fundamental factors that have made gold such a stellar investment for the
last decade are still intact. Fiat money is still being produced on easy
street around the world, which in turn fuels worries about the dwindling
purchase power of the currencies; central banks are still accumulating gold;
real interest rates are still negative so investors don’t give up any
interest rate by investing in gold.
there are several things that have been affecting gold negatively over the
past few months, much to our dismay. One of them is the dollar’s
strength against the euro and gold's recent tendency to move inversely to the
dollar and in line with more risk-linked assets. This has undermined some of
its safe-haven appeal.
observe that for example in the HUI Index. Gold stocks are not only
declining, but they once again do so faster than gold.
take a look at the HUI Index chart (charts courtesy by http://stockcharts.com; if you are reading this essay on sunshineprofits.com, you may click the above chart to
enlarge.) The miners have moved lower, declining for six consecutive days
now. On Thursday, they closed below the 400 level. This is an important and
intra-day reversal seen on Thursday does not change the medium-term bearish
picture which is in place here. A pullback has been seen recently following
the significant March - May decline and it seems that a continuation of the
decline may now be seen.
This is in
tune with what was seen in 2008 but declines and rallies are less volatile
this time as they are taking more time to play out. Nonetheless, the bearish
implications remain, and mining stocks’ investors should seriously
consider limiting exposure if this has not yet been done.
Let us now
move on to miners to gold ratio chart to see if miners are really
In the chart
(if you are reading this essay on sunshineprofits.com, you may click the above chart to
enlarge), we see that the ratio declined heavily this week. This means that
gold stocks declined much more than gold.
also had a pullback in 2008 – consequently, what we have seen since May
is not overly surprising. The trend remains down and right now we appear to
be in another wave lower within a bigger downtrend.
To finish off
today’s essay let us have a glance at our in-house developed technical
indicator that was designed to detect extreme situations on the precious
the SP Gold Stock Extreme #2 Indicator, we see that it has suggested at least
a temporary rally in the mining stocks – the indicator moved below the
dashed line based on Wednesday’s closing prices. The intra-day decline
on Thursday followed by higher prices later in the session may have been what
was suggested by this indicator a few days ago – the second part of the
short-term rally will be seen or maybe not – at this time, it is
unclear in our view as we have already seen a rally – in the final
hours of Thursday’s session.
Summing up, the outlook for the mining stocks is
bearish for the medium term. The short term is a bit unclear based on the
intra-day developments seen on Thursday. While situation in the mining stocks
is important, the situation in Europe and in the main currency indices is
truly critical as far as impact on precious metals sector is concerned. This
is one of the things that we discuss in today’s Premium Update.
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Thank you for
reading. Have a great and profitable week!