We cannot control the markets, but we can control how to respond to what they are saying. The paper market has been turned into a circus, thanks to JP Morgan, and abetted by the exchanges, COMEX and LME. Focus has to remain on the physical market, for it is where one can expect to find true value for price. What everyone has learned is that as price has declined, demand has disproportionately skyrocketed.
We have written extensively on the acquisition of physical gold and silver, regardless of price, because no one can know when the central bankers will lose control and price will erupt like Eyjafjallajökull. The world is in the middle of a huge central bank bubble, of which there are many sub-bubbles, as it were. [Anyone who pretends to believe whatever information is being disseminated by NWO-owned mainstream media, none of which makes any economic sense, and those who do not fully believe, (or at all), what is being said but do not know where else to turn, stay away from all central banks and central planners news or information.]
In addition to creating bubbles that will fail, the Western central bankers, and their puppet governments, are also doing battle with Eastern countries, mostly BRICS, but more and more countries are aligning with them and against the impending demise of fiat regimes. Western central banks are on the losing end, as their fraudulent rehypothecation of gold, several times over, and the virtually depleted reserves now rest comfortably in the hands of Russia, China, India, Turkey, et al, none of which will tolerate any more of the reckless mismanagement of the West. It will not end well for those of us in the Western sphere of influence.
The most coveted of all assets around the world has been gold, on a grand scale, and silver, on a smaller scale, but grand relative to diminishing supply. As we asserted last time, it does not matter what the fundamental picture says, for now, the moving forces are those in control of the paper market, and the populations of Western countries. The power will not be ceded willingly nor readily, so one cannot rely upon the known demand factors, no matter how bullishly presented. That information is already in the market, and it has not created the large mark-up most have been anticipating. It ain’t happening, yet.
The paper markets, however much manipulated or disconnected from the physical, are the only barometer available, for now. Under normal circumstances charts, which reflect the market forces, are the most reliable source of information. Here is what they are saying, at this point in time.
In our last article, we said that time was on the side of those currently in control, and it would take longer than most expect before gold and silver will reach previous highs and yet higher, after that, The True Story Is About Time. In another previous article, we explained how wide range bars can lead to range control for several more bars to follow, and longer, It Could Get Uglier And Take Longer, and we will give more examples of why any recovery will take more time.
The one caveat would be a V-type bottom, when price takes off from a low. Because Anything Can Happen, and no one knows in advance how a market will unfold, it is mentioned as a possibility.
Trading Range, [TR], – A, shows the wide range bar from April, and the close is mid-range the bar. Very often, that bar’s range will contain price behavior for several bars into the future. TR – B is pointed out to demonstrate that an ensuing TR can take quite some time. Going into the last week of May, the range has been under the close of April, telling us the attempt to rally has been weak.
Even with the sharp decline from last month, and the overall decline since September of 2011, there is still bullish spacing. It occurs when the current swing low is above the last swing high, from 2008. It tells us that buyers have been willing to buy into the market without waiting to see how the last swing high will be tested, an overall bullish condition.
The importance of a wide range bar is that it tells us of the likelihood of a trading range. One can either sell the top of the range and buy the bottom of the range, or wait, knowing that the market is unlikely to rally higher or break lower, for an unknown period of time and then follow the breakout.
You can see how price has already spent five weeks within the wide range bar with a close in the middle. The high of the range has provided resistance, and the lower portion has been support. Last week’s close was in the upper portion of that range, telling us buyers were in control at lower price levels.
Keep in mind, however, that the trend remains down, and the onus is on buyers to show a change in strength. We do not see that, yet, but this is the paper market. Buyers have amply demonstrated demand in the physical market, but it is no avail, for now.
The wide range bar scenario is uniformly persistent over all three time frames. The daily activity looks weakest of all, but still within the range parameters described. Using the “knowledge of the market,” from the low of the range, we did use it to advantage to make a short-term trade off the lows, with success. It was an against-the-trend-trade, but we used the smaller time frames and the knowledge that the lower end of the TR would be support, as a basis for it.
Silver tells a more interesting story. It has been weaker than gold, but the current developing market activity shows promise within a weakened environment. Bullish spacing has been eliminated, and the swing high from 2008 has proven to be support, at least for now.
We drew down sloping channel lines, and interestingly, silver is holding above the 50% of the channel range, not going to the bottom demand line. The underlying implications are bullish, within the context of a prevailing downtrend. It does not mean one should be buying futures, based on this, just that price is holding relatively well in a bear market.
