My Top 5 Portfolio - August Results

My portfolio of five precious metals stocks was slaughtered in August:

Although the August result was slightly better than that delivered by GDX (-16.4% against -16.6%) the loss was substantial (much higher than that incured in May 2016).

Well, I am not impressed - at last there was (or still is) a healthy correction.

A question to my readers: Are you still long precious metals stocks?

Another chart. This time it shows the results delivered by my portfolio from its inception in December 2015. To compare, I plotted the results delivered by GDX and the broad stock market, represented by S&P 500:

How to read this chart? Taking my portfolio as an example - if anybody invested $10.0 thousand on December 16, 2015 in my portfolio, this person would own the portfolio worth $27.2 thousand now (an increase of 171.6%). And so on.

Note that in the same period the broad stock market delivered a very small return of 4.7%. 
I would say - this year precious metals stocks have been the winners.

Finally, a look at the August performance of each stock included in my portfolio:

As the chart shows, there was no  exception. All picks delivered negative returns. The worst performer was Richmont Mines. I do not know the exact reasons of this awful performance but in 2Q 2016 the company delivered quite poor results  (readers of this blog were warned at the right time). However, in the long-term I still perceive this company as one of the best miners.

Alterra Power Becomes A Dividend Company

Yesterday Alterra Power announced an annual cash dividend of C$0.005 per share. Because it is not possible to pay such a small dividend to the shareholder owning one share, the company has to consolidate its shares at the rate of 10:1.

After consolidation Alterra's share count should stand at 46,919,545 shares. A recalculated dividend is C$0.05 per share. It means that the dividend yield should be 0.77% (C$0.05 divided by C$6.5).

Well, although the just announced dividend is rather symbolic I think it is a great day for Alterra and its shareholders. From now on Alterra is a dividend paying company. What is more, its management declares that it plans to increase the dividend regularly:

"John Carson, Alterra's CEO, said, "This inaugural dividend reflects the recent completion and incremental cash flow of the Shannon and Jimmie Creek projects, but is sized modestly for now to accommodate the substantial growth we anticipate over the next four years. We will target regular increases of the dividend as we bring new projects on line"

 

 

I am curious about today's market reaction. In the long-term Alterra is drawing a continuation technical pattern called "Cup with Handle": 

 

 

source: www.stockcharts.com

 

 

 

Another Panick Day For Gold Mining Stocks

History repeats and today we have another panic day in the precious metals sector. The chart below shows GDX and gold price action, two hours before the closing:

As the chart shows, gold is down 0.8% while GDX is crashing 3.8% (and GDXJ is down 5.1%).

However, looking at 10-day price action, silver looks to be bottoming (while gold is not):

Note: gold is in red, silver is in black

Let us wait till the end of session.


O.K. The session is closed but the situation did not change significantly.

Let me show two charts.

The first chart shows the old relationships between gold and gold miners:

It looks like we are in the healthy correction mode where the basic relationship, GDXJ being stronger than GDX, is still intact.

Another chart:

Typically for a strong correction, during down days the volume is higher than that recorded during up days. However, note that the high volume during down days is going down. In my opinion, it may be another sign of the decreasing selling pressure.

Summing up - although there are signs of the dissipating selling pressure, we are still in the correction mode.

How To Play This Bull Market In Gold In A Disciplined Way, Revisited

In a post titled "How To Play This Bull Market In Gold In A Disciplined Way" I presented a chart showing the relationship between the broad precious metals stock market (represented by XAU) and gold. Then I put a thesis that as far as XAU is stronger than gold, precious metals investors should not worry about their PM portfolios because such a relationship is indicative of a healthy bull market. 

Yesterday one of my readers spotted that now the broad precious metals market is weaker than gold. The chart below shows this situation:

Well, the question is: "Is the upper panel of the chart showing an upward or a downward trend?".


Let me answer that question as follows:

The facts are that:

• surely, the trend line has been broken
• surely, since middle August precious metals stocks have been weaker than gold

Now, I do not think it would be a well supported thesis that now XAU is trending down against gold. Why? According to Investopedia:

"A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend"
I am sure that what we see now is not a downward trend as defined above.

However, who knows, financial markets are unpredictable and the current upward trend may develop into a downward one. That is why it is so hard to make money in financial markets. However, now it is too early to pronounce the end of the current trend. 

I hope this explanation helps...


A final note - the long-term view on XAU / Gold relationship (once again):

In late June 2011 investors had got an important signal - XAU / Gold relationship entered its downward trend. The chart above shows lower highs and lower lows established by a multiple XAU / Gold. The blue, vertical line shows the point in time when the signal was clear. Note that PM stocks investors still had time to sell their stocks (XAU was trading in a range until early 2012 - the area marked in yellow).

