Gold Trade Is Dead Now

The gold trade is nearly dead. The last COT report discloses that the open interest in gold futures stands at 399 thousand contracts (the circle marked in green). This level is very close to the levels reported during the last bear market in gold:

Simply put, it looks like the gold is not only cheaper than it was in early July but it is also out of investors' favor. We are at or close to the typical contrarian buying opportunity.

Something For Gold Bugs

Today a nice chart for the gold bugs:

source: Simple Digressions

The chart shows that the very long - term trend line (the beginning in 2005), drawn by the gold dollar index, is still holding.

If anybody is not familiar with the gold dollar index - here is a definition:

“The GolDollar Index was invented by Tom McClellan (of McClellan Financial) and is calculated by multiplying the price of gold by the U.S. Dollar Index. Its purpose is to cancel the effects of currency fluctuations on the price of gold. By comparing it with the spot gold index we can determine if there is inherent strength/weakness in the price of gold”

As the chart shows, now we are very close to the trend line...

Top Five Picks Portfolio 2017 Is Available Now

One year ago (on December 16, 2015) I started my medium - term experiment called the Top Five Picks Portfolio. Now it is time to show the performance of my picks:

As the chart shows, my five picks delivered a nice result: 133.8% since December 16, 2016. In that period the broad precious metals market, represented by GDX, delivered a return of 47.1%. As for metals, gold is 8.4% up and silver is 19.8%.
It means that the leverage (defined as the portfolio return divided by the return delivered by gold) delivered by my portfolio is 15.9:1 while the leverage delivered by GDX is 5.6:1.

Well, I am satisfied. Very satisfied.

That is why I want to extend my experiment into another year. 

However, there is a problem. Now gold, silver and the entire precious metals sector is in its short-term downward trend. It means that many investors are wondering whether this bull is still alive. Well, in my opinion, the bull is alive. Look at the chart below:

source: stockcharts

The upper panel shows the price action of GDX (the broad precious metals stock market). Clearly, since August 2016 this instrument has been in its downward trend.

However, the next two charts show two ratios indicating the current sentiment in the precious metals market. The first one, the GDXJ / GDX ratio (junior miners stocks to big gold stocks) holds generally well. Now it is at around the same level it was in August, when the current correction started.
The same pattern is visible at the second chart, the silver / gold ratio. It is slightly below the level printed in August.

What does it mean? In my opinion, it means that not everything is as bad as the gold bears think. I would even say that these two charts are the best confirmations that the bull is still alive. If the bull were dead, the entire picture would be much different with the silver / gold ratio steeply going down and junior miners being much weaker than big gold.

Understand me well - I am not saying that the current correction in gold is over. For example, the American investors are still selling gold, which is best evidenced by GLD reports (the amount of gold at GLD vaults is going down).

On the other hand, silver and the precious metals related stocks are sending mixed signals:

source: stockcharts

Although gold prints lower lows, silver and GDXJ do not. Yes, I know that I am showing an ultra short - term pattern (which can change, for instance, today) but these ultra short - term patterns combined with a longer - term patterns delivered by two popular ratios (silver / gold and GDXJ / GDX) confirm my thesis that not everything is bad with the precious metals market.

If I am correct and we are still in the bull market in gold it is a good time to start a new portfolio of five stock picks. I am sure that the best time to invest in stocks (no matter what stocks) is when nobody wants to buy them. And precious metals stocks are now one of the most hated assets. Well, it should sound familiar to many of my readers. Just one year ago we had a similar situation - nobody was interested in precious metals stocks and the market was full of opinions that gold was heading for $1,000 or $800 per ounce.
Simply put, it was the best moment to invest in precious metals stocks. I did it and won.

Now I am doing it once again...

O.K. As you know, this year my Top Five Picks Portfolio is offered as a paid service. The price, nonrefundable, is $50 (fifty US Dollars). The payment box is in the section Top Five 2017. All details are there as well.

