Fish are jumping and the cotton is high. Yes,
it’s summertime and the living is (quantitatively) easy. At least
that’s how it looks from the Federal Open Market Committee minutes for
the July/August meeting that revealed support among some of the members for a
new round of quantitative easing. With the release of the minutes Wednesday,
gold went up and the U.S. dollar took a dive. The Fed members see three
pitfalls for the economy-- the sovereign debt crisis in Europe, a global
economic slowdown led by China and other BRICs, and the fiscal cliff, which
could result in substantial fiscal contraction. (Fed Chairman Ben Bernanke
has repeatedly asked Congress to solve the problem, but with a Presidential
election coming in November it is difficult to see how Republicans and
Democrats will reach an agreement.)
Gold investors combed through the text of the
FOMC’s latest minutes to find a nugget that will make the value of their
nuggets go up. What they found was a single sentence towards the end of the
meetings that went like this:
Many members judged that additional monetary
accommodation would likely be warranted fairly soon unless incoming
information pointed to a substantial and sustainable strengthening in the
pace of the economic recovery.
This sets the stage for further monetary easing
possibly at the Fed’s Jackson Hole, Wyoming meeting slated for the end
of this month.
with the analysis of the
mining stocks (charts courtesy by http://stockcharts.com.).
In the Toronto Stock Exchange
Venture Index (which is a proxy for the junior miners as so many of them are
included in it), we see a rally but it is quite small especially when
compared to the recent several-week-long rally in the general stock market.
It is likely just a correction after a breakdown below the recent huge
head-and-shoulders pattern, so the implications are bearish for all precious
metals mining stocks, not only for juniors.
Let’s now move on to a very interesting chart
that gauges the performance of mining stocks relative to gold. It can shed
light on which group of assets (miners or the underlying metals) will perform
better in the next couple of weeks.
In the miners to gold ratio chart, the medium-term
trend is down and the recent rally here does not change the overall outlook.
A short-term overbought status has actually been created, a situation not
seen since previous local tops and the final top of 2011 which followed a big
rally. The implications are bearish, the trend is likely to reverse, and the
miners are likely to underperform the underlying metals in the coming weeks.
Summing up, the situation is less favorable
for the precious metals mining stocks than it is for the underlying metals.
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Thank you for reading. Have a great and profitable week!