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.
The inverse relationship between the dollar and gold prices started to decouple recently with the dollar rising and gold rising concurrently. The dollar has since peaked and resumed its trek south with gold also down but holding steady at the moment.
Today, however, we saw the dollar fall out bed as the chart shows, and gold almost followed it lower but was saved by the rapid fall of the dollar. The summer doldrums brings with it a certain amount of wishy washy market movements without any obvious direction. So we need to think of it as white noise and concentrate on the bigger picture.
Today was one of those days, as evidenced by silver prices which jumped up to $18.35/oz with little effect on the price of silver stocks and the HUI managed to lose a couple of points.
In a way its a day to forget, however, from what we can glean there is more quantitative easing in the pipeline, which, when we consider just how many dollars are already in the system begs the question of where and when will all this printing of money end. History tells us that it does not end well as evidenced in Germany not so ago and Zimbabwe today.
The new finance bill does nothing to encourage us, as we understand it the SEC will be protected from the Freedom of Information Act, so in future it would not need to answer questions about the Madoff fiasco for instance. There is also a provision that every trade over $600.00 will need to be filed, a cost that the smaller stock brokers and you, could well do without.
As per usual we are hanging on to our physical metal and our core position in the producing stocks. However, we are looking to prune some of the laggards and re-deploy the cash into better performing stocks without being out of the market. Not to be in at this stage is the wrong thing to do in our very humble opinion, but a little refining and re-balancing can help to increase profits and thats what it is all about. We expect this month of August to be one of positioning ourselves for the coming rally in the precious metals sector which may begin gently over the next two to three weeks but start to gather some speed come the 6th September, Labour Day, when the heavyweights return from their holidays looking for some action.
We will also know more about the economy and its recovery and whether or not it needs some help of the stimulus type. The dollar, which has dropped from 88 to 81 on the US Dollar Index registering a lose of 8.64% since early June, once again appears to be friendless. On the 10th June 2010 we did suggest that it was overbought when we wrote “a gap that is opening up between the dollar at ’88′ and the 200dma, which stands at ’79′. The RSI, MACD and the STO are bouncing along at the top of their respective ranges and sooner or later they will return to somewhere more in the middle of their ranges“ The fall has been faster than we anticipated and must now be giving the holders of dollars one or two sleepless nights. The Chinese for instance have seen their dollar reserves drop almost 9% in less than two months, thats one big hit to take and questions the strategy of holding dollars for the foreseeable future.
More money needed to prop up a jobless recovery, it just doesn’t sound right or bode well for the future.
Over on the good news counter we spotted an article by John Embry on the Sprott Asset Management site entitled: Golds on the cusp of a parabolic move up which is well worth the read so try and find the time.
Stay on your toes and have a good one.
Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.
The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:
On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.
On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.
As a suggestion for those who do want leverage to the precious metals bull, the gold and silver funds together with the careful application of options trades could be a possible solution for you. This way we are exposed to any movement in gold prices which in turn is magnified by the effect of the option. Do remember that loses are also magnified in the same way so its not a strategy for the faint hearted. On the other hand the quality stocks are not performing as anticipated and a non-producing junior stock is a shot in the dark, however, its your money and its your call.
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Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.
