Sunday, September 20, 2015

Less And Less Gold At COMEX

There is less and less gold in the COMEX vaults, especially the gold classified as "Registered". This category comprises gold, which is being used in the futures market transactions. On September 18 there were only 162,034 registered ounces of gold. Having in mind that the current open interest in futures contracts is standing at 42,410,400 ounces, the physical gold stored at COMEX covers only 0.38%  of gold, which is in the game. This is the smallest fraction since many years (or even ever). Please, look at the chart below:

Simply put, there is practically no physical gold to back up a virtual futures market, which is an extraordinary bullish (for gold) situation.

Monday, September 7, 2015

A Few Positive Developments For Gold Bugs

Gold, silver and the entire precious metals market are still in their medium-term bear market. But there are a few developments, which support investing in this market today. Please, look at the chart below:

While the PM market is still  going down, the stronger price action of GDXJ (gold and silver juniors) against GDX (big gold and silver miners) supports investments in PM stocks.

Another development:

These days the PM stocks are at their lowest level against gold in modern history. Simply put, they are totally undervalued against gold.

I do not know whether the PM stocks will go down or up but the investors looking for value should definitely find value in the PM stocks.

Friday, August 14, 2015

A Majority of Market Participants Is Awaiting Another Down Leg In Gold And Silver

These days both metals, gold and silver, are at their strong resistance levels - please, look at the charts below:

But there is a chance for the gold bugs - since December 2014 silver has been behaving similarly to gold - look at the chart below:

Usually, when both metals are in their down  trends, silver is much weaker than gold. This is not the case today.

Tuesday, August 4, 2015

When Investing In The Leveraged ETFs - Be Aware Of Simple Mathematics

Many investors invest in ETFs (Exchange Traded Funds), which are special investment vehicles designed to make it easier to invest in specific asset classes. Some of these vehicles are highly-leveraged ones. Let me take, as an example, two precious metals ETFs: GDX and NUGT.

GDX is called the Big Gold ETF because its price mirrors prices of a number of big gold producers and royalty companies - the main ETF holdings are such companies as: Barick Gold, Newmont Minng, Goldcorp, Franco-Nevada, Silver Wheaton etc.

This ETF has its highly leveraged equivalent, holding a ticker NUGT. NUGT duplicates the price action of GDX but a price change of 10% reported by GDX is equivalent to 30% reported by NUGT (so NUGT is 3 times leveraged against GDX).

And here is a catch. Due to this high leverage and simple mathematics, investing in NUGT has sense only when we see a strong bull market in precious metals. If the market is trading in a range, or is going down, investing in NUGT may bring a financial catastrophe.

Let me show it using numbers. Below you will find a chart showing investment results delivered by GDX and NUGT when market is trading in the range. I assume that at the end of the second trading day GDX losses 10% (and NUGT losses 30%). The third trading day records a 10% price advance (NUGT goes up 30%). Then GDX goes down by 10% etc. The results are below:

As the chart shows, after 19 days, GDX stands at 91.4 and NUGT at 42.8. So the total loss recorded by GDX is 8.6% but NUGT is as much as 57.2% down (not, as somebody would think, 3 times 8.6% but much more)! Generally nothing happened during these 19 days - market is more or less at the same point where it was in the beginning but NUGT has lost nearly 60%.

If market is going down, the losses reported by NUGT would have been even much bigger.

So, summarizing, investing in NUGT (and any positively leveraged ETF) only makes sense when market goes up. Be aware.

Thursday, July 30, 2015

Twitter - Is It Really A Business?

Today Twitter published its 2Q 2015 results. Below I put three charts showing the basic measures.

Firstly, a chart showing revenue and operating losses incurred by the company.

Note: operating loss for 2015 is calculated as: 2014 operating loss - 1H 2014 operating loss + 1H 2015 operating loss.

As the chart shows, although revenue generated by the company had been in a rapid increase since 2011, Twitter has not been able to make any profit on its core business.

Another chart - this time it shows revenue and cash flow from core business operations (excluding working capital issues):

Well, this time it looks much better. It seems that the Twitter's core business brings some cash to the company.

Unfortunately, since 2011 Twitter has been reporting a negative free cash flow. Please, look at the chart below:

Free cash flow is calculated using the following formula:

Free Cash Flow = Cash Flow From Operations (including working capital issues) - Investment Expenditures

Investment expenditures contain purchases of property and equipment plus spending on business combinations.

Free cash flow is one of the most important financial measures - if a company is not able to report free cash flow in the long term it's future does not look bright (at least).


Sunday, July 26, 2015

Managed Money - Negative Sentiment At Highest Level In History; Gold, Silver and Copper Ahead Of A Furious Rebound

When pessimism prevails there is practically no chance the market will go down. These days Managed Money (mostly big hedge funds) holds the highest short positions in gold, silver and copper  ever.
To make the picture clear, instead of presenting three charts, I have added and adjusted short positions held by Managed Money in these commodities. Please, look at the chart below:

Well, every time the Managed Money was totally pessimistic about any market, no new down leg started. Quite contrary - if such was a case, we saw the market bouncing up. Looking at the highest short position in three popular commodities, I think the rebound will be really surprising.

Friday, July 24, 2015

Japanese Equities Are Still In Fashion

The scale of capital flows is one of the best indicators identifying whether a specific market is bringing the investors' interest.

In the case of the Japanese equities, below I am presenting two flow indicators showing that these shares are still been acquired by foreigners and the Japanese investors.

Please, look at the charts below:

As the charts show, foreigners have been buying the Japanese equities since the beginning of 2013. From that same time the Japanese investors have been selling foreign shares - therefore they have been probably using the funds acquired from these sales to buy the Japanese equities.

Both trends magnify themselves so we see the ongoing bull market in Japan (weak Yen is another factor standing behind it).

Well, for the time being there are no signs that the current bull market is going to end.