costs, capex, etc.), except for one thing: the gold price, which is held to go lower. What if it doesn't?
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