Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Markets were weak this past week and not just for a day or two. Us markets have violated key levels, but are bouncing for now. Only time and technical analysis will tell if we are going to head lower in a more protracted correction, or if we continue higher right away to the target over 1,400 I talked about late in 2010 when we broke out of the cup and handle pattern.
I try and give a relationship to the title in the opening paragraph or two usually, but this week you’ll have to read to the very end in order to understand the relationship. And I think it’s a great idea too!
The Situations in the Middle East and Northern Africa continue to mount. It seems only a matter of time until Muammar Gaddafi is ousted either by his own people, military or a conglomerate of outside nations and forces.
Unfortunately the number of death until then is uncertain, but certain to mount. There are reports that there have been over 1,000 death already. I have a feeling this is going to get very, very bloody and Gaddafi himself may see his own demise shortly.
For subscribers down in New Zealand my thoughts and prayers are with you during these hard times of mourning and rebuilding. The destruction in that beautiful town is shocking.
Metals review
Gold rose only 1.48% for the week. Gold gapped above the $1,390 level but was halted at the $1,420 area where the last real line of resistance lies.
The gap higher and subsequent trading sessions are forming an island pattern. If we gap lower then it will be confirmed to be a bearish island reversal pattern. This could lead to much lower prices. I’m not guaranteeing you this, just making you aware of the potential if we do gap lower. Here is a recent excellent example of what I’m talking about.
GLD had a textbook island reversal pattern in late December 2010. It gapped up and formed the island, then gapped lower leading to a $10 drop in GLD which would equate to a $100 drop in Gold.
Looking back to early October 2010 we see another smaller example. If we do see this pattern run it’s course, it’s nothing but another opportunity to purchase more physical metals and/or initiate a trading position.
Ideally I’d like to see Gold work it’s way to fill the gap to $1,390 very soon and then work it’s way back into all-time high territory. Trading Gold right now is tricky, but holding physical is easy.
I am leaning towards a correction here shortly to the tune of perhaps $80 to $100. As I said above, and countless time in the past, dips are opportunities in secular bull markets.
Gold is in a strong secular bull market.
The GLD ETF saw strong volume on the Thursdays down session, which arguably annulled the island pattern by closing the gap, and very healthy volume every other day, all of which were up, except Friday’s move higher which saw the lowest volume for the week.
The more I look at these charts the more I think caution in trading Gold here is warranted and holding off on any physical purchases for a few days to a couple weeks may be a good idea. If you have to pay up, you have to pay up, really no big deal.
But with the events in the world unfolding you just never know. What I do know is that chart-patterns are powerful and many times do work out.
Silver rose 2.37% on the week but shot higher by 3.61% Friday to pare losses and end the week with nice gains. While trading has been quite explosive, Silver just didn’t exhibit anything close to what I felt was a short-term blow-off top this week, so we are still holding our swing trading positions, and as always I’m not even considering selling my physical hoard unless something changes drastically or we are trading well into the three digit range.
A bull flag pattern is forming here and should resolve upwards in the very near future. $40 is not at all out of the question in quick fashion.
Trading should be interesting since I think Silver can fly from here while I think Gold is set for a short correction. Memory doesn’t bring up a time when that has occurred in this secular bull market.
Any new trading positions would be good to initiate on the break higher of this little flag, even buying physical Silver here would be reasonable, but there may be a time when it is cheaper, either soon, or after a break higher. Either way the bull market will save you as $33 Silver will seem cheap in the years ahead.
I recall not long ago buying some physical Silver at $18 and wishing I could have got it at $15 or below not long before, but now it doesn’t really bother me much at all.
The SLV ETF had a solid week in terms of volume with Friday seeing the lowest number of shares trading hands which was still over 30 million shares. While the volume was high, it wasn’t explosive on any one day but it was very consistent. This is good since I’ve never heard the word “silver” being used so much ever before. Even the Fast Money crew is talking about it these days.
Investors are now just learning to spell “Silver”. Soon they’ll learn where their local coin dealer is located and even trade it the odd time. Unfortunately they’ll likely be burned trading since shenanigans are commonplace. This Thursday’s trade being the most recent example of a shakeout.
Platinum slid 1.53% on the week. It held up much better than it’s sister metal, Palladium. Support held at $1,770 which is just below the 50 day moving average. It appears that this little correction is all but completed.
