A new
ETF is being introduced to the investing community by van Eck Global, the
same corporation that is behind a number of ETFs, including GDX, the Gold
Miners ETF. This ETF (symbol GDXJ) will represent 38 junior mining and
exploration companies that have mining potential. The complete listing
is available at the bottom of this article.
The
launch is expected to take place sometime before the end of this year, and
this event will help to make the junior exploration sector even more popular
than it is today. It is our contention that this sector will surpass
the excitement that was created by the upstart dot-com companies of the late
1990s, since this time the companies involved represent real value.
First
a few charts to show that the timing of this launch is excellent, as it fits
right in with a major seasonal rise in gold bullion, silver bullion and
mining stocks.
Featured
is the weekly gold chart. The question ‘is gold overpriced’ is
answered here with an emphatic “NO”. At $1,070 gold is just
38% above its 200 week moving average, compared to 80% in March 2008 and 57%
in July 2008.
The
RSI is still below the level reached in March 2008 (blue oval), and the MACD
is a long way below the level reached in March 2008 (black oval).
Historically
gold produces a short-term bottom towards the end of October, and when this
occurs as part of the 7 – 8 week gold cycle, it will likely be the last
buying opportunity for a number of months. Due to some incredibly
bullish factors, this October bottom is expected to be shallow.
The
most important drivers for gold are the unprecedented US
budget deficits and the inexperience of the people in charge to deal with the
problem. To paraphrase Sir Winston Churchill: “Never
in the history of mankind have so few thrown this much money at so many
problems.”
*****
Hardly
a day goes by that I don’t receive a letter from someone who is spooked
by the negative picture painted for gold by some analyst who subscribes to
Elliott Wave Analysis.
Pay no
attention to the Elliott Wave crowd that warns you of collapsing gold prices!
Their
most popular guru is Robert Prechter who has been down on gold for the past 6
or 7 years, and has been wrong all this time!
Here
is the problem with applying Elliott Wave analysis to the gold price:
You
begin by drawing 5 connected lines that follow a predictable course.
Lines number 1, 3 and 5 are slanted upwards, and #2 and #4 are of the
downward slanting type. Next you fit these lines onto a stock or
commodity, in this case the gold price. You make the pattern fit your
expectations, and if you’re stubborn enough and are currently out of
the market, you make the pattern look like we’re at the end of #1 or #3
or #5 and due for the start of #2 or #4.
Meanwhile
you totally disregard the fundamentals which are always different!
If the
fundamentals were always the same, then Elliott Wave analysis would work like
a charm. As it is, these people are like those who drive a car down the
freeway while looking only in the rear view mirror without taking into
consideration that there are other cars on the road. The premise used
by Elliott Wave mal-practitioners is FLAWED.
Elliott Wave analysis works best when viewed in retrospect!
No
phenomenon based on human action is a straight line up, down, or horizontal.
Substituting numerology for the harder work of thoughtful analysis
is fool's play!
Featured
is the weekly chart that compares the price of gold to the long bond
price. In an article I wrote in September (archived here), I wrote
about the likelihood of an upside breakout occurring from the 8.50
level. The implications of this breakout are that bond holders will
begin to realize the futility of holding bonds (as inflation is eating up all
of the increase in price), and the need to switch into gold.
This
breakout at 8.50 is from beneath an area of resistance that has lasted for
almost two years and completes the formation of an ‘inverted head and
shoulders’ pattern that has a target at 1150. As I mentioned in
my previous article, this target coincides with a target for gold at
$1,500.00, with a time frame of November-December 2010.
The
reason this target makes sense is because fundamentals for a rising gold
price have never been stronger. I listed those fundamentals in
previous articles.
Those
of you who are spooked by the ‘gold bears’ need to review the
track record of those writers. That is what archives are for.
Keep a written record yourself, of predictions that are made. This way
you can stop reading those ‘stopped clocks’, and end up with 3 or
4 writers who have experience and who understand the markets.
Featured
is the monthly chart that compares the HUI index to the gold price. The
most bullish part of a ‘gold rush’ is when the HUI index of gold
and silver stocks is rising faster than gold itself (as now). The blue
arrows are the expected targets for the current trend. “A trend
in motion remains in motion until it is stopped.” A student of
Elliott Wave analysis could easily draw his favorite pattern on this chart
formation and declare that the current leg is #3 or even #5 in a sequence,
but the overriding reason why this trend is bullish is not a set of lines,
but bullish fundamentals.
Featured
is the chart of a gold recycler. The downtrend in the stock price
indicates that the supply of scrap gold is dwindling. This is bullish for the
rising gold price.
My
sources in the jewelry business confirm that scrap gold is slowing down
drastically. Of concern is the fact that 10K gold scrap is almost
finished, and much of the gold coming across the counter now is 18K or
higher. This indicates that people with low incomes have exhausted
their meager ‘treasure chest’, and middle class people are now
beginning to hurt to the point of having to cash in their jewelry.
While Wall Street led by Goldman-Sachs is knee-deep in bonuses, Main
Street is suffering ‘big-time.’
The implication for gold is that the recession is deepening, and government
will do what it has always done in the past, print money to try to solve the
problem. This will be ‘gold-bullish.’