Entering the last trading week for the month, at this late date, the range is relatively small, which tells us that buyers are meeting the efforts of sellers, preventing sellers from moving price lower. It does not mean price will not go lower before month’s end, but based on the facts available, it is a positive sign. It could take more time for buyers to turn the futures market around, but it has to start from somewhere.
Wide range bars are not inviolate, evidence by the weekly chart. Price did go under the low of the wide range bar, but note the location of the close, at the high of the bar and just above the last week’s low-end close of a selloff week.
The chart comments relate the current daily activity. Just like TRs reveal important high/low information, failed probes also provide clues about the character of the market. The 3 points made explain what the clues are. The lack of continuation higher speaks to the overall trend being down, weighing on attempts to rally.
We continue to recommend buying the physical, regardless of price, and be very selective if/when trading the futures.
Casey Research’s Chief Energy Investment Strategist, Marin Katusa, whose portfolio profited nicely the last time the uranium bull broke loose a decade ago, recently interviewed a group of world-renowned energy experts to discuss the prospects for the sector that some considered doomed by the Fukushima disaster. Anti-nuclear power sentiment has by no means evaporated, but Katusa sees clear signals that the bulls are ready to run, not least of which is the recent attack on the Somair uranium mine in Niger.
Why? First, the 20-year Highly Enriched Uranium (HEU) Program agreement between the U.S. and Russia, aka “Megatons to Megawatts,” expires this year.
Second, the end of that program will allow Russia to sell its coveted uranium, which currently powers one of every 10 homes in the U.S., to the highest bidder. With 200 nuclear power plants under construction or on the drawing boards, China is likely to be first in line, with India and even oil-rich Saudi Arabia on its heels.
Third, the increase in nuclear plants being built around the world will stimulate huge demand while supply inevitably dwindles. Because it can take a decade to bring a uranium mine on-line, new mining production can’t grow fast enough to meet the demand.
Fourth, like it or not, nuclear energy is clean—while the average coal-fired power plant in the U.S. emits nearly 4 million metric tons of CO2 each year, nuclear power plants emit no carbon dioxide, sulfur dioxide, nitrogen oxides, mercury or other toxic gases.
Finally, last Thursday, an Al-Qaeda splinter group attacked the Somair uranium mine in Niger—owned by French uranium giant Areva. This will further disrupt global uranium supplies and emphasizes what the energy experts have been saying: Uranium is prime for price increases.
Marin Katusa: We first met 10 years ago, when you were begging people to buy uranium companies, and the market boomed. Those of us who followed your advice made a lot of money. Are you expecting a replay in that market?
Rick Rule: I think so. The similarities are interesting. At that time, the price of uranium on the market was less than what it cost to produce it, which meant that one of two things would happen: Either the uranium price would go up, or the lights would go out. Those were the only two choices. We’re in a situation now where the uranium price on world markets is lower than what’s required to bring online the supplies needed to keep the lights on around the world. So once again, either the uranium price goes up, or the lights go out. I think the price will go up.
MK: What can you tell investors who are nervous about uranium? Nuclear power is unpopular. Why should investors expect its feedstock to have this massive bull market?
RR: You make money in financial markets by buying low and selling high, and you can’t buy low when something is universally loved and every investor is competing with you. You have to buy things when they are unloved. In natural resources, you can be a contrarian or a victim. You had the good sense of getting into the market when uranium was cheap, and you also had the good sense to get out when everybody else was flocking in. You did what you were supposed to—buy it when it was out of favor and sell it when it came into favor. It’s out of favor again. You will make money buying it now and selling again when it returns to favor, because it will.
MK: Are you currently investing in companies that are exploring for and producing uranium in the junior resource sector?
RR: We are. We are investing in the broader junior resource sector because it is universally unloved, and we are specifically investing in the uranium sector. We invest in any commodity where the selling price on global markets is less than the cost of production and where we see ongoing demand. The price has to rise to meet demand.
MK: Considering that China is on its way to building twice as many nuclear reactors as America, India is building theirs and Saudi Arabia—which is so rich in oil and gas—is planning on building 16 nuclear reactors, does that make the argument for uranium better today than it was 10 years ago?
RR: I wouldn’t argue that it’s better, because the situation 10 years ago was superb. But it doesn’t have to be better. A lot of people added a zero to their net worth as a consequence of that market. If they increase their net worth only five times, would that be sufficient?
MK: I think it would. Like uranium, the junior resource sector is not popular. How would you advise people to invest in that sector today?