So, if you are interested in my portfolio - please, go to the section Top Five 2017

A Nice Short - Term Buying Opportunity For Gold Bugs

Some people were claiming that the yesterday's Italian referendum could trigger another financial meltdown. Well, the Italian people said NO to Mr. Renzi's government but the markets...ignored it. Today the Euro is going up, the US dollar is going down and...gold is going down as well.

I guess gold bugs may feel disappointed. As usually, no matter what is going on the gold is going down. However, in my opinion, today gold and the US dollar are drawing a nice picture for the risk-averse investors. Simply put, it looks like an interesting short -term buying opportunity is in the making. Look at these two charts:

1. The first chart shows the current price action of the US dollar:

The US dollar is breaking down from a short-term consolidation.

2. Now the second chart. This time it is a well-known silver / gold ratio:

Since late November the ratio has been in its upward trend. 

I think that the charts above create an explosive short - term pattern for higher gold prices.

Another Divergence Between Gold And The Silver / Gold Ratio

My readers know that I am tracking the relationship between silver and gold. A few times the divergences between these two metals delivered nice short - term buying signals. But the last signal was a fake. Although the silver / gold ratio was going up, the entire precious metals market crashed - look at the charts below and the area marked in orange (the upper panel shows gold and the lower panel shows the silver / gold ratio):

Now both metals are drawing another divergence. Gold is going down (green arrow) but the ratio is going up (red arrow). Who will win?

Top Five Portfolio 2017 - Update

One of my readers has made a comment that it is much better to offer the entire portfolio than  just one pick today, then another pick in a week etc.

I agree  so let me make one change. The entire portfolio (all five picks) will be available within two weeks. My readers will be notified on that blog (section "Top Five 2017". The price is $50 per portfolio (fifty US dollars).

New Portfolio Top Five 2017

The end of 2016 is very close so it is the right time to start a new portfolio of precious metals stocks. To remind my readers, this year the Top Five Portfolio consisted of five picks:

1. Fresnillo plc
2. Claude Resources (in the mid year this company was replaced with B2 Gold)
3. Newmarket Gold (now Kirkland Lake)
4. Fortuna Silver
5. Richmont Mines

The chart below shows the results delivered by my portfolio (for comparison, I have plotted the returns delivered by GDX and S&P500):

As the chart shows, between December 16, 2015 and November 30, 2016 the portfolio delivered a return of 130% (GDX: 48% and S&P 500: 6%). Well, despite a strong correction in the precious metals sector the Top Five Portfolio is still performing very well (much better than the broad precious metals market).

That is why I want to repeat this experiment and construct a new portfolio for 2017. This time it is going to be a little bit different. Let me explain.

A new portfolio will consist of five picks. I think a few picks may be the same as in 2016 but a few new companies will surely be added.

Next, contrary to this year, I am going to be more active. It means that some rebalancing is possible. If I find a new and, in my opinion, a better company I am going to replace an old pick with this new one.

Now, what criteria do I use to decide whether a pick qualifies to my portfolio? Here they are:

1. Only producers - My picks do not include any exploring company. Simply put, explorers are riskier than producers, and I want to limit risks as much as possible. What is more, these producers must hold at least two operating mines.
2. Debt free - Debt is also risky, so my top companies hold either very small debt or even no debt at all.
3. Low costs of production - My picks are low-cost producers. If I am wrong claiming that this bull cycle in gold is intact, low-cost producers should perform relatively better than other PM-related stocks. It means that losses incurred by investors should be relatively low.
4. Catalysts - Looking for the best stocks, I am trying to find companies with some near-term catalysts defined as a big chance for a relevant increase in production, a possible acquisition or management change etc.

Now, an important message. The 2017 Top Five Portfolio is a paid service. It will cost $50 (fifty US dollars).


Within the next two weeks I will notify you on this blog that the portfolio is ready to be dispatched.
 

