Useful Chart of Monthly Price Movements in Gold

I'm not sure historical monthly movements in the price of gold matter anymore. There was a real disconnect in the fourth quarter of last year. Still, I want this chart for reference to compare this month's price action.

First, the trend in gold in US dollars ...

Then the action in gold priced in dollars and other currencies ...

We'll see how this month shapes up.

Gold Is Breaking Out -- Will Gold Miners Follow?

Gold is breaking out today. It's a safe-haven bid -- Treasuries are down in yield and up in price. The yellow metal brushed a session high of $1371.30. We'll need a few more days of closing above $1,360 to confirm it. It would also help if gold miners broke out. As of now, they're lagging. Take a look at the Market Vectors Junior Gold Miners (GDXJ) and you'll see what I mean ...

(Updated chart)

Looking at the chart, you can see that the Market Vectors Junior Gold Miners ETF (GDXJ consolidated since last month. Now, it has popped above that short-term downtrend. I’ve put a momentum indicator on the bottom of the chart called “MACD” – it shows that the short-term trend remains bearish.

The GDXJ could continue to break out. On the other hand, it could also head down to test support.  There are a number of support levels, but the one just above $38 is most obvious.

While GDXJ has lagged gold, I don't think it would move independently of gold.  Therefore, higher gold prices will likely push the GDXJ higher.  If gold goes lower, then maybe we'll see the GDXJ test that support.

A deeper pullback wouldn't be a bad development – it just means we'd get better prices on potential picks. 

And while the broad index is underperforming, there are individual stocks that are performing quite well. I recommended one of them this morning in Gold & Resource Trader.

Good luck and good trades, whatever you buy.

How Much Longer Will the Bull Market Run?

There's a lot of market analysis out there today; I want to group some of it one place.

First, Barron's says the "Bull Market Looks Good, But Beware Ides of March". And it includes two charts ...

Barrons used this chart to illustrate that "March has been the home to some important turning points during the past decade and a half."

And then Barrons used this next chart to show that "Last week's upside breakout is still in effect" and technically speaking, the market looks strong.

Read the whole Barrons article.

the Reformed Broker says that talk of the past five years being "easy money" is retarded. Some excerpts ...

What they’re saying now is that “It’s been easy money” over the last five years, and that “anyone could’ve made profits.” Forgive me, but this is complete and total bullshit.

 It’s been one of the hardest environments in market history. Never before have investors’ wounds been so raw. Never before have there been so many voices polluting the popular consciousness with half-baked conspiracy theories and calls for collapse.

In the last five years, investors have dealt with a non-functioning congress, a downgrade of the US Treasury, mass unemployment, exploding deficits, record debt, a possible dissolution of Europe and a slow-motion crash in China and the emerging markets – and that’s before we even get into any specifics. 

And not only have the threats been unprecedented, the amplification of them – thanks to the desperation of the mainstream media for attention coupled with the advent of a whole new chattering class on social media – has been like an orchestra of clanging pots and pans. If you’ve caught some or all of what the market has given us these last five years, you are a hero. 

Read the whole thing

Third, Bespoke Investment Group points out that The bull market is entering its sixth year, and is less than two weeks from taking out the 1982-1987 stretch to become the fifth longest of all time

Bespoke points out in another article that, while investors have turned more bullish, they are far from overly optimistic.

Finally, Bloomberg makes the case that the market is NOT overvalued ...

While the S&P 500’s multiple of 17 times reported earnings is close to the average since 1937, it’s about 40 percent below where it was in 2000, data compiled by Bloomberg and S&P show.

The lower valuation reflects faster earnings expansion. Profits for S&P 500 companies have climbed an average 21 percent a quarter since 2009, almost double the growth rate during the dot-com boom, according to data compiled by S&P.

Go read the whole Bloomberg article.

Certainly it's a mixed picture. For now, we're all keeping our eyes on China .

Good luck and good trades.

Minaurum Gold at PDAC 2014

Here's another video interview from the Prospectors & Developers Association of Canada -- Minaurum Gold (MGG on the TSX-V).  There are many Canada-based gold explorers, but it's a much smaller list that has a combination of A) money B) management with previous success and C) properties worth making deals over.  Minaurum has all three, as Sunny Pannu tells us ...



And here is a 3-year chart of the stock ...

