Breakout for Gold mining stocks?

Is the GDX about to breakout like an angst-ridden teenager?

The chart below outlines my current consideration that the TA for the gold miners may be showing the infant stages of a break out. A 3 year weekly chart showing the ratio of GDX vs. Gold (GLD) gives a broad-based view. Note the gradual lessening of the 200 DMA, the flattening and soon-to-be rising 100 DMA, and today's close just above a flat-lined 50 DMA.

Included are 3 time series of the RSI (7, 14, 21), after a year long downward drift we see all 3 RSI's breaking out and moving just above the zero line.

Once in motion, barring a sudden market crash, this could signal the changing of the guard from bullion to the stocks. I have been bearish on the miners vs. gold for some time, and it would be panglossian of me to change that stance so quickly in this market environment, yet I cant fully discount the TA signals that have served me well the past 2 years when the metal was shown to be outperforming the stocks by a landslide.

I will be following this one closely week to week, there doesn't seem to be a rush as gold continues to behave well.

ps: recent update from Martin Armstrong, always worth the read, his insights are always thought-provoking

J

the farce that is Kinross Gold

2 charts that tell you everything you need to know about Kinross Gold, down for over 1 and a half years in real terms and against Gold. The issues with Redback mining are at best a distraction from the real long term structural issues with most gold mining outfits. If mining gold proved so unprofitable and if obtaining more ounces in the ground only kept the stock loosing ground, why would the acquisition of more gold help this train-wreck?

Steve Saville, excellent macroeconomic analysis

a great piece by the always cogent and sober Steve Saville:

The depression outlook, revisited

Steve Saville
email: sas888_hk@yahoo.com
Aug 10, 2010

Below is an excerpt from a commentary originally posted atwww.speculative-investor.com on 1st August, 2010.

Towards the end of 2008 and during the first two months of 2009, we laid out our case for the second great depression of the past 100 years. In a nutshell, our thinking was that there are two fundamental prerequisites for a depression within a semi-free economy, these being a massive credit bubble and a concerted effort by the government to prevent the corrective process from running its natural course after the bubble bursts. As far as we could tell at the time, both of these prerequisites were very much in place. Before explaining how, or if, subsequent developments have affected our outlook it is worth recapping the depression case in a little more detail.

First, there is a bigger overall debt burden today than existed at the outset of the 1930s depression.

Second, although this cannot be proved it is reasonable to conclude that the faster growth in credit and money supply during the recent boom, as compared to the boom of the 1920s, resulted in more mal-investment (more money being ploughed into ill-conceived 'bubble activities') during the past 10 years than during the 10 years leading up to the depression of the 1930s.

Third, the governments of today are making the same critical mistakes that were made during the 1930s, but they are doing so more rapidly and on a grander scale. We are referring to the fact that governments are a) trying to prevent prices from falling to their natural levels, b) encouraging and propagating the further expansion of debt, c) propping up failed business ventures, d) increasing the burden that the government itself places on the economy, e) creating a more uncertain environment and thus reducing the incentive to invest for the long-term, and f) taking actions designed to reduce savings at a time when inadequate real savings is a big part of the problem. Similar efforts occurred throughout the 1930s, which, in our opinion, is primarily why a sharp recession evolved into a depression.

Now, history only happens once so we obviously can't go back in time and show what would have happened during the 1930s if governments had stayed out of the way. We can make a sound logical argument as to why increased government involvement made the situation much worse than it would otherwise have been, but the fact that we can't replay history leaves an opening for the supporters of government intervention to put the blame on external shocks to the economy. Fortunately (or unfortunately if you happen to live in Japan), Japan's post-bubble experience shows that government intervention designed to ease the short-term pain is capable of transforming a sharp post-bubble contraction into a multi-decade depression even during a long period of global peace and prosperity.

The above is essentially the argument we made 18-20 months ago. The argument is still valid today, although there are two interesting new developments that we will now deal with.

The first and most important is that while the US government continues to act based on the terribly misguided belief that the economy can be made stronger by more government spending and greater government control over production and consumption, in other parts of the world there is an emerging belief that "Keynesian" strategies have been taken too far. This emerging belief is manifesting itself in so-called "austerity" programs.

Although perhaps well intentioned, the shift towards "austerity" by some European governments is just as problematic as the US government's burgeoning profligacy. The reason is that these "austerity" programs are designed to help bondholders at the expense of the overall economy. In particular, they are designed to keep alive the illusion that government debt is a good investment by supporting the transfer of wealth from the broad economy to the owners of the debt.

Rather than cause further damage to the economy in an effort to help bondholders, governments should acknowledge the reality that their current debt burdens are so cumbersome that default is inevitable. The sooner they default, the less damage will be done. The longer they try to maintain the illusion of solvency, the more damage will be done. In general terms, a big part of the solution is for the government to drastically slow the rate at which it redistributes wealth, regardless of whether the direct beneficiaries of the redistribution happen to be bondholders, home builders, banks, auto manufacturers, the unemployed, or other special interest groups.