RR: They have to invest in themselves before they invest in the sector. They have to get educated about natural resources and you don’t get educated about natural resources in The Wall Street Journal. These businesses differ from other businesses. You need the courage and the common sense to invest in contrarian fashion. You need to buy out-of-favor sectors and once your thesis has been vindicated and you’re feeling smart, you need to sell those sectors. It’s very important that you both buy low and sell high. Industry cycles in natural resources are very predictable, and after you discipline yourself, find information sources you can trust and figure out how to use those information sources, you will find the sector extremely generous.
MK: What is the most important factor when you look at a company? When Rick Rule and Sprott write a check with their own money into a company, what’s the most important element of that investment decision?
RR: If it’s a speculative, junior company, the three most important factors are people, people and people. In the uranium sector for example, when the resource became popular in the middle part of the last decade, there were 500 junior uranium companies but only 20 competent teams.
MK: And of those 500 companies, about 480 disappeared.
RR: Another thing that argues in your favor today is that you’re now able to come in and buy companies with $50M market caps that spent $250–300M they raised cheaply during the boom. Those are very attractive propositions.
MK: Can anything derail this nuclear renaissance?
RR: If there’s a black swan on the nuclear side, it would be another event like Fukushima, Chernobyl or Three Mile Island. On the financial side, it would be another 2008-style psychotic break. But if that happened, your uranium portfolio would be probably the least of your concerns.
MK: As always, Rick, it was a pleasure. Thank you.
Uranium prices have nowhere to go but up. Rick confirmed that, as do the other experts in the videocast. Listen for the insights from:
Spencer Abraham, who served as the 10th U.S. Secretary of Energy (2001-2005) during the George W. Bush Administration.
Lady Barbara Thomas Judge, chairman emeritus of the U.K. Atomic Energy Authority, chairman of the Pension Protection Fund, and U.K. business ambassador on behalf of U.K. Trade and Investment, and is an appointed member of the TEPCO Nuclear Reform Monitoring Committee.
Herb Dhaliwal, former Canadian minister of natural resources and senior regional minister for British Columbia.
Amir Adnani, co-founder and CEO of Uranium Energy Corp. (UEC:NYSE.MKT), which operates North America’s newest uranium mine; located in South Texas, it’s the first new uranium production in the U.S. in seven years.
Platinum is a precious metal, as is palladium, though to a lesser degree. However, like silver, both are also industrial metals. Unlike silver, it’s their industrial use that is the primary price driver for both platinum and palladium – and that use is undergoing a fundamental shift.
The largest source of demand for platinum and palladium is the automotive industry, for use in autocatalysts. In turn, the fortunes of the auto industry are sensitive to the health of the world’s major economies. We’ve been bearish on platinum-group metals for years, primarily because we weren’t convinced a healthy – much less roaring – world economy could be sustained when so many governments continue spending beyond their means.
We reconsidered the market last year, when strikes in South Africa – home to 75% of global platinum production and 95% of known reserves – threatened supplies. But as we wrote last December, the strikes ended without great impact on long-term supply.
Since then, however, the fundamentals of this market have changed. Others may disagree with our economic outlook, which is still bearish, but it’s due to supply issues – not demand – that our interest is now drawn to these metals, and particularly to palladium.
Here’s a look at global supply against auto-industry demand for both metals.
Approximately 55% of platinum and the bulk of palladium supply was used in catalytic systems last year. The shrinking supply that’s under way with both metals is obvious, and palladium is approaching a supply/demand crunch.
Labor strife and power outages. The mining industry in South Africa is, frankly, a mess. Labor strikes continue to haunt the platinum mining companies. The largest mining union in South Africa, AMCU, recently refused to sign a collective bargaining agreement on worker compensation, and CNBC is predicting a massive strike. Amplats, the world’s largest platinum producer, is threatening to cut 14,000 jobs and mothball two operating mines due to various issues. Meanwhile, power outages, a longstanding problem, continue unresolved; they have already forced the closure of some mines and are widely expected to cause further cuts in production. As a result, supply from mining is expected to decline another 10% this year.
Recycling. This important source of supply is falling in reaction to lower metals prices. It is estimated that recycling fell by 11% in 2012.
Emission systems. Demand for platinum in autocatalysts dropped by 1% in 2012, mostly due to lower vehicle production in Europe and lower market share of diesel engines. However, emission-system demand from Japan and India is expected to increase, and diesel-emission controls recently introduced in Beijing will also support industrial demand for both metals. Auto sales in China rose a whopping 19.5% in the first two months of the year and are 6.5% higher in the US than a year ago.
Jewelry. Worldwide demand for platinum jewelry rose last year, with strong demand coming from China and growth in India, and is mainly the consequence of lower prices. Jewelry accounts for 30% of total platinum demand.
