This is featured post 2 title
Replace these every slider sentences with your featured post descriptions.Go to Blogger edit html and find these sentences.Now replace these with your own descriptions.This theme is Bloggerized by Lasantha - Premiumbloggertemplates.com.
This is featured post 3 title
Replace these every slider sentences with your featured post descriptions.Go to Blogger edit html and find these sentences.Now replace these with your own descriptions.This theme is Bloggerized by Lasantha - Premiumbloggertemplates.com.
Sunday, 9 November 2014
22:56
Unknown
Sprott's Thoughts
Capitulation or Nasty Sell-off in Gold?
Have we just experienced ‘capitulation’ in gold stocks, or just a particularly nasty sell-off?
Rick often mentions that ‘capitulation’ is a looming threat in a bear market. When it looks like stocks are already ‘down and out’, investors get driven over the edge and decide to sell at any price they can get. Investors want out. People who work in mineral exploration and development also give up and look at other career options.
Back in March, Rick said gold could fall back to around $1,150 this year. In mid-October, Rickmade a stronger prediction – October could be the month that we see capitulation in the junior market. “October is a month full of emotion” he said, and it’s easy for a weak emotional market to be driven over the edge by short-term volatility and a natural decline in prices due to tax-loss selling. “The market is cheap but it will get dirt cheap in a capitulation. I think there is a 50 percent chance for a terrifying capitulation sell-off within the next two weeks.”
In a complete capitulation, stocks melt down dramatically and some stocks just go ‘no bid.’ That hasn’t happened yet, which means that we may be witnessing a very nasty sell-off, but not complete capitulation.
“For those of you fond of surf,” Rick explained at our San Diego office, “capitulation is sort of like getting caught under a particularly big wave. You get pummeled and tumbled around under water. Capitulation in 2000 only lasted for about two weeks. Just like when you’re stuck underwater and struggling to come back up, a short amount of time can seem like an eternity.”
The most important thing to do now? Prepare yourself psychologically.
“Abandon your ‘hope stocks’ – the ones where there is no catalyst, asset, or enough cash to do anything important. Get rid of the stocks you own that have no reason to go up, and get into ones that do,” Rick advises. In a complete sell-off, you may find that just a few investors will make the difference as to whether a particular stock survives, which means you must be willing to be one of those investors if the market gets much worse.
This ‘psychological preparation’ made all the difference in the summer of 2000, the last time that we saw capitulation in junior mining stocks. “The capitulation in 2000 was the single most beneficial event of my career, as a consequence of my psychological preparation to face the sell-off,” said Rick.
Capitulation or not, why the sudden leg down?
“It’s an emotional market. An example of irrational behavior is that investors are more willing than ever to put money into bonds at levels that guarantee a loss in purchasing power. The Treasury rate is now lower than prior lows, at around 3.1 percent for 30-year bonds.1
“In addition, benchmarks in platinum and other metals suggest a weakening economic outlook,” Rick explained. This, he says, is also the real reason that oil prices are much lower. The economy is simply a lot weaker in the US and globally than commonly believed. This has weakened all equities, not just precious metals. Just as the 2000 low came around the time that the tech boom imploded, a capitulation today could coincide with a sell-off in stocks across the board.
Rick’s market call, which was recorded for our clients on October 16th, looks prescient in hindsight. We’ve indeed seen a nasty sell-off, but I don’t think it’s quite a capitulation.
For one thing, Rick explained, when a capitulation occurs, the issuers also ‘give up.’ Right now, we’re still in a game of chicken that we’ve been playing with junior miners for the last two years or so. They believe they can wait out the bear market to raise money. If they’re right, they might not have to submit to terms that Rick would call ‘fair.’ If they’re wrong, they’ll end up having to raise cash at terms that are much more favorable to financiers like Rick.
The idea now is to prepare for this possibility, and decide which stocks we own are worth saving if the market truly goes ‘no bid,’ as we might have to put up more capital to keep them solvent. The rest we probably shouldn’t own at any price.
P.S.: Not yet subscribed to Sprott’s Thoughts? Sign up here to stay informed with the latest opinions on precious metals and natural resources.
22:55
Unknown
Gold Bug Psychology Must be Neutered
While Biiwii.com will remain active and even increase many of its functions, the more technical of its former topics will now take place at the new NFTRH.com. Check it out and don't forget to bookmark/follow!
The precious metals bear market, beginning with silver’s blow out in early 2011 and the general top in the commodity and ‘inflation trade’ along with gold’s lesser blow out later that summer amidst Euro crisis hysterics, has been all about psychology. Well, every bear or bull market is about psychology, but the intensity of this dynamic has been something to behold in the gold sector over these last few years.
Psych 101
In early 2011 long-term interest rates were rising in response to inflationary pressures, ‘Bond King’ Bill Gross famously shorted the long bond, virtual mobs with pitchforks were storming the Fed’s castle calling for Ben Bernanke’s head and silver went to $50 an ounce, with calls for $100, $200, etc. All psychology my friends.
While on the subject of the long bond, our ‘Continuum’ chart shows that players did not learn 2011’s contrarian lesson with respect to yields as they took Wall Street’s ‘Great Rotation’ hype hook, line and sinker in 2013. What did the 30 year yield then do? Why, it hit our long-term limiter (monthly EMA 100, red dotted line) and has dropped ever since.
Pigs on the Wing & Sheep
If market participants are “Sheeple” as many gold bugs believe, then the average gold bug – as evidenced by so many peoples’ staunch refusal to give up on the shiny relic – are Sheeple squared, because the gold “community” (right there a give away on group think) has distinct leaders or troubadours who, if the faithful will just hang in there long enough, will be proven right as we are all led to the promised land.