The second new development is the debate that has begun in the US about whether the "Bush tax cuts" should be allowed to expire at the end of this year. One side of the debate is that failure to maintain the tax cuts will push the US economy back into recession due to the negative economic "multiplier" related to tax increases, and the other side is that maintaining the tax cuts will do more harm than good because it will substantially add to the government's debt burden. Both sides of the debate are missing the point, which is that what really matters is the total amount of government spending; not how the spending is financed.

To understand what we mean, it helps to think of the government as a giant parasite that feeds on the economy. The parasite uses part of what it eats to foster its own growth, while the remainder passes through and is excreted back into the economy. The parasite's food is a mixture of direct taxation, indirect taxation (a.k.a. inflation) and borrowing, and provided that it is growing or maintaining its current size then a reduction in one food source MUST be offset by a corresponding increase in the other food sources. For example, if the parasite doesn't shrink then a reduction in direct taxation must be made up via an increase in inflation and/or borrowing.

The above is an over-simplification because the method by which the parasite gets its sustenance will have some influence on the economic outcome, but it hopefully explains why the "Bush tax cuts" are not a 'make or break' issue as far as the US economy's health is concerned. The crux of the matter is that as long as the rate of government spending is unchanged, less wealth being sucked out by direct taxation will result in more wealth being sucked out by another method. Consequently, the only genuine tax cut is the one that's accompanied by reduced government spending.

In summary, the most significant new development is that some governments have deviated from the "Keynesian" path to the "austerity" path, but because this particular version of austerity helps government debt-holders at the expense of the productive economy it does nothing to reduce the probability of a depression. In any case, it's a good bet that the commitment to "austerity" is weak, so after it becomes obvious that the post-crash rebound of 2009-2010 is over there will most likely be a return to the destructive spending/inflating path.

Unfortunately, then, we see no reason to change our view that another great depression is in its infancy.

###

Steve Saville
email: sas888_hk@yahoo.com
Hong Kong

Friday monring musing

Ive been experimenting with some new approaches to eating, more specifically eating only 1-2 times a day and drinking my morning coffee with heavy creme. It seems to fill me up and keep me satisfied until dinner time.

I suspect the body prefers to run on fat rather than sugar once it makes the adjustment.

Keeping that in mind Ive returned to the dark recesses of blogging.

Looking forward to getting back into the game.

assorted observations sunday afternoon...

some points to consider for all those following the gold-buggery right now happening in the blogsphere..

1. there has been talk about a default on the COMEX contract for over a year now, with each new wave of rumor centering around 1 central figure who has amassed what is called an "unusually large" position. Each time the month rolled over and passed with little or no fanfare.

for those expecting something to happen in June remember, dont count on black swan events, simply have a plan in case at all times if they appear. Every gold bug is harping on something big happening in june, and by big they tend to mean bullish. the contrarian in me is starting to get worried. remember my maxim: if someone is allegedly building a massive long position because they know something, then someone else with enough gold is selling it to them because they know something.

these kinds of stories are what make great headlines and suck people in. while anything can happen, and im prepared to a sudden gap up or parabolic move in part, im also prepared for the opposite as we have seen the later come to fruition more often than the former.

2. for the many Sinclair fans on the board, who i count myself as one of them, recall Jim's calls last summer/fall about a major massive gap up in gold, a settling of oil at $100 a barrel and gold shares not collapsing... the man is right in a macro sense, but trying to time gold has proven difficult at the best of times.

3. june is a tricky month because of the nature of the COMEX volume and activity coupled with the Armstrong turn date mid-month, E-wavers building "C wave up" postulates, and the flatlining nature of so many overbought TA signals in the broad market.

4. with respect to the gold miners, i posted on friday that i sold a bit, in preparation to reload should things slide from here. its hard to time so i wouldnt be surprised to see $1000 before we see $900, but if we do fall from here, i suspect it will be nasty and fast to scare the pants off of people. too many are either bullish or expecting a nice orderly pull back to reload. when does it ever work like that?

5. GATA does some great work but they have zero credibility when it comes to inside information. there is no objective evidence that any of their sources have brought to the table something we either didnt already know, or was proven true after the fact. Jim Willie and the rest of the "black swan alert" gang have only been right in that gold has risen over the past few years. if you followed their advice and bought jr's and miners you'd probably still be underwater. theres no money in telling people to simply buy gold bars and sit on them. even though thats proven the best strategy the past few years from a passive investment perspective.