Investment. Although it represents just 6% of total demand for the metal, investor demand nonetheless grew 6.5% last year, adding to pressure on supplies.
Given these factors – primarily the first one – a supply deficit stretching into 2014 seems almost certain. Until South Africa can resolve its labor and power issues, pressure on platinum supply will remain, producing a favorable environment for rising prices.
Palladium, platinum’s “little brother,” also faces a market imbalance. In 2012, the deficit totaled 915,000 ounces, the highest level since 2001.
Supply. Russia is the second-largest producer of palladium, and some analysts report that rumors of its stockpile being close to depletion are true. Recycling is also falling, and production disruptions in South Africa – the largest producer of palladium – are the same as outlined for platinum. Overall supply of the metal is falling.
Demand. Autocatalytic demand rose by 7% in 2012, as palladium can be easily substituted for platinum in emission-control systems for gas-powered motors (but not diesel-powered ones), such as are favored in China and India. In fact, several experts we consulted were more bullish on palladium than platinum due to this “substitution factor” – and China just mandated catalytic systems for all cars in the country.
Palladium investment demand was positive last year, though palladium jewelry has yet to gain traction in China, one of the world’s biggest jewelry markets. Total jewelry demand for palladium was 11% lower in 2012. However, we expect a greater shift to palladium in the expanding Asian automotive market, which in turn will boost palladium prices.
The fundamental drivers of the palladium market are similar to those for platinum, which makes the palladium market an equally attractive investment.
If this all weren’t bad enough, most companies’ production costs are now above current platinum and palladium prices. This can only be solved one way: higher metals prices.
The supply disruptions in South Africa combined with secondary factors have led to deficits in both metals that won’t be erased overnight. Such imbalances, together with mainstream expectations of global economic growth, create a favorable environment for PGM price appreciation.
This much seems like a safe bet. There is, however, a great deal of speculative upside in the not-inconceivable case of South Africa going off the rails in a major way. Massive – not marginal – supply disruptions in the world’s main source of both metals would send their prices through the roof. You get this speculative potential “for free” when you bet on the more conservative projections that call for rising prices regardless.
While we wait for our gold positions to rebound, an investment in platinum and palladium could be very profitable. How to invest? You can learn which company is our #1 pick for this space with a risk-free trial subscription to BIG GOLD.
Note: our longer-term outlook remains in place: most G7 economies are not fundamentally sound and continue to print money. Gold is still our priority asset class, so we don’t recommend that investors replace their gold holdings with platinum and palladium investment vehicles. This PGM trend is simply an addition to and diversification of our current investment strategy.
Much has been written about the mass exodus out of the GLD. Based on the fact that gold is not consumed and that newly mined production is very small compared to the existing above the ground gold in existence, it is a fact that someone has been buying the physical gold that has been leaving GLD.
To put that figure into perspective, it is 30 times larger than the gold holdings of Cyprus; it would be the 18th largest gold holding in the world, comparable with the ones of Saudi Arabia and the UK.
The point is not the sale of the gold as we know it is caused by investor liquidation. The key question is who has been buying these gigantic amounts of physical gold? The gold is not being consumed, so it is in some hands right now. Which ones? It seems no clear answer exists at this point.
That question remained underexposed in our opinion because identifying the buyer(s) helps putting the ongoing trend in the precious metals in the right perspective!
Up until now, our working assumption was that some of the bullion banks and/or large investors have been piling up on physical gold from GLD. We had not the means to provide evidence of this. Here is one of the world precious metals expert, who is following the markets closely for three decades, who confirms our thoughts.
What follows is Ted Butler his answer on the question who has been buying the 10 million ounces of physical gold (320 tonnes approximately) since the beginning of this year.
It is widely reported that the 10 million ounces of gold that came out of the GLD have been bought by India or China, even though substantiating data is lacking. Let’s only consider the facts that we know. The 10 million gold ounces that came out of the GLD equals roughly 100 million shares of GLD (one-tenth ounce per share). The 10 million ounces that are no longer in the GLD still exist and, therefore, must be owned by someone. We know that the reason the shares were liquidated in GLD was due to the rotten price performance that weighs on metals investors’ minds. This tends to eliminate China as the big buyer; as such buying would cause gold prices to rise, not fall. The shares were sold and metal redeemed because the price went down, largely a self-reinforcing spiral. We know how much was sold and who the sellers were. What we don’t know is the identity of the buyers. There is a good reason for that. The buyers have tried mightily to hide their identity.
