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.
By George Leong, B.Comm for Profit Confidential
When gold failed to hold above $1,800, I became skeptical. The stock market was on fire, so why would anyone want to buy gold, as the easy money was already made? Then we saw spot prices fall below $1,700, $1,600, and then $1,500…when I turned bearish. (Read “Is Gold’s Near-Death Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be.”)
Well, fast-forward four months, and I continue to be neutral-to-bearish. I just don’t see any point buying the precious metal at this time: there’s minimal inflation and the world is not going to blow up anytime soon, plus you have so much money funneled into stocks.
When gold broke below $1,300 towards $1,200, I suggested traders buy on the dip, but also sell on rallies. That’s still my contention at this point; with the spot price at $1,326, I would not be a buyer. Now, if the yellow ore fell below $1,300, I would consider buying as a trade.
If I’m wrong, then so are investment gurus John Paulson and George Soros, who are running for the exits and divesting a major portion of their gold holdings. According to filings from the U.S. Securities and Exchange Commission, the SPDR Gold Trust run by Paulson sold off over half of its gold holdings in the second quarter. I simply wouldn’t be betting against these two.
The global demand is also at a four-year low, according to the World Gold Council. The organization attributed the decline to investors selling bullion funds and lower buying by the world central bankers. (Source: Harvey, J. “Gold demand hits 4-year low as investors pull out – WGC,” Reuters web site, August 15, 2013.)
When I look at the chart, I cannot say there is any optimism. After a series of multiple tops at $1,800 in 2011 and 2012, the metal has been sliding as I discussed.
The chart shows some support, but I believe prices could falter again towards the next Fibonacci Level, at around $1,210. Goldman Sachs has a $1,200 target on gold; failing to hold here, the metal could slide to around $1,050.
Chart courtesy of www.StockCharts.com
Whatever the situation, I still see more downside risk than upside potential, based on my technical analysis. The supporters will tell you how the metal is limited and how you need to accumulate positions. While I do agree with this, I just don’t feel it’s that time just yet.
4 Comments
Fred Stubbs
This article is a refreshing change from all the Sprott gang BS about gold going through the roof.
Frankinca
I need a better understanding of the Gold Council. Are they friendly to miners, users or manipulators?
Jon the MinEng
Totally misunderstood George Soros. He redeemed his GLD for physical gold. He’s not running for the exits in gold, he doesn’t trust the fractional reserve system that the financial system is operating.
figjam
Right now Gold is $1520 AUD and most Australian Gold miners are making a decent profit so I’m happy with the status quo. Whether Benny Tapers or keeps printing The US is bankrupt . 10 year bond is 2.86% now so more interest on the 17 Trillion debt. Where’s that money coming from ? Printing press likely so its got to be good for gold.