(Updated chart)

Obviously, Minaurum remains in a big downtrend. However, it is testing that downtrend -- as many gold explorers are trying to break downtrends after three hard years. Can Minaurum break out to the upside? Stay tuned and see.

Minaurum is too small and too early stage for me to recommend to my Oxford Club subscribers. This is just a profile; not a recommendation; do your own due diligence before you buy anything.

We're In a Stock Pickers Market Now

Here's something interesting: stocks are no longer moving in tandem with the broad market. 

From the Wall Street Journal: "The 65-day average correlation of stocks fell to 0.52 in January. While the correlation briefly fell lower in 2011—to an average 0.51 in February—the measure rose to 0.84 later that year. A correlation of 1 would mean that all stocks traded exactly in lock step. From 2009 through the end of 2013, the correlation was an average 0.63."

My view: It's a sign of a maturing market; stock-pickers should do well. Index-buyers, not so much.

In fact, the current bull market is the strongest expansion since 1960

Gold Gives More Mixed Signals Than a Drive-Through Traffic School

Are these bullish or bearish times for gold? It depends on who you read.  

First one hard fact: SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, said its holdings rose 1.5 metric tonnes to 805.20 tonnes on Friday. It wasn't too long ago that that the GLD was well below 800 tonnes. The fact is, gold-backed ETFs are buying gold; a year ago, they were selling. That is a huge shift in the market.  

Beyond that fact, things get a bit murky.

For example, Reuters reports that gold dropped this morning due to a one-two-combo of strong U.S. jobs data (which eased worries of an economic slowdown) and the fact that China's export data unexpectedly tumbled, which increases worries of an economic slowdown in China. 

That doesn't make much sense, does it? In an interconnected world, China and the U.S. should more or less go in the same direction.

On the other hand, Bloomberg reports that hedge fund managers are the most bullish on gold and other commodities (particularly agricultural commodities, from my observation) since December of 2012. The 11% rally in gold since the start of the year certainly helps. The same story reports that Goldman Sachs sees gold slumping to $1,000 this year.  I guess by now, we all can guess that Goldman is in the market to buy cheap gold, right?

However, the China Gold Association says gold demand in China is poised to drop to 250 metric tonnes this quarter, down 17% from a year earlier. Higher prices are blamed. In the same reports, however, CGA expects total annual demand will rise to about 1,176 metric tonnes. Production in 2014 will match last year’s output of 428.16 tonnes.  

Another wild card -- also from China -- is that Chaori Solar Energy Science & Technology Co., a manufacturer of solar panels, has defaulted on a bond.  This is the first time the Chinese government hasn't stepped in to backstop company bonds.  This default ratchets up the fear trade, in my view.

And the ongoing crisis is Ukraine is sending shockwaves through gold, energy, grains and more. "When uncertainty and even downright panic grips other parts of global financial markets, the tried and true reflex is to buy gold. "

Obviously, gold is giving off more mixed signals than a drive-through traffic school.

Other Commodities & Markets

So there's no inflation, eh? Here's a jaw-dropping chart ...

 Check out the countries with +25% food inflation since 2007.  Russia and Brazil have seen food prices rise more than 50%.  India has seen food prices rise more than 75%. This is how we get to The Boiling Point, my friends.

The EIA reports that Natural Gas output from Marcellus—spread over Pennsylvanian and West Virginia—crossed the 13 Bcf/d mark in late 2013, compared with just over 2 Bcf/d four years ago.

And yet, stockpiles of natural gas and coal are expected to decline to six-year lows by the end of this month, government data show. You can blame that on frigid weather.

The World Bank raised its 2014 growth forecasts for advanced nations in January to 2.2% from 2%, while cutting its estimates for developing nations to 5.3% from 5.6%.

At the same time, China last week retained a target for 7.5% growth in 2014 for the $9 trillion economy. Gross domestic product expanded 7.7% in 2013, the same pace as in 2012. But China's CSI 300 Index plunged to its lowest level in five years, which is hardly a vote of confidence.

Another no-confidence vote comes from copper. Remember my story from February 6, "Doctor Copper Delivers a Warning to the World"? Well, today the price of the metal fell to its lowest level in four years.  Copper is called Doctor Copper because it tells you the health of the global economy. China accounts for 40% of global copper demand.

A Funny Thing Happened on the Way to the Gold Rally

Here is the original version of my story which ran in FreeMarketCafe.com's Daily Grind today.