Featured
is the CPI trend chart courtesy Federal Reserve Bank of St.
Louis. Despite the rhetoric that price inflation
is non-existent; this chart shows a steady rise that was interrupted only by
the credit crisis plunge during late 2008. Across the board price
inflation is always caused by monetary inflation. The two go ‘hand-in-hand’,
albeit with a delay, as it takes money time to work through the system.
Price
inflation is a major driver for a rising gold price.
Price inflation is causing ‘real interest’ rates to turn
negative. When you put money into a savings account you MUST DEDUCT the
rate of inflation from your rate of interest. According to economist
John Williams who keeps track of price inflation on his website
Shadowstats.com, the rate of price inflation at the moment is +2%. By
the time a saver pays taxes on the interest he or she received from the bank,
the ‘net return’ is break-even at best or a negative return at
worst.
This
causes investors to look for something better. Gold fills that need.
The
battle between gold bulls and gold bears is in high gear. The main argument
offered by the bears is the very large number of ‘net short’
positions on the COMEX. It must be remembered that these short
positions are matched by long positions.
Actually
the matching long positions are potentially more dangerous to the gold price
than the short positions, since the short positions will have to be covered
at some point, while the long positions can be rolled forward as they become
more profitable.
As
long as the holders of the long positions (primarily hedge funds), are
satisfied that gold is not overpriced (having just broken out above the magic
$1,000 level), the gold price can continue to rise.
Quoting
from the most recent Hulbert letter: “The Hulbert Gold
Newsletter Sentiment Indicator (HGNSI) has been stuck at 53.8% since Oct. 7.
It has been as high as 89.58%. This lack of movement from the lower level is
not consistent with a blow-off”.
At
my website www.pdegraaf.com two
of the most popular free features are: “My expectations for the
future”, as well as the “Stock pick of the Week”. A
new pick is listed every Friday, and a running record of previous picks is
archived.
Here
is that list of junior explorers I promised you at the top of this
article. May I suggest you print this section out, or ‘cut and
paste’ it onto a blank document so you can file it for future
reference. For your convenience I have added the percentage that each
stock makes up as a part of the total index. As well I have added the
company website to all of the stocks.
Company
- Ticker symbol(s) – Percentage
of ETF – Website.
Alamos Gold Inc.
AGI.TO; 5.11%; www.alamosgold.com
Allied Nevada
Gold Corp. ANV.A; 2.22%; www.alliednevada.com
Andean Resources Ltd. AND.TO; AND.ASX; 2.99%; www.andean.com.au
Aurizon Mines
Ltd. AZK; ARZ.TO; 3.52%; www.aurizon.com
Avoca Resources Ltd. AVO.AX; 2.06%; www.avocaresources.com.au
Avocet Mining
PLC. AVM.L; 0.88%; www.avocet.co.uk
Coeur d’Alene Mines Corp. CDE; CDM.TO; 6.2%; www.coeur.com
Colossus Minerals
Inc. CSI.TO; 0.89%; www.colossusminerals.com
Detour Gold Corp.
DGC.TO; 1.38%; www.detourgold.com
Dominion Mining Ltd DOM.AX; 1.33%; www.dml.com.au
European
Goldfields Ltd. EGU.TO; 2.13%; www.egoldfields.com
Fronteer
Development Group Inc. FRG; FRG.TO; 2.37%; www.fronteergroup.com
Gabriel Resources
Ltd. GBU.TO; 1.55; www.gabrielresources.com
Gammon Gold Inc.
GRS; GAM.TO; 4.32%; www.gammongold.com
Gold Wheaton Gold
Corp. GLW.V; 1.07%; www.goldwheaton.com
Golden Star
Resources Ltd. GSS; GSC.TO; 3.31%; www.gsr.com
Great Basin Gold
Ltd. GBG; GBG.TO; 2.54%; www.greatbasingold.com
Hecla Mining
Co. HL; 3.8%; www.hecla-mining.com
Jaguar Mining Inc. JAG.TO; 3.67%; www.jaguarmining.com
Kingsgate Consolidated Ltd. KCN.AX; 2.96%; www.kingsgate.com.au
Kirkland Lake
Gold Inc. KGI.TO; 2.41%; www.klgold.com
Lake Shore Gold Corp. LSG.TO; 1.78%; www.lsgold.com
Medusa Mining Ltd. MML.AX; 1.22%; www.medusamining.com.au
Lingbao Gold Co
Ltd. 3330. HK; 0.52; www.lbgold.com
Minefinders Corp
Ltd. MFN; MFL.TO; 2.79%; www.minefinders.com
New Gold Inc. NGD; NGD.TO; 6.13%; www.newgoldinc.com
Northgate Minerals Corp. NXG; NXG.TO; 3.11%; www.northgateminerals.com
Novagold
Resources Inc. NG; NG.TO; 2.74%; www.novagold.com
Real Gold Mining
Ltd. 0246. HK; 0.80%; www.realgoldmining.com
Romarco Minerals
Inc. R.V; 1.69%; www.romarco.com
Rubicon Minerals Corp. RBY; RMX.TO; 2.17% www.rubiconminerals.com
San Gold Corp. SGR.V;
3.73%