If we do fall from here the next level of solid support comes in at $1,730, but I think that type of correction is out of the question at the moment.
The PPLT ETF volume was solid on the days down and then quite weak on Friday’s move up. Volume isn’t really telling me much here other than there was good selling as price declined and buyers haven’t really stepped up to the plate yet in any meaningful way.
Palladium was finally hammered lower and to then tune of 11.78% this past week. A well needed and deserved correction.
In fact it wouldn’t surprise, shock, anger, dishearten or change my bullish view on Palladium if we fell all the way to $725. In fact as long as that area held my resolve would be even stronger and that would be an ideal place to initiate new positions.
That level also happens to coincide with the 100 day moving average.
We are almost assuredly heading lower from here which will provide myself and subscribers a superb opportunity to get back into Palladium.
The PALL ETF volume was huge at the beginning of the slide this past week. From what I see there is nothing to do in Palladium except sit around and wait for the bottom to be put in very soon.
Fundamental Review
Eric King went straight to the horses mouth this past week and talked with the Royal Canadian Mint regarding Silver shortages. There has been talk from both sides saying it’s hard to get physical Silver, while others say there has been no shortage at all.
Sales Director Dave Madge says that demand for Silver is “through the roof” and it shows no sign of slowing. The Mint themselves, even with their long and strong relationships with suppliers, is facing “challenges sourcing material”.
He expects this trend to continue and even intensify over time. I’ve said many times before that Silver is a better place to put money than Gold and that is why my personal physical position is portioned 60/40 Silver to Gold. But it’s a personal decision and that is mine. So far it’s been working like a charm!
We only had one bank fail and join this years list of biggest losers. Please see this link for more information.
In British Columbia a man who had physical bullion stored in his home was robbed to the tune of $750,000. The Silver was stolen by armed robbers who tied him up and forced the combination out of him. He suspects that neighbours or friends may have mentioned something to the wrong person or a conversation was overheard.
In my opinion storing bullion at home or nearby is a safe bet, perhaps even safer than in certain banks safety deposit boxes as long as you keep you mouth shut! Only tell one or two people who you can trust 100% to also keep their mouths shut.
Being the humans we are, we like to talk a lot about things we perhaps shouldn’t. These stories will become more and more rampant. I suggest if you’ve run your mouth a little too much at that last cocktail party that you run your mouth even more and change your story to you’ve decided to have your bullion professionally stored for whatever reason.
If things do truly get bad I assure you even close friends will come a knocking and perhaps they won’t be so friendly then.
Here is another great read from Matt Taibbi over at the Rolling Stone magazine. It’s appropriately titled “Why Isn’t Wall Street in Jail?”. I’ve wondered that myself on many an occasion.
The funny of the week isn’t so much a funny until you think about it. It’s a short video message from FDIC chairman Sheila Bair. Since it was recently “America Saves Week” she talks about how Americans can save money. Even $10 whole dollars per week.
She goes on to say that even with 1% interest that $10 per week will turn into an astonishing $11,500 in only 20 years! What she does neglect to mention is that this 11k will likely only buy you a new TV and a pair of shoes due to inflation. That is if the US Dollar is even around in twenty years, something quite unlikely.
I have a better idea.
Let’s have an “Americans, Save Yourself Week”.
We can educate citizens on the faults of every single fiat currency the world has ever known and the inevitable devaluation and collapse of the fiat currency.
We could educate them as to the true value of Gold and Silver as historical standards of wealth and money. We could talk about how they hold their values and that owning the metals when currencies are nearing their ends is a necessity. There are so many simple topics to cover, it’s would be great!
And my best idea is to save that $10 every week and buy a Silver coin every month. I all but guarantee you that that strategy would be well over 100 times more effective in 20 years time.
Alas, that’s why you’re here reading my weekend letter, and really, that makes you one of the outcasts. Most people are still unaware of the benefits and need to own physical Gold and Silver in this day and age. For the first time ever this past week I actually saw my free subscriber list shrink slightly!
This has never happened. Interest in the metals by the general public is abysmal. Don’t worry if you are new to this space, buying here is still very, very early on in the rise.
Averaging in on physical purchases of Gold and Silver is an excellent strategy, or even trying to time your entries for corrections is even better.
The point is, it’s far from to late to begin or even add to your physical metals hoard and that is what any investment portfolio should have as a basic foundation in my opinion. Get it while you can because it IS becoming more and more scarce.
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