re: What is changing on the Gold Horizon.......
After what hopefully everyone now acknowledges as a complete and utter washout of both investor sentiment and shareprices in the goldsector after a near 100 Point Deathmarch from the November highs... the HUI made a quick 40 point "V-Bottom Rally" move within the first 20 trading days up off of it's bottom.
But since then... over the last 30 trading days we have now quite obviously hit a wall here and have spent 6 weeks within an 11 point trading band for the HUI.
...first 20 trading days + 40 points.
...next 30 trading days, no gain and an 11 point total trading range that only offered a 5% potential return.
Something obviously changed.
What and Why ?
re: "What ?"
The Dow, S&P, Russell 2000 and the NAZ are rallying... tech stocks are getting significant inflows...and of course, Oil is still in the headlines and in hitting new highs - and is draining off a lot of fresh cash that otherwise might find itself into the Gold Sector.
...those factors, given this "stall" in the HUI - can not be ignored imho.
That along with the now obvious fact that Institutional Fund Managers within the Gold Sector are not taking any prisoners vis a vis NEM's recent problems, or PDG getting taken out & shot this morning on the open.
re: "Why ?"
Think about this comment from the article below :
"Outside of a rising gold price, there appears little in the near-term that could propel stocks higher."
- I am hearing the same thing consistantly from my contacts fwiw... and I think this is an accurate representation of the mindset of the average Fund Manager within the Gold Sector.
Those Charts of the HUI components showed the money flows and the divergence between the few stocks that are solidly above their 200 dma's here and have had solid money flows - reflects that Money Managers are rapidly consolidating their holdings into the best of the best... and are selling off the rest on any and all strength - which is endorsed by the continual pattern of so many of the "also ran" HUI stocks - getting killed, via heavy selling every time they get near their 200 dma, or show any strength.
THAT - is a sign that the Index is NOT going substantially higher anytime soon... not without GOLD rechallenging at least that $440 range.
Here's a little more insight into the Institutional mindset presently found in the sector ...and remember, individual Investors do NOT move the HUI stocks... Institutions do.
Traders MUST have an accurate handle on the Institutional Mindset in the Sector....as well as that of the broad market that isn't interested in investing in the sector, but rather in capping in... ie:
Larry Kudlow - bashing Gold again on CNBC... even literally repeated himself on it.... ie: Gold is done... the message is there is NO INFLATION - BUY STOCKS & WAVE THE FLAG - HAPPY DAYS ARE HERE AGAIN....yada, yada, yada...
Kudlow has been a consistant indicator via his "talking points"...whenever the Monied Interests have had the capping of Gold, atop their "to do" lists here... so heads up ~
The lid has to be kept on Gold in regards to the China Re-Peg and this US Dollar rally... and now that the Bush/Cheney Energy DEPENDANCE Bill is about to be passed... offloading paper assets to the Working Masses in exchange for the Trillions in unfunded Social Security Liabilities - is now Job #1 < remember John Williams Deficit Reality posted earlier >.
Here's a good piece on the present Institutional Mindset in the Gold Sector... it is consistant with what I am hearing fwiw:
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resourceinvestor.com
Near-Term Outlook for North American Gold Equities
By Craig Stanley
26 Jul 2005 at 10:38 AM EDT
TORONTO (ResourceInvestor.com) -- The rebound in North American gold equities since mid May has been quite a contrast to the first four and a half months of 2005, when share performance decoupled from gold price movements.
Yet the recent upshot appears to be simply the result of gold stocks moving from an ‘oversold’ position to one of fair value according to Geoff Stanley and Heather Douglas at BMO Nesbitt Burns. In their firm’s third quarter Red Book outlook, the analysts note that the senior and intermediate producers are trading at an average 22% premium to net asset value, broadly in line with the two-year average of 30%. They also calculate that the market is using a gold price of $487 an ounce to value gold equities, very close to the $60 an ounce premium average over the past two years.
<<< Here's a key comment vis a vis - GOLD having to push, pull, or drag the HUI stocks thru 200 dma resistance >>>
Outside of a rising gold price, there appears little in the near-term that could propel stocks higher.
A large part of this outlook is based on the escalating capital and operating costs that have caused lower-than-expected earnings and cash flow.
Gold Fields Mineral Services estimates that on average, total average production cash costs have increased from $180 an ounce in 2002 to $253 an ounce in 2004, a 41% jump.
In a report dated June 30, 2005, Michael Durose at Scotia Capital wrote that operating margins are suffering from a mixture of gold reserve depletion, high grading of gold reserves, rising energy prices, and a stronger rand and Australian and Canadian dollar, the result of a weaker US dollar.
Capital costs for new projects are also rising, anywhere from 15% to 40% according to Durose, as a result of higher steel and cement prices, as well as escalating labour costs due to the limited pool of expertise in an industry gutted of talent by the 1990s bear market.
Part of the disconnect between bullion and equities earlier this year was attributed to the introduction of new gold-backed exchange-traded funds - streetTRACKS Gold Trust [NYSE:GLD] and Barclays’ iShares COMEX Gold Trust [AMEX:IAU] - that competed with traditional equities for investor money.
Durose believes that some hedge funds have been shorting equities against the ETFs, saying that these outfits can fine-tune their leverage to gold prices without exposing themselves to the technical and political risk associated with actually producing the metal.
Yet the analyst does add that if gold were to jump above $500 an ounce, equities could post superior gains relative to bullion.
Another issue: though they favour intermediate producers based on their relative valuation to seniors, Stanley and Douglas at BMO Nesbitt Burns wrote that the group’s fixation with annual production exceeding one million ounces increases the risk of share dilution through M&A activity.
Over the long-term, the only thing that will likely propel stocks higher is a rise in global gold prices and/or a fall in the US dollar.
Factors that point against a significant near-term rise in gold prices include higher contangos, modest supply increases and slower producer hedge reductions.
Some recent events that have been positive for higher US dollar gold prices include:
The decision by G8 countries not to sell gold to fund debt relief for poor countries.
The likelihood of the Federal Reserve putting a stop to its rate hikes later this year. Considering the ‘conundrum’ of low long-term bond yields, it’s unlikely the Fed will purposely cause an inverted yield curve by continually hiking short-term rates.
The decision by the Chinese government to revalue the yuan, putting downward pressure on the US dollar.
Increased physical demand when the Indian wedding season starts in the fall (though investors new to the sector should realize that this factor is trumpeted every year).
Whether these factors will be enough to boost gold prices, and stock valuations, remains to been seen.
Yet as analysts at Desjardins Securities wrote on June 27, 2005, the six-year bear market for gold in US dollars ended in December 2002 after prices broke out of the $250 to $325 an ounce range. The 13-year bear market for gold in yen ended last September after surpassing the ¥44,000 mark. If bullion can just sustain itself above 350 euros an ounce, a first in 17 years, this would suggest that the bull market for gold prices has “gone global.”
In such an environment, equity investors may take solace in the old adage “a rising tide lifts all boats.”
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Time for the Metal to do some heavy lifting once again...
POG needs to break that resistance at $437, $443 & 456.
I don't think the HUI has more than another 10-15% upside from this recent HUI 200ish level unless Gold rallies and challenges once again in the $440's.
And to me, that just doesn't offer much upside reward, as compared to the downside risk on either a partial retracement, or a complete re-test of this move.
To use the Football metaphor again... the ball moves up and down the field in both directions and we can score points on both Offense and Defense.
For now, I'm playing Defense.
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