2011: A Year In Retrospect of A Gold, Silver and Mining Stock Investor
This has been a momentous and volatile year with multiple black swans. Here are the most popular articles over the past 12 months.
“Even though the markets are hitting new highs, don’t be blinded by the current euphoria on equity markets. Bullish sentiment is reaching new highs, surpassing the pre-credit crisis top. Herds are selling their precious metal investments to enter US equities on the hope of a recovery.”
Even though January of 2011 brought a lot of profit taking to mining stocks and precious metals, the leadership of Newmont (NEM) has used this pullback to purchase one of my long term favorite recommendations Fronteer Gold (FRG) for a 37% premium. I believed Fronteer was a great candidate for a takeout and mentioned it on thestreet.com over a month ago. My premium readers have gained 120% since my 8-4-10 buy signal.
“It is crucial to monitor this market and minimize risk as the S&P has reached my measured move after the end of August 2010 reversal. One can predict a move or where the next critical juncture will occur by using this technique, and I often use it to force myself to take profits as it reaches a target. I wrote several weeks ago when equities were reaching record overbought territory to be cautious and not to be blinded by market euphoria.”
Investors have been scrambling to own silver and gold. What a difference a few weeks make. In July of 2010 and January of 2011, we saw two major buying opportunities for precious metals investors to position themselves at discount prices. Now gold and silver prices are selling at a premium. Silver is reaching extremely risky levels, yet miners are still poised to breakout. Remember that I am recommending partial profits if your winnings enable you to play with the house’s money and you are still holding silver from our August Buy Signal.
The euro continued to press higher on the hopes of a recovery from July of 2010 until May of 2011. The decline in the euro is due to expectations of further bailouts in Europe and the European Central Bank taking a very dovish position by not raising interest rates. Greece is on the brink of default and Portugal may receive additional assistance. We are witnessing pressure put on the euro and capital flowing into the US dollar which has forced some UD dollar (UDN) bears to cover their aggressive short positions. This short covering rally in the US dollar has caused a commodity (DBC) de-leveraging forcing hedge funds to raise cash reducing their exposure to commodity-related equities.
The S&P is showing negative divergences between price and momentum an indication of further price decline. The absence of relief rallies over five weeks in equities and the outperformance of gold indicates investors are interested to hold hard assets going into the conclusion of QE2.
This dollar bounce and mining stock selloff is providing one of the best opportunities for long term mining investors to enter the market during this short term liquidity crisis.
There is currently a short term consolidation and pause in the US dollar decline. This is a phenomenon resulting from the extreme weakness of the Euro and the need for liquidity rising from the potential exit from QE2.
Looking forward to the rest of the summer and the 2012 election it may become evident that a QE3 – in whatever semantic guise – may have to be instituted to buoy the economy, improve employment, and postpone a financial crisis. Already President Obama has told the nation that he will propose a massive infrastructure stimulus after today’s horrendous jobs data.
It is precisely gold’s linear bull trend as opposed to a geometric blowoff which indicates the longevity of this millennial move in gold. As the metal surpasses resistance we anticipate and welcome the customary healthy pullbacks on this rising arc. The risk off trade will transfer capital from the extended gold price to the undervalued mining equities.
We are adamant in the signal that the marketplace is sending us. There has been a disproportionate ratio of down stocks to up stocks. Usually a ratio of 10 to 1 indicates an immediate turnaround. At this point the disproportion may be setting a record. Unless this action is forecasting dire catastrophic events, there are no places to hide.
At this point the marketplace will accept even palliative measures as long as the downward descent is halted. We expect Bernanke and Trichet to come up with more powerful measures. It may not walk like QE3, or talk like QE3 but in the very least it will act like QE3 by whatever means necessary unlike the twist.
We may now be testing a bottom that may furnish us additional entry points. The current crisis may be just the excuse that the Federal Reserve has been waiting for to inject additional stimulus. Do not be dismayed by violent corrections as investors are forced to sell natural resource stocks in order to meet margin requirements. These liquidity traps may result in declines of 50-90% which are characteristic in the life cycle of junior mining companies.
Investors may well be running from the Euro(FXE) into the U.S. dollar (UUP) and long term treasuries(TLT). It is curious that the Euro is not being buoyed by the Swiss intervention. This may be signaling trouble in Eurozone survival. The U.S. dollar is undergoing a rise which we believe is a cosmetic response to the weakness in the Euro. All short term currency manipulations produce technical gaps which inevitably is filled. At the same time, the gold miners (GDX) are approaching interim upside targets as the upward breakout in the miners accelerates as it reaches new all time record highs.
Our mission statement is to encourage investments in wealth in the earth situations that are significantly undervalued. Short selling is a perilous pursuit. Bonds(TLT) and the U.S. dollar (UUP) are dangerous investments in light of record debt levels. Difficult as it may seem we continue to be riders on the storm.
At this time our sectors are down, margin calls abound and tax loss selling continue to skew most stocks and precious metals to the downside. Do not be dismayed, one does not go short now. Our wealth in the earth stocks are inexpensive, undervalued and oversold and once again reason will prevail and sanity will return to the marketplace as it always has.