I believe that the big buyer of the 10 million ounces of gold liquidated in the GLD was JPMorgan, either alone or with other collusive commercial banks. The same methodology I’ve previously attributed to a potential Mr. Big in SLV (also probably JPMorgan) is at work in GLD. If one (or 2 or 3) big buyers in GLD had merely purchased the 100 million shares that were sold in GLD, that would have quickly pushed the big buyer(s) over the 5% SEC reporting threshold thereby revealing their identity. But by having the gold redeemed out of the trust and the metal being purchased (instead of shares), stock reporting requirements are evaded. A single holder, perhaps working with a few collusive partners, have come to own what is, effectively, almost a quarter of the world’s largest gold stockpile and no one is the wiser.
I’m not suggesting that JPMorgan did anything wrong by intentionally evading SEC reporting requirements. That potential infraction pales in comparison to the real crime. In this crime (actually more egregious in silver than in gold) the crooked bank manipulated gold prices lower, via the usual COMEX price-fixing mechanics, to induce GLD shareholders to sell. This was a planned and executed operation that left no stone unturned.
From late November, the commercials as a whole, bought more than 160,000 net COMEX gold contracts on declining prices, the equivalent of 16 million ounces. When you include what came out of the ETFs and exchange warehouses it adds an additional 15 million ounces. Together that totals 30 million ounces ($45 billion). Options and over-the-counter derivatives transactions could double that amount. This likely brings the total of their purchases to 50 million ounces ($75 billion). This sound like a huge number but it’s quite manageable for these big banks and it represents a small fraction of the total derivatives market. The scope of their purchases is enormous and the bullish implications are staggering.
I believe that JPMorgan and the commercials have come to hate the COT and Bank Participation reporting data because it reveals what they are up to in exquisite detail. Wrong doers prefer to operate in the dark, under rocks. But the one thing the available data shows is that the big buyers on the wicked price decline have been the commercials. On the one hand, I find it deplorable that big banks are allowed to manipulate our markets for their own benefit, making a mockery of our laws and corrupting our regulators. On the other hand, watching JPMorgan and the commercials buy so aggressively in gold and silver only leads to the conclusion that these crooks have a plan for much higher metals prices to come. If, as I contend, JPMorgan picked up at least 20 million gold ounces they shook out from the GLD and elsewhere, a $300 dollar gold rally will net them $6 billion in ill-gotten gains on that position alone. It could be much more if they are more ruthless in creating higher prices. Generally, with these crooks they usually exceed what you think they are capable of.
It appears to me that JPMorgan and their ilk have bought absolutely massive quantities of gold and silver in many different markets. Unfortunately, much of that buying has come as a result of the deliberate and successful manipulation of price in order to force others to sell. I don’t believe that is fair or even legal. Nevertheless the bloodless verdict of the market suggests we are going a lot higher at some point soon.
It really has become a farce. A joke of the highest degree. Every time the US central bank Chairman comes out to announce a message markets react like crazy. Today was no exception; in fact, it was one of the most ridicule type of price moves. It is no secret that large traders have computerized their behavior based on the words used during the speech. They sett buy/sell orders in real-time based on specific keywords. For instance, as a hypothetical example, as soon as the speech mentions “continue bond buying program” or ”stop bond buying program” an algorhythm decides to buy or sell dollars, gold, or some specific stocks. That is indeed what the financial markets have become: a casino.
The metals have been subject to the same type of trading behavior. It became blatant once again today. In fact, it is the third time this week that we witness extreme speculation in the metals with prices behaving accordingly. Silver, for instance, saw its peak today at $23.20 and its lows at $22.15, a difference of almost 5% intraday. The charts below tell it all. Note that the peak on the charts was during the speech of Mr. Bernanke. A bit later, prices came down triggered by this sentence in the speech: ”a few participants expressed concern that conditions in certain U.S. financial markets were becoming too buoyant…. One participant cautioned that the emergence of financial imbalances could prove difficult for regulators to identify and address, and that it would be appropriate to adjust monetary policy to help guard against risks to financial stability.” More details about the FOMC meeting.
Folly of the highest degree. We wrote earlier this week about gold and silver prices being subject to greediness of traders. One thing has been proven once again: gold and silver prices are being set in the futures market, at least in the short term. There is no way to see these price movements driven by changes in demand in the physical metal.
Oh, and in case readers would have missed our main premise, the only way to protect against this farce is holding PHYSICAL gold and silver. The consequence is that bullion owners need to learn to stomach heavy priceswings. The benefits, by contrast, are the ultimate protection in a casino driven financial world, which we expect will become the victim of its own greediness in the months and years to come. Gold – You Better Hold It!