Yet the bear market has cruelly put the promised land further and further out on the horizon with each impulse of hope. The gold story is one of righteousness because sound value (and insurance) not beholden to leverage is monetarily righteous. But promoters and/or buffoonish spokespeople have either knowingly or unknowingly used the righteousness of the message to keep people firmly in the grip of dogma all the way down during the bear market.
To make matters worse the ‘pigs’, led by Goldman, JPM and Wall Street in general, have feasted and feasted some more on the propped up paper entity built on what will one day be ‘discovered’ to have been disastrously insane policy making. That is a double whammy for a gold bug who stands for what is right.
A Reality
But these are the markets. You sit at your computer and I sit at mine. We press buttons and make digital transactions in a system that is functioning just fine for now. Within this, psychology is clustered toward speculation and risk taking and against a risk ‘OFF’ environment. This is the reality.
So I would say to gold bugs that what you must do is “put your dogma on a leash” [1], manage risk against your world view and be ready for a) a return to sanity as the system is compelled by the next bear market to reform its ways and b) potentially a grand opportunity to speculate in the diggers of gold out of the ground.
Current Situation
So where are we at? Well, I have a couple pet market writers (un-named and shall remain so) on whom I depend for contrary signals. One just went hyper bearish (with HUI now at the 2008 lows) indicating the potential for a bounce. The other is still sounding 100% right even as he has been bullish all the way down. The fact that he is still apparently tugging at gold bugs’ greed impulse is a negative and implies further downside pending any bounce activity that may crop up.
In NFTRH we have been managing what we called the 2008 ‘Fear Gap’ for years now. Once gold made its first major support breakdown, we looked at the potential for the entire sordid mess we used to call “Armageddon ’08” to be closed out with a fill of the upside gap in gold vs. the US stock market. Well… consider it closing if not closed.
I believe that those who will be bullish on gold and the gold miners from the depths of this bear market are going to well rewarded in both their holdings in real monetary value (gold) in a world gone berserk and in their speculations associated with that value (gold stocks of relative quality). But first you must be intact and that means guarding against your own bias, dogmatic beliefs and even certain truths as you know them.
These are the financial markets after all. Be guarded when appropriate and be brave when appropriate. NFTRH has spent all too many years now guarding against bias reinforcement and simply dealing with what look like insane realities. It was too easy to listen to the promoters for many people. That was the easy way out, to have their perceptions reinforced.
We are not out of the woods, and on coming bounces these promoters will be right back at it. When they are neutered or more accurately, when the gold bug community’s actionable perceptions of them are neutered, the sector will resume its bullish place in a global financial market that is ripe for change where today’s pigs will become tomorrow’s bewildered sheep and today’s bewildered sheep… well, you know.
[1] Quoted from a song by long-ago Boston rock band Volcano Suns.
22:52
Unknown
Gold, Inflation Expectations and Economic Confidence
Steve SavillePosted Nov 9, 2014
Below is an excerpt from a commentary originally posted atwww.speculative-investor.com on 2nd November 2014. Also, excerpts from our newsletters and other comments on the markets can be read at our blog.
As a result of what happened during just one of the past twenty decades (the 1970s), most people now believe that a large rise in "price inflation" or inflation expectations is needed to bring about a major rally in the gold price. This impression of gold is so ingrained that it has persisted even though the US$ gold price managed to rise by 560% during 2001-2011 in parallel with only small increases in "price inflation" (based on the CPI) and inflation expectations. The reality is that gold tends to perform very well during periods of declining confidence in the financial system, the economy and/or the official money, regardless of whether the decline in confidence is based on expectations of higher "inflation" or something else entirely.
Inflation expectations are certainly part of the gold story, but only to the extent that they affect the real interest rate. For example, a 2% rise in inflation expectations would only result in a more bullish backdrop for gold if it were accompanied by a rise of less than 2% in the nominal interest rate. For another example, a 1% decline in inflation expectations would not result in a more bearish backdrop for gold if it were accompanied by a decline of more than 1% in the nominal interest rate.
Other parts of the gold story include indicators of economic confidence and financial-market liquidity, such as credit spreads and the yield curve.
The large rises in the gold price are NOT primarily driven by increasing fear of "inflation" is evidenced by the fact that the large multi-year gold rallies of 2001-2006 and 2008-2011 began amidst FALLING inflation expectations. These rallies were set in motion by substantial stock market declines and plummeting confidence in central banks, commercial banks and the economy's prospects. Even during the 1970s, the period when the gold price famously rocketed upward in parallel with increasing fear of "inflation", the gold rally was mostly about declining real interest rates and declining confidence in both monetary and fiscal governance. After all, if the official plan to address a "price inflation" problem involves fixing prices and distributing "Whip Inflation Now" buttons, and at the same time the central bank and the government are experimenting with Keynesian demand-boosting strategies, then there's only one way for economic confidence to go, and that's down.
Since mid-2013 there have been a few multi-month periods when it appeared as if economic confidence was turning down, but on each occasion the downturn wasn't sustained. This is due in no small part to the seemingly unstoppable advance in the stock market. In the minds of many people the stock market and the economy are linked, with a rising stock market supposedly being a sign of future economic strength. This line of thinking is misguided, but regardless of whether it is right or wrong the perception is having a substantial effect on the gold market.
For now, the economic confidence engendered to a large extent by the rising stock market is putting irresistible downward pressure on the gold price.
Subscribe to:
Posts
(
Atom
)