What will you get for this price? Let me list:

• five stock picks
• portfolio rebalancing (if I decide to replace an old pick with a new one you will get this new pick for free)
• regular updates (at least one per quarter) - the updates should include my comments on financial results, operating results etc.
• alerts - you will be notified if there is any important issue related to the stock pick

All these picks, comments, alerts etc. will be delivered through email (PDF file) to the subscribers


Simply put - you pay $50 and I am doing the job for you.

That's it. Quite simple I guess.

All details, pay buton and notifications will be available in the  section "Top Five 2017". 

Last but not least. Because it is a paid service I will not comment on the new portfolio on this blog, Seeking Alpha etc. The picks or comments on them will be available only for paid subscribers.

S&P 500 - Speculators Are Not Buying This Top

Speculators are not buying this top in S&P 500. According to the COT report, they are actually decreasing their net positions in S&P 500 futures:

Look at the chart above. The area marked in yellow indicates a period when speculators were increasing their long positions (26.9 thousand fresh contracts were added) on S&P 500. Shortly after this period there was a minor correction in prices. Then the index continued its march up.

Now we are encountering a different pattern. Although the index made a fresh top, speculators are currently decreasing their long positions. Last week they were even net SHORT the S&P 500 - look at the chart below:

Generally such pattern precedes an incoming weakness in stock prices. Whenever we see (areas marked in yellow):

• speculators shorting the index

but

• stock prices still going up

a substantial correction is expected.

Gold: Two Charts. One For Gold Bears And One For Gold Bulls

The first chart shows the old GLD picture:

Well, it looks terribly now. The amount of gold in GLD vaults is going down sharply and GLD prices broke below their strong support at 115. This is the chart for gold bears.

Now, the chart for gold bulls:

It is a little bit complicated so let me explain.

The upper panel shows gold prices. The lower panel shows the US dollar index. For better comparison, I have plotted an inverted version of the US dollar index.

As a rule, both charts should perform in the same way. If gold goes up the inverted US dollar goes up as well (and the "right" US dollar index goes down).

That is theory. However, it is the divergences that count. The first divergence occurred between March and December 2015 (points A and B). The US dollar index had the same readings at point A and point B but gold had not. Gold was lower - I would say that the gold sentiment was negative : although the US dollar did no change its value gold was weaker. 

Now, look at the point B and C. Most recently the US dollar goes up strongly (and the inverted variant of greenback goes down). The point C is lower than the point B.
However, and that is the argument for gold bugs, now gold at the point C is higher  than at the point B. Generally, it should also be lower but...it is not. I would say that the sentiment among gold players is now positive.

Drilling Sector - Relative Performance

Here is the chart showing drilling companies and their relative performance:

There are two leaders: Geodrill (Western Africa) and Orbit Garant (Canada).

On the other hand - look at Energold. The company is going steeply down.

Gold Market - Update

Selling pressure in gold continues. For example, GLD investors are still decreasing their long positions in gold:

Last week GLD was reporting reductions in gold holdings each trading day. Let me list these gold outflows:

November 14:   181 thousand ounces
November 15:    48 thousand ounces
November 16:    38 thousand ounces
November 17:   181 thousand ounces
November 18:   172 thousand ounces

As the chart above shows, the old pattern of holding the unchanged amount of gold in GLD despite lower prices of gold, was violated last week.

Simply put, American investors are not perceiving lower prices of gold as a buying opportunity . Quite contrary, it looks like they are panicking.

The same pattern is delivered by the COT report - speculators are selling gold. I was curious about speculators after the election week. Here is the answer - they decreased their long position in gold futures by 40 thousand contracts:

However, note that each time the selling pressure, demonstrated by speculators, reached its climax the prices of gold were bouncing up next week - look at the circles plotted on the green bars (big reductions in net positions held by speculators) and the accompanying circles plotted on the price chart (bottoms in gold prices).

Summarizing - the selling pressure in gold is still intact but the next week may be positive for gold bugs. I would say that the next two weeks (the next week is very short due to Thanksgiving Day) will be very important for gold bugs. Look at another chart:

As the chart shows, the prices of GDX were relatively stable last week (they even went slightly up). Note that both gold and silver prices went down last week. In other words, precious metals stock prices were not following gold and silver last week, which may be indicative of the dissipating selling pressure in the gold sector.

Looking at both charts (GDX and COT Report) I think that the incoming two weeks should clarify the whole picture.

Last but not least. The US dollar.  

The chart shows that something strange is happening here. The speculators are reducing their long positions held in US dollar futures. Look at the green bars - last two weeks these bars were negative, which means that speculators were decreasing their net long positions. It looks like they are starting to bet that the bull market in the US dollar has ended. It is a chance for gold bugs.

Here Is A Chance For Gold Bugs

The US dollar is strengthening and gold goes down. However, the chance is here:

Now the US dollar is approaching its strong resistance at around 100. Since early 2015 the greenback was bouncing off any time it approached the upper line, marked in yellow.

It is a chance for gold bugs... but if the resistance is broken - I will have to revert to the plan B.

Too Less Data To Say Something About The Gold Market

Yesterday GLD reported an outflow of gold from its vaults. Now the well-known chart looks as follows:

It looks like the American investors are panicking. On Monday, despite lower prices of gold (or, better said, because of lower prices) they decreased their gold stakes by 181 thousand ounces.

On the other hand, last week's COT report shows quite strange thing. Last Wednesday, the day after the election, the American speculators increased their net long positions in gold futures:

Look at the small, green bar on the right - the net long position increased by 2,107 contracts.

However, I guess it is only a part of the story. The most interesting data is still undisclosed - I mean a period between November 10 and today. It will be disclosed in the next COT report so....we have to wait.

The Mineral Drilling Sector Marches Up

Despite tanking gold and precious metals stock prices, the mineral drilling sector (represented by the DRILL index  - the line marked in violet) performs very well.

Last week it broke above an important resistance  level (the line marked in red) and continues marching up:

The green, dotted line represents the relative strength of the drilling sector against GDX. Since the beginning of the current bull phase in gold cycle the DRILL index has been much stronger than the precious metals sector itself.

However, as usually, the main question is "what is leading and what is lagging?"

In the past it was the drilling sector that was leading...

A Short Look At The Hated (Once Again) Gold Market

I realize many gold bugs are wondering what is going on. Well, the market is terrible now. Everything related to gold is going down. More, it is plunging.

Here is a chart showing the price action of gold:

Since its peak in July gold prices has lost 11.1%. Generally, it is not too much (11% correction in commodity markets? - Negligible...) but tell it to somebody who bought at the top...

Next, since its start in early 2016, the bull cycle in gold corrected around 50% (gold went up from around $1,070 to $1,380 and then lost half of the entire movement). It is quite a usual correction - nothing special in commodity markets. But tell it to somebody who bought at the very top....

Now, let me look at GDX:

The line marked in blue indicates the up sloping trend line and the line marked in red represents the downward trend. Keeping things simple, the upward trend should renew when GDX prices break the line marked in red. Now we are quite far from that point.

O.K. I am a gold bug but I have to have a plan "B". My plan B is that I will become very cautious if:

• gold prices go below $1,200 (the green horizontal area on the first chart)
• GLD investors start to decrease their gold holdings below current levels (see the chart below)

Now the well known chart of GLD:

On November 11 investors decreased their gold holdings by another 229 thousand ounces but the long-term chart still looks nice (gold prices going down but GLD holdings relatively unchanged). It does not look like a distribution. But tell it to somebody who bought gold at the top...

Summarizing - I do not think that from now on we will see only large drops in prices of gold and precious metals stocks. However, I would expect a lot of volatility in the coming days. But until GDX prices break the downward trendline to the upside we are still in the correction mode in precious metals stocks.

On such a market a careful stock selection is a key. The chart below shows how the stocks included in my Top Five Picks performed since inception (December 16, 2015):

Note that GDX (red horizontal line) returned only 48.9%. The overall return delivered by the portfolio is 132% at the moment (to compare, S&P 500 returned 4.4%).
 

Roller Coaster In GLD

Yesterday I reported that investors added fresh ounces to GLD vaults. Today I see that they decreased their stake by 429 thousand ounces (quite a lot).

Well, it looks like a roller coaster.

However the big picture remains unchanged:

As the chart shows, gold continues its correction but the amount of gold at GLD vaults is, generally, unchanged since early July.

Richmont Mines - Those Reading This Blog Knew That

Today Richmont Mines released its 3Q 2016 report. The results were, more or less, in line with my expectations. They were to be worse and...they were worse. I remind my readers that in my previous articles I noted that the second half of 2016 was going to be worse (for example, this article).

However, it looks like somebody does not read this blog and today Richmont shares dived 16%:

It looks like a catastrophe but the entire precious metals market (excluding silver) today looks like a disaster. However, there is no disaster at Richmont.

The company is very busy with going deeper at its flagship property, Island Gold. As a result, Island Gold goes not so fast as before. For example, in 3Q 2016 the Island Gold mill processed only 58.8T tons of ore, while in 2Q and 1Q 2016 it was milling 79.9T and 75.9T tons of ore, respectively.

Lower throughput = higher costs. Add to that the increased exploration (Island Gold) and you have relatively high costs: 

As a result the company became unprofitable in 3Q 2016.

What next? The management is confident that the guidance for 2016 is going to be met so 4Q 2016 should be much better than 3Q. But remember, 2H 2016 will be poor.  

Something Big In The Making

The divergence between the prices of gold and silver is extending:

At the time of writing gold is 1.3% down but silver is 0.4% up.

Well, generally gold and silver go in tandem. If the prices diverge it is only a question of time when the old relationship is re-established. 

However, the question is: which metal is leading? If it is gold so a huge slump is coming. And vice-versa...

All Quiet On The Western Front

Yesterday's election spree was a buying opportunity for gold investors. Not caring about huge price volatility they added 171.6 thousand ounces to GLD vaults.

Look at the chart below. It shows that lower prices of gold (the line marked in green) are considered as a buying opportunity. Since early July the price of gold went down around 7% but GLD holdings are, more or less, at the same level (the line marked in red):

As Erich Maria Remarque once said: All quiet on the Western front"

First Majestic - The Road To Excellency

Some people say First Majestic is overvalued and over promoted. Maybe  they are right (especially when over promotion is concerned) but the company shows steady progress. Let me show just one chart:

The chart shows production and profit margins calculated on a per quarter basis.

Note: profit margin is calculated as follows:

revenue less operating costs less smelting and refining expenses

Note that this year is exceptional for the company. Not only it increased its production but, due to higher silver prices and lower costs of production, it improved its margin.

Last but not least - today First Majestic shares are trading at an EV/EBITDA  multiple of 14.2. It is not an elevated level...

Banro Corp and Twangiza Mine

Today Banro released its 3Q 2016 report. Below you will find the chart showing the performance of the oldest mine, called Twangiza:

As the chart shows, Twangiza is deteriorating. Despite higher gold prices received, the margins demonstrated by the mine are going down.

Why? Here is the answer:

Simply put, grades and recovery ratios are going down. As a result, margins are going down as well.

Somebody could say that over time every mine is deteriorating. Yes, but Twangiza is a relatively new operation. It is too early to deteriorate so much.... 


 

Silver / Gold Ratio Supports Higher Gold Prices

It looks like another buying opporunity for gold bugs:

Gold (the line marked in red or violet) goes steeply down but the ratio Silver / Gold (black and blue) goes steeply up.

Such a divergence is indicative of an incoming change in gold prices (to the upside).

And neither Donald nor Hillary have anything to do with it... 

Prem Watsa And Fairfax Long - Term Results

In addition to my article on Fairfax 3Q 2016 results (published on Seeking Alpha) here is a chart showing what Prem Watsa's investment policy is about:

Barbarians Attack

I guess many gold bugs are wondering what is going on. From a micro ultra short - term perspective, gold is going up or trading sideways but GDX or GDXJ do not follow it.

For example, today GDX is losing around 2% (GDXJ is 2.2% down at the time of writing) but gold prices are generally unchanged (now they are 0.1% up). Here is the answer:

and here:

Simply put, a bunch of deep pockets is trying to scare the gold bugs. They do it in the most primitive way it can be done, which means that the fight is around the 50-day moving average (does anybody care about the 50-day moving average? I do not).

My advice is simple - let them play what they have to play. That is how this market works so...do nothing.

B2 Gold - Excellent Miner

Today B2 Gold announced its 3Q 2016 results. Let me show two charts:

The chart shows cash flows from operations (excluding working capital issues), presented on a per quarter basis. Note that in the period between 2Q 2015 and 4Q 2015 the company was able to increase its cash flow (green arrow) amid lower prices of gold. Really excellent performance...

How did they do that? Well, look at this chart:

The answer is: cost cutting.

Since the beginning of 2015 B2 Gold's management has cut costs of production from around $1,200 per ounce to around $900 per ounce. Nice job, gentlemen...

And now, when gold prices are higher, is the time to make profits. And B2 Gold does it.

Somebody Is Trying To Smash Gold Prices

It looks like somebody is trying to smash gold prices. Look at the chart below:

The chart shows daily gold flows reported by GLD. Generally, gold outflows from GLD vaults have a negative impact on the prices of gold. Notice that whenever there is a red bar (gold outflow) the prices of gold go down or, at least, do not go up. And vice-versa, green bars (gold inflows) have a positive impact on the prices of gold.

Therefore during corrections (the area marked in yellow) we see more red bars and during a move up the green bars  dominate.

However, most recently (this and last week) the red bars occur even during positive trading days (when gold prices go up). For example, yesterday as many as 457.7 thousand ounces of gold went out of GLD vaults.

It looks like somebody wants to bring gold prices lower. The similar situation took place in late March 2016. The increased outflows of gold from GLD extended the correction by a few weeks. But later on the prices of gold renewed their march up...

B2 Gold Reports Record Production

In September 2016 B2 Gold encountered a severe blow from the Philippines environmental authorities. The company was among 20 mining companies recommended for suspension. On that news B2 Gold shares tanked. Although later on the company announced that the problem had nothing to do with environmental issues B2 Gold shares were tanking again.

Today the company released its 3Q 2016 production report. The operating results are excellent. Although the Masbate mine (a Philippine operation) delivered substantially lower amount of gold, compared to the previous quarters, the other two mines, Otjikoto (a new operation located in Namibia) and Libertad, delivered much higher amount of gold then previously - look at the chart below:

source: Simple Digressions

What is more, the company increased its 2016 production guidance. The Masbate mine should deliver as many as 200 thousand - 210 thousand ounces of gold in 2016.

According to the new estimate, B2 Gold should produce 535 - 575 thousand ounces of gold in 2016, in total (in 2015 it produced 493 thousand ounces of gold).

Summarizing - B2 Gold goes in the right direction.

A Quick Look At The Current Correction In Precious Metals, Once Again

I guess many investors wonder where the current, deep correction in precious metals stock prices will end. Let me put an excerpt from the third issue of the Simple Digressions Newsletter (dispatched last Sunday):

"Chart 3

Source: Simple Digressions

The chart shows in / out flows of gold reported by GLD (the world biggest physically backed gold exchange-traded fund) on a weekly basis. Look carefully at the circle marked in brown. It shows that this week GLD prices (and gold itself) dropped 4.7%. However, and that is the main point, the fund reported an inflow of 352 thousand ounces of gold into its vaults.

Using other words – investors took advantage of lower prices of gold to load up fresh ounces into GLD vaults. In my opinion, it is a strong argument for gold bulls because, generally, when gold prices are falling GLD reports withdrawals of gold. This week’s inflows show that North American investors are doing things that prudent investors do (as, for example, the Chinese) – they are buying at lower prices.

Summarizing – I do not know how long the current correction in the precious metals market will last (my crystal ball lies in the cellar, covered in dust).  However, I know that this week Mr. Market offered many precious stocks at bargain prices, once again. I also know that prudent investors are still accumulating gold. It is by no means an indication of a bear market. Quite contrary"

 

Today I would like to add another point - a simple technique identifying the point / range where the precious metals market may have its strongest support. To do it, I will use the indicator offered by Stockcharts.com, called "Volume By Price" indicator.

 

According to the Stockcharts website, Volume By Price indicator is defined in the following way:

"Volume-by-Price is an indicator that shows the amount of volume for a particular price range, which is based on closing prices. The Volume-by-Price bars are horizontal and shown on the left side of the chart to correspond with these price ranges. Chartists can view these bars as a single color or with two colors to separate up volume and down volume. By combining volume and closing prices, this indicator can be used to identify high-volume price ranges to mark support or resistance."

Now, let me show the chart of GDX (which represents the broad precious metals stock market), applying the Volume By Price indicator: 

 

source: www.stockcharts.com

The chart shows that the highest volume, at which GDX share were trading between 2011 and today (during the last bear market in gold and at the beginning of the current bull stage), is attributable to the price range of $17.0 - $20.5. Using other words, it is the price range, which may be considered as a strong support or resistance level for GDX prices.

In the first quarter of 2016 GDX broke above this range. On that event a very strong support level for any correction in GDX prices was created.

According to the theory, now it should be very hard to bring GDX prices below this level. Putting it differently - the current correction should end slightly above or within the area marked in orange...

Looking For The End Of The Current, Deep Correction In Precious Metals

It is not easy to tell when the current correction is going to end. I do not have a crystal ball but let me make a guess.

As I wrote in my last post, deep corrections end when weak hands investors go away in despair.

Generally, the so-called weak hands enter any market on specific technical signals. Because weak hands are not smart investors they apply the most simple (or, better said, primitive) methods to find entry points. One of the most popular rules is this:

"Enter a market when the 50-day simple moving average crosses above the 200-day simple moving average "

If that pattern occurs, weak hands enter a market en masse. So it is quite easy to find at what price levels these investors entered any market.

Now, let me show at what price levels weak hands investors were probably entering the precious metals market, taking GDX as an example:

source: www.stockcharts.com

The chart shows that the 50-day simple moving average crossed above the 200-day moving average at around $19.0 (in early March).

Further, it takes time to load up a significant amount of shares so I guess weak hands were entering the market between $19.0 and $$21.2 (the area marked in yellow)

If I am right, these investors now hold a profit of around 10% - 23% (assuming the last closing price of GDX of $23.4 a share). It means that they are very close to the point where there is no profit at all. That is why they panicked yesterday, throwing lots of shares to lock in this small profit (look at the yesterday's huge volume of 232M shares).

And here is the positive thing - weak hands are close to go home empty-handed, which means the end of this deep correction.

What is more, once again many precious metals shares present buying opportunities (more on this in my incoming third issue of Simple Digressions Newsletter).

The Deepest Correction In This Bull Cycle

We have the deepest correction in the current gold bull market stage. It started in early July so we are in the third month of it. While the gold lost only 4.7% of its value (since the top made in early July) GDX lost much more (around 19%). Well, it is called leverage - when gold goes up gold stocks go up much higher...and vice versa.

Now we have the latter case and, in my opinion, it will end when, for example, investors renew the upward trend in gold flows into GLD:

source: Simple Digressions

On the chart above, black lines indicate the periods when gold is flowing out of GLD. Note that during these periods gold prices go down (in this particular case the gold is represented by GLD).

In the current gold cycle we had a similar situation in March and April. Now we have the second, bigger correction.

In my opinion, investors should be patient - the market, especially gold and silver related stocks, went too high and too quickly. As a result, too many weak hands own stocks. When they go away empty handed (as always) another leg up should start.

Kirkland Lake Merges With Newmarket Gold

Well, it looks like another company included in my Top Five Picks Portfolio, Newmarket Gold, is going to leave this portfolio. This time it is due to a merger with Kirkland Lake, an excellent, high-profile miner.

I will deliver a comment on this agreement in my second issue of the Simple Digressions Newsletter at the end of this week.

For the time being - here is what I see as the biggest synergy embedded in that deal:

source: Google Maps

It should take around 5 minutes to go from Royal Bank Plaza, Toronto (the office of Mr. Sprott, one of the biggest shareholders of both companies) to 95 Wellington Street (the office of the combined, new company). On foot!

B2 Gold - The Masbate Mine Is On The List (Of Philippines Government Officials)

According to Rappler, Filminera Resources Corp, a company which owns the Masbate Mine in Philippines, is among 20 mining companies recommended by the Philippines environment officials for suspension.

B2 Gold holds a 40% stake in Masbate through Filminera so it is Filminera that should be followed by B2 Gold shareholders (me included). Well, although the mine has not been suspended yet, it is on the list (together with Oceana Gold and other, mainly nickel-related companies). 

Both stocks are crashing now:

Well, shit happens....as Lou Bega sings...

The story is developing and here is what I have found:

"Based on the reference to the three findings indicated in the brief received today and based on our subsequent meeting with the Secretary of DENR, B2Gold is confident that these issues will be resolved by working with the government agencies, in the time frame provided. 

None of the findings involve any environmental or social issues. They are related to administrative issues only.

Meanwhile operations continue uninterrupted and guidance remains unchanged.

The company awaits formal notification from the Mines and Geosciences Bureau (MGB) and details of the Show-Cause Order"

Well, well, let us see but maybe today's B2 Gold share prices crash was a nice buying opportunity...

Gold Breaks Up

In one of my last posts I spotted divergence between the silver / gold ratio and the gold itself. In conclusion I stated that there was a chance for higher prices of gold because such a pattern (silver / gold ratio going up) was an indication of an incoming reversal in the gold trend.

Today the pattern materialized:

The line marked in red shows the downward trend in gold prices accompanied by the line marked in green (the upward trend in silver / gold ratio). Divergence may be easily spotted.

Then, today, both metals exploded (gold gained 1.5% while the price of silver went up by 2.7%). Of course, some may say it was due to no hike in interest rates. Maybe they are right - I do not know what factors were driving prices today. All in all, the facts are clearly visible - we have seen higher prices of gold and silver.

Now, I think that the ultra short term players should closely watch what happens tomorrow, the day after today's enthusiasm.

Lastly - I want to remind my readers that the first issue of my newsletter should be dispatched at the end of this week. Those interested, please, subscribe. It is free.
 

Huge Volumes On Friday - A No-Event Occurence

It seems that huge volumes reported on Friday had nothing to do with changes among shareholders, at least as far as US exchanges are concerned. I have checked other miners and the results are as follows:

• B2Gold - 94.4M shares changed hands (10.1% of shares outstanding)
• Gold Resources (GORO) - 3.9M (7.1%)
• First Majestic (AU) - 27.1M (16.7%)
• Coeur (CDE) - 37.1M (22.9%)
• Hecla (HL) - 73.2M (19.0%)
• IAMGold (IAG) - 32.5M (8.0%)

etc.

So it was a too-early-alert. One of my readers commented on this event and he was right. It looks that these huge volumes were due to GDXJ rebalancing issues. It means that no changes in shareholders structures are expected.