Below is the NYSE Gold Miners Index which is tracked by the GDX ETF. Look at the RSI. Not only did it reach a multi-decade low but it has remained oversold far longer than during the comparable periods. In the four previous periods, the market rebounded suddenly and strongly in percentage terms. Meanwhile, the bullish percent index, a breath indicator is more oversold than in 2008. We plot the indicator with a 10-week moving average that shows it as far more oversold than in 2008. While this indicator does not go back that far, odds are it is likely at a 13-year low.
2. Springtime is usually a turning point for gold stocks.
According to seasonal analysis, precious metals usually peak in the late spring. However, a study of the past 12 years shows that its more apt to say that spring is a turning point. In the above chart we mark the tops or bottoms that occurred in April or May. Assuming we are presently at a bottom then spring will have marked a turning point in gold stocks during 11 of the past 13 years.
3. A selling climax already occurred and the recent low is a false breakdown.
The selling climax occurred in April when GDX declined 24% in only six days. The 20-day volume average peaked days later at 30 million shares. The previous high was 21.5 million shares in June 2012. GDX has also formed a bullish RSI divergence and Monday reversed on record up volume. Prior to Monday, recent weakness was on average volume which was substantially less than during the selling climax. This is a subjective thought but this potential bear trap and false breakdown could be the retest. When you get a failed retest that is a trap or false move it can result in a V bottom. Look for a potential head and shoulders bottom or a V bottom. Finally, if the RSI pushes above 50 then that is a good sign.
4. History suggests the cyclical bear is just about over
Each secular bull market in gold shares has endured two major cyclical bear markets. The chart below, which uses weekly data shows the four corrections. It is possible this correction could last a bit longer and move a bit deeper but in the big picture, the next big move is higher, not lower.
5. There is potential for a huge short squeeze.
Gross short positions are at all-time highs. Some short positions were covered as Gold rebounded from its crash low at $1320. After the rebound fizzled short positions reached an all time high. Gold has formed a short-term double bottom. Without a doubt, short covering contributed to Monday’s huge reversal. If Monday’s rebound is sustained, look for a torrent of short covering to follow.
6. Cyclical rebounds usually are huge in percentage terms
The chart below shows the first five months of performance of the cyclical bull markets within secular bull markets. The advances that began from the least oversold conditions were the least powerful. If the next rebound is similar to 2000 or 2008 then it will achieve more than 50% in the first five months.
By David Banister, Chief Strategist www.themarkettrendforecast.com
I used to half joke with some of my investing friends that the best time to buy stocks is during or right after a crash. Think 1987, 2000-2002, 2008-09, and now perhaps Gold Miners?? Well, before we get too far ahead of ourselves, lets examine evidence of a “Crash”: I like to use crowd behavioral, empirical, and technical evidence in combination.
1. In a recent money managers poll, virtually nobody was bullish on Gold or Gold stocks, and over 80% of those polled were bullish on the SP 500 and US stocks.
2. The percentage of Dumb Money traders (non-reportable traders) in the futures markets with short positions on Gold is at all time highs, they tend to be very long at the highs and very short at the lows.
3. The insider buying ratio of Gold Mining stocks to sellers is running over 10 to 1, the highest since October 2008 when Gold bottomed out at $685 per ounce from $1030 highs. Quoting Ted Dixon, CEO of Ink Research, “such a high level of buying interest among officers and directors within their own businesses in the resource sector has correctly foreshadowed a recovery in share prices in the past: That high point of nearly five years ago came about six weeks before the Venture market bottomed on Dec. 5, 2008…While the excitement that surrounded mining stocks as recently as two years ago has waned, experienced value investors recognize that such periods of investor neglect often give rise to the best deals” Source: Theglobeandmail.com
4. The ratio of the HUI Gold Bugs Index to the SP 500 is at multi year lows and in near crash mode on the charts. The RSI Index (Relative strength) on the weekly charts is at 10 year lows at -13.71, which is off the charts low!!
5. Most trading message boards I view at Stocktwits and others are universally bearish on Gold and Gold stocks.
6. Gold is in a wave B or Wave 5 down re-testing the 1322 lows which we have discussed here for weeks as very likely if 1470 was not taken out on the upside… this is a normal sentiment pattern and re-test.
7. Gold has been in a 21 Fibonacci month correction pattern off a 34 Fibonacci month rally from 686-1923. In August of 2011 I penned articles from 1805 right up to 1900 warning of a massive wave 3 top forming. Everyone was bullish, now it’s the complete opposite.