I’m writing from the Pessimists and Downers Association of Canada – excuse me, the Prospectors and Developers Association of Canada (PDAC), the world’s biggest mining conference. Never before have I been in a group of people sitting on literal gold mines and yet so down in the mouth at the same time.

In a way, we can’t blame them. The action in gold mining stocks played out as absolute carnage for nearly three years. And it seemed every time the miners stuck their heads out of their holes to sniff the air, they’d get whacked on the heads with a stick. Being the mole in a game of Whack-a-Mole will make anybody bitter and jumpy.

Finally, gold and gold miners have started to rally. Gold is up 12% so far this year… and the Market Vectors Gold Miners ETF of gold stocks is up twice as much! But you wouldn’t know the good news from the mood at PDAC.

As I walk through the PDAC this year, held in Toronto, which is deep in winter’s icy grip, I find it fitting that the standard uniform for Canadian business is a black suit with a black overcoat. Many (not all) of these guys are acting like they’re in mourning for something… maybe for the better days of Canadian mining.

And it’s not just a mood, it’s statistical.   Jeffrey Christian of CPM Group pointed out that a third of the gold project development that was scheduled in the early part of 2013 has now been deferred.

Source: CPM Group/Jeffrey Christian

 And if you’re wondering about silver projects, we’re seeing the same thing in that space. Low prices for too long means one project after another has been shelved.

That’s pessimism.

Well I have news for the mourners in black overcoats: better days lie ahead. And I believe they’re coming sooner than you think.

I mean the thing about miners, engineers and geologists is that they hate to sit idle. So as the prices of gold and silver came down, mining companies cut costs to the bone. They redesigned their projects and turned over every rock to find a dollar. Sure, some companies went belly-up. But that just meant that other companies got to pick up great projects for a song.

So we have low-cost miners and developers that picked up projects on the cheap, run by guys who know how to squeeze a dollar until it screams. The best ones not only are going to make money, they’re going to make a LOT of money. All they need is for the price of gold to go up… some.

It looks like they’re starting to get their wish. Gold has rallied sharply since mid-December. And look at the effect that rally has had on junior miners, as tracked by the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ)…

You can see that junior miners finally broke out of their kamikaze dive. And they’re rallying on bigger-than-usual volume. That sure looks like a turn in sentiment to me.

Someone who definitely understands the positive reality underlying all the doom and gloom is Rick Rule, chairman of Sprott U.S. Holdings.

“Bear markets are like sales,” Mr. Rule told a packed room at PDAC. And since junior miners as a group were down 75% from their peaks, it was like “the market is 75% less risky.”

“You’ve been here through the pain,” Mr. Rule added. “Why not stick around for the gain?”

Now, I should say that both Rick Rule and Jeffrey Christian believe we’ll see lower gold prices before we see higher gold prices. Maybe they’re right.

On the other hand, I’m finding a nice collection of miners who make money at current gold prices… and will make a heck of a lot more money at higher gold prices. 

After all, you've got miners producing rocks like this ...

That’s me with an ore sample from a little-known miner.  See all that yellow in the rock? That’s gold.  This is a company mining big, thick visible gold.  And that’s just one target – they have other targets close by.  Don’t tell me they can’t make money – they ARE making money. And yet, because this company is in an industry that is hated (for the time being), this stock is trading for pennies. For the time being.

Maybe prices will go a bit lower. But I don’t think investors should worry too much about catching the exact bottom. There’s just too much potential upside to risk missing the move.

After all, the Chinese are buying gold hand over fist. The world’s central banks keep accumulating gold, even as they pooh-pooh it for the general public. India is likely to lift its restrictions on gold imports sooner rather than later, unleashing a flood of pent-up demand. And ETFs are buying gold again and it was ETF selling last year that hammered gold prices into the pit.

So to my gloomy friends in Canada, I’ll put it in terms you can understand. In the words of the great Canadian rock band Barenaked Ladies:

“Odds are we’re gonna be alright.

Sure things go wrong, but I’ll take my chances

Odds are long, so why not play?”

I’m coming back from Canada with new recommendations for my subscribers. If the market is 75% de-risked, as Rick Rule says, and I agree with him on that, then I’d say the odds are these stocks are going to do all right.

In fact, I’d say the bigger risk is doing nothing. Sitting on your hands could cost you a lot of money.

Sure, things go wrong. But I’ll take my chances.

Whatever you do, good luck and good trades,

Sean Brodrick