6. gold bugs still fall into the religious category, not investor type because far too much of their ideas on gold stem from biblical black swan events in which the second coming of their lord will appear in the next COMEX contract to send the gold price skyward to heaven.

the beauty of their system is that they have said the same thing for years, and neglect to discuss how often they were wrong, simply rehashing the same old arguments until one day they may just get it right, and they can do a victory lap while saying they told us so. too bad far too many gold bugs having been massively underwater holding miners the past few years will celebrate simply breaking even.

when gold and gold shares collapsed in 2008, few truly saw it and articulated it clearly enough, simply because its difficult to do. you cant blame anyone for getting it wrong. but you can blame those who got it wrong, but obfuscated the past by declaring why it went down and why it wont happen again on any further downdrafts. does anyone really think if the market crashes gold mining shares wont go down again? unless gold skyrockets up they will fall. even a gradual gold price rise will not hold the miners from falling w/ a big correction. dont let people claim it was "margin calls" from hedge funds.

hedge funds have been used to blame for anything and everything under the sun. gold bugs love blaming them for short positions, then crediting them for being savy when they suspect they are long... its religion, not analysis.

7. long and strong. half all in. thats my game. if we moonshoot to $1200, awesome, ill be happy. my standing offer remains: if the HGU hits $30 this year, ill go 2 rounds of Brazilian ju-jitsu with anyone willing to come up to toronto. its an open invitation/open weight class offer. and my ju-jitsu sucks, so im counting on the euphoria of gold miners that high keeping me from noticing the pain of getting choked out!!

8. USD came down fast, china like most nations dont want a currency crisis anywhere. they are not stupid war-mongers either, no one likes what north korea just did. China if anything will emerge as a more diplomatic force with everything that is happening as a collapse of the US would threaten the ruling regime in bejing, remember they have 1.6 billion people, the focus of chinese domestic politics has historically been of greater concern because of the sheer size of its populace. failure to contain domestic problems has led to regime change over the past 3000 years in china, not foreign invasions.

be careful about view china's actions through the "foreign policy" lens of western geo-strategic traditions. still valid in their own right, but not entirely applicable to china. remember, looks matter in totalitarian regimes, hence why dissent is so aggressively quelled in such regimes and the press/internet is restricted more than in the west. currency swaps with brazil and argentina may mark a turn from a US-dollar centric FOREX but are tears in the bucket, and dont negate china's ongoing purchases of US debt instruments. It just sounds good for domestic patriotism to imply they are turning away from american reliance when in fact they still are the biggest holder of US debt. Its all about looks.

9. same with Iran. they have no reason or desire to actually bomb anyone. Its a media game and a bunch of hot heads on either side trying to provoke someone. if they want nuclear weapon they could purchase one, or make one. this notion that we must intervene to stop them is ineffectual. no state has ever been able to do that. sanctions dont and wont work. all they do is bring the populace on the extremist side. regimes will as we have seen allow their people to starve before giving in. sanctions in iran or elsewhere are pointless and only give them more attention.

iran has enough fire power to do damage, they know using a nuclear weapon against anyone would mean their nation would be wiped from the map immediately. the rest is simply conjecture. think about how viable this is as a policy approach? its not, and most people know its hot air, unless of course you are only listening to right wing american media.

10. the taliban are not taking over pakistan, or their arsenal. it never was close to happening, and its even less likely now. most Pakistani's have no interest in the taliban running the show. its more media attention so they can run headlines to say "could taliban take control of the nukes in pakistan? should we send more troops???". its all a great pre-text to increase the stakes in the af-pak war. under the auspices of a nuclear-taliban obama can deploy more men and material there.

please if you dont believe me follow some articles here,

http://www.tomdispatch.com/

one of the most cogent geo-political blogs on the net.

11. its soccer time, need to blow off more steam!!!!

good luck gang.

right here, right now... gold

"Right Here Right Now", was the smash hit of Jesus Jones. They were among a handful of odd groups in the early 90's; not American enough to be grunge, not electronic enough to be techno. Jesus Jones rode a sort of fading post-new wave tide into the horizon, never to return to the scene.

Right Here Right Now was the theme song of Hillary Clinton's presidential campaign. While Americans were chanting "Yes We Can", more than a few weary democrats and liberal-thinkers were experiencing a deja vu of sorts. Gold seems to be at the precipice of something that I loosely define as a Right Here Right Now moment. Looking at the chart I cant help but be filled with bullish enthusiasm, all the technicals, moving averages and trend lines appear to be in place for a push forward to and beyond $1000.

I use the Money Flow Index rarely, perhaps only because I so rarely see it featured in discusions of technical analysis, but I think recent developments warrant consideration of what has registered on the Money Flow Index at 2 different time frames (14 and 21).

The OBV indicator is best restricted to breakout's from consolidation patterns (imho), otherwise it gives a host of false flags and divergences that never seem to match subsequent price action. We see in a 1 year chart of the GLD the OBV like the current price action is up against a critical resistance point. The direction has a bullish inclination but has yet to be decisively broken to the upside. The recent recovery of the US Dollar from week's plunge below .82 on the index reminds me that nothing is ever a sure thing, especially in gold and in early 90's one-hit wonders.


Good Luck gang,

J

Don Coxe May, 2009 Conference Call

Don Coxe May, 2009 Conference Call available here.