8. Currency debasement continues around the world with negative real interest rates. This is bullish for Gold once this correction has run its course.
9. Hulbert Digest Gold Sentiment index is at an all time low (gold newsletters at -35 sentiment readings!!)
10. Gold -Silver put to call ratios are at all time highs
I could go on and on with headlines and such, but you get the idea. This is the same type of sentiment I wrote about on the stock market on Feb 25th 2009, here is that article... and nobody on the planet was bullish.
Below is a chart showing the Bullish % index for Gold Miners, as you can see the last time we were at 0% was late 2008 when Gold had bottomed out and insiders were also buying like crazy like now:
The GLD ETF chart also shows a likely re-test or slightly lower of the 1322 futures lows of April, when Insider buying hit 10 year record levels:
Obviously Gold could end up going a lot lower than we think, and the Gold Mining stocks could sink further yet. But for those with a 3-6 month horizon, we expect the 21-24 month Gold correction to complete by no later than October 2013. During the next several months the opportunities to buy some miners on the cheap will potentially make some investors a lot of money in the coming few years.
Like the United States, the European Union relies heavily on Russia and the Commonwealth of Independent States (CIS) for its uranium, as shown in the chart below:
Russia is projected to produce 64 million pounds per year by 2020. The majority – 40 million pounds – will come from Russia itself, and the remainder from its foreign projects in Kazakhstan, Ukraine, Uzbekistan, and Mongolia.
But there’s an often forgotten subsector of uranium production: the processes necessary to convert U3O8 into something that power plants can use.
For that purpose, yellowcake is first converted into uranium hexafluoride (UF6) at a conversion facility, then enriched, or concentrated, at an enrichment plant. Russia’s main conversion facility is at Angarsk, with a capacity of 42 million pounds of uranium per year. A small facility near Moscow, rated at 1.54 million pounds per year, primarily converts recycled uranium.
Russia can claim about one-third of the uranium-conversion capacity worldwide. Rosatom, the regulatory body of the Russian nuclear program, is also looking to set up an additional conversion plant by 2015, with the planned capacity currently unknown.
The United States normally owns 20% of the world’s conversion capacity; however, its plant, Metropolis, is currently shut down for maintenance and upgrades. Though the plant is scheduled to reopen in June 2013, the current shutdown just adds to the growing scarcity of UF6.
You may have noticed that the United States isn’t listed in the chart above. As of January 2013, the US has no conversion capacity and isn’t expected to be back online till mid– to late 2013.
Almost half of the world’s capacity to enrich uranium will lie in Russia once the country completes the planned expansion of its current enrichment facilities. Accordingly, the life source of reactors and power generation is not obtaining the uranium but having access to facilities that turn them into nuclear fuel.
Russian President Vladimir Putin is attempting to corner the uranium sector and the UF6 and enrichment markets alike. Russia’s squeeze will be felt around the world – not only in regard to uranium supply but to enrichment as well.
It’s difficult to say how Putin’s squeeze on uranium will play out, but it’s pretty certain to contribute to what is shaping up to be a spectacular bull run in this energy subsector. Investors who choose the right companies and get in early could see life-changing gains. To help with that process, the Casey Research Energy Team has put together an informative webinar with several nuclear-power and speculative investing experts. The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? is free, and will premier on May 21 at 2 p.m. EDT. Get more information and sign up today.
While Gold has seen a decent rebound, Silver and the mining shares (the more speculative side of the complex) have failed to sustain any rebound despite tremendously supportive sentiment amid an extreme oversold condition. Is the failure to rebound bearish? Not really. This is a sector that is completely sold out but there are yet to be enough buyers to generate a sustained rebound. The combination of strength in conventional asset classes (stocks and bonds) and poor performance over the past two years is causing this sector to read like the heart rate monitor of a heart patient. The sellers are gone and the buyers are scant. We believe the bottom is in and a rebound should begin very soon. However, we are more concerned with what will be the driving force for a sustainable rebound which will evolve into a new cyclical bull market.
Clearly, precious metals won’t sustain a rebound until the S&P 500 completes its cyclical bull market. This is something we’ve pointed out since late last year. That being said, never did we expect the equity market to climb this high. Since summer 2011, the gold stocks are down more than 50% while the S&P is up 45%. Meanwhile, the Goldman Sachs Precious Metals Index is down 25%. When stocks and bonds rise, there is no reason for the majority to consider alternatives such as precious metals.