Now we are still at the beginning of the entire cycle but it cannot be ruled out that PM stocks had just entered a period of comparable-to-gold performance.

Unfortunately, the most important rerlationship between gold stocks and gold itsel is this:

"In the long-term gold is the winner".

Here is the saddest (for gold bulls) chart:

Despite Lower Prices Of Gold There Is Only Marginal Selling Pressure

Most recently gold / silver related stocks corrected substantially. As I wrote in one of my last posts  - this week there was even a panic selling. Now many stocks are trading 20% - 30% below their last tops. 

On the other hand, gold prices saw just a small correction. Since its top, recorded in early July ($1,367 per ounce), now gold is trading at  $1,321 per ounce (a drop of 3.4%).

Another thing - since early July, when the current slump in gold prices had started, there were four weeks when GLD (the biggest world gold ETF) recorded gold outflows:

What is more, it seems that selling pressure (gold outflows) is dissipating. The chart above shows that the amount of gold outflowing from GLD is going down:

• during the week starting from August 12 as many as 639 thousand ounces of gold went out of GLD's vaults
• then, during the week starting from August 19, only 143 thousand ounces left GLD
• last week GLD reported small gold inflows of 19 thousand ounces.

It seems that despite lower prices of gold investors are not eagerly selling the yellow metal.

The chart below shows GLD flows from a little bit different perspective:  

This time the red line shows cumulative gold in / out flows. Two yellow boxes show periods when GLD was recording gold outflows. During these periods gold was going nowhere (it was trading in a trading range).

The first period (the first yellow box on the left) lasted around one month (March 2016).

Now we are in the second month of a slump in gold flows. What I am waiting for is a renewal of the upward trend in gold inflows. Shortly after that we should see gold prices to go up. 


US dollar and gold

Last but not least. The chart below shows the relationship between the US dollar and gold. Usually, when the US dollar goes up gold goes down and vice versa.
However, since early May this relationship is no longer valid:

Note: for better comparison the upper panel of the chart shows the inversion of the US dollar (it means that the inverted US dollar and gold should, as a rule, behave in the same way).

The area marked in red shows the breakdown of the usual relationship. Since May 2016 gold has gone up while the US dollar has gone...also up (and the inverted US dollar has gone down).

Well, for the time being let me leave this phenomenon without any comment...

Energold Drilling - Energy Division Overshadows The Company

Yesterday Energold Drilling released its 2Q 2016 results. The table below shows basic figures:

Generally, the company is still in a slump. Although there is some improvement in the Mineral Division (this business line offers drilling services mainly for precious metals companies) the Energy Division is in trouble. For example, in 2Q 2016 the company drilled 200 metres for oil sand companies. Well, I guess I would be able to drill more meters with my personal hand drill - it is just an evidence what problems Energold encounters as far as serious energy drilling is concerned.

I have written something about an improvement in mineral drilling. Look at the chart below - it shows basic operating measures reported by Mineral Division: 

source: Simple Digressions

It looks like this division encounters a slight improvement - since 2Q 2014 both operating measures (meters drilled and prices) have reached sort of plateau. 
Similarly to another drilling company, Geodrill, in 2Q 2016 the company had drilled more meters but at lower prices. I believe it may be a sign of the beginning of the recovery (slightly higher demand for drilling services but pricing power still at the mining companies).

Summarizing - I am not recommending Energold as a buying opportunity. It is not a pure precious metals related play. Apart from running its Mineral Division, the company is heavily involved in energy drilling and specialized industrial manufacturing. The latter two divisions are not doing well and, what is more, there are no signs that the situation in these sectors is going to improve. 

I am staying aside...

Precious Metals Correction Enters Its Panic Stage

It  looks that today precious metals investors started to panic. Nearly every mining company is being sold heavily. For example, big miners are down as follows (at the time of writing this post):

• Goldcorp is down 3.5%
• Newmont: 3.8%
• Randgold: 3.6%
• Barrick: 5.7%

As for smaller miners:

• Fortuna: down 7.4%
• Gold Resources: 7.2%
• Endeavour Silver: 8.5%
• B2 Gold: 4.6%

etc, etc

Now, look at the chart below:

The chart shows that GDXJ (ETF representing smaller mining companies) is still stronger than GDX (big miners) - it is indicative of the bull market in precious metals stocks (smaller companies go up faster than bigger ones).

Note also that GDXJ is very close to its important support at around $44 a share.

Of course, it is possible that the current correction will be much deeper but, trying to look at the big picture, in my opinion, today's price levels create the first major buying opportunity for those interested in increasing their long positions in precious metals stocks. Me included (added a few fresh positions today).


Another note (near NYSE closing time)

The chart below shows today's price action (gold and GDX):

Note, that gold is down around 0.9% while GDX is crashing. 

In my opinion, it is typical panic.