What we are seeing now is no different then what happened for a period during the 1970s bull market. The chart below shows the S&P 500 and the Barron’s Gold Mining Index (scaled 2x). From 1972 through 1977 the two markets traded inversely. Gold stocks surged during the 1973-1974 recession while the stock market declined. Once the economy and market recovered, gold stocks suffered. Gold stocks bottomed and rebounded in 1976-1977 as the stock market went sideways. As precious metals began their acceleration in early 1978, the stock market followed albeit slowly.
Moving along, the larger question at hand is will the final move in this bull market be driven by a catalyst of inflation or deflation? In the 1930s, the catalyst was deflation. In the 1970s, the catalyst for each cyclical bull was inflation. Within the current secular bull market, there have been three cyclical bulls which started in late 2000, the middle of 2005 and late 2008. The middle bull was driven by inflation while the two others, deflation. Note the chart below which plots commodities (CCI) and precious metals (GPX).
Precious metals bottomed first in 2001 while the CCI was still trending down. In early 2005, the CCI made a new high while precious metals continued to consolidate. The CCI continued higher and precious metals would eventually join in. In late 2008, precious metals bottomed first by a hair and then made new all-time highs well ahead of the CCI. Today we see that the CCI has not made a new low while GPX has. Does that mean the CCI (commodities) will lead precious metals during the next bull cycle?
That is what happened in the 1976-1981 cyclical bull which ended the previous secular bull market. In the chart below we note that commodities bottomed at the very start of 1975 while Gold didn’t bottom until the second half of 1976. Interestingly, Gold then dramatically outperformed commodities and peaked first.
To simplify, rising inflation could be the catalyst for the next cyclical bull market and eventual secular top. While precious metals could be signaling deflation, commodities and equities are not. (The CCI hasn’t made a new low!) Money has poured into US equities and junk bonds as a way to earn a return in a low growth and low inflation environment. Government bonds have performed well but not as well as US equities and junk bonds. During deflation there is a search for safety. At present, there is a mad scramble for yield.
While the US economy will likely remain stagnant, the sudden torrent of interest rate cuts in the rest of the world could stimulate global inflation in 2014 and beyond. Recently, Australia, India, Vietnam, Brazil, Russia, South Korea, Poland and Sri Lanka have cut rates. Thailand and China could be next. The ECB cut rates and hinted that QE could follow. Japan of course takes the cake. Global monetary policy is becoming increasingly inflationary and that will ultimately be best for emerging markets and commodities. It will be bad for the S&P 500 which has attracted money as an alternative to cash and government bonds. Rising inflation would force capital out of equities, junk bonds and government bonds (all of which are at all-time highs) and ultimately into precious metals and commodities.
What most Americans don’t realize is that dependence on foreign oil isn’t the main obstacle to US energy autonomy. If you think America’s energy supply issues begin and end with the Middle East, think again. One of the most critical sources of foreign energy is due to dry up this year, and the results could mean spiking electricity prices across the country.
In 2011, the US used 4,128 billion kilowatt hours (kWh) of electricity. Nuclear power provided 790.2 billion kWh, or 19% of the total electrical output in the US. Few people know that one in five US households is powered by nuclear energy, and that the price of that nuclear power has been artificially stabilized. Unfortunately for us, the vast majority of the fuel used for powering our homes must be imported.
In the chart below, you see where most of our uranium comes from:
The overwhelming majority of that Russian uranium comes from a 20-year-old agreement called “Megatons to Megawatts” that allows weapons-grade, highly enriched uranium (HEU) to be converted to reactor-grade, low-enriched uranium (LEU).
By December 2012, “Megatons to Megawatts” had produced 13,603 metric tons of LEU for US consumption and provided the fuel for nearly half of the US electricity generated from nuclear power.
In December 2013, that agreement expires, and Russia will be free to put its uranium out on the open market and demand higher prices. With 17 nuclear reactors in China and 20 in India – not to mention Japan, France, Germany, and others all vying for nuclear fuel – competitive bids are poised to drive prices higher, and early investors stand to make spectacular gains.
If this information is news to you, you are not alone. While the mainstream media focus on the US’s “Middle Eastern energy dependence,” the real story remains unnoticed. That’s why Casey Research invited the field’s top experts – including former US Secretary of Energy Spencer Abraham and Chairman Emeritus of the UK Atomic Energy Authority Lady Barbara Judge – for a frank discussion of what we think is America’s greatest energy challenge.
Join us on Tuesday, May 21 at 2 p.m. EDT for the premiere of The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? to learn how the end of “Megatons to “Megawatts” will affect the US energy sector and how you can position yourself for outsized profits. Attendance is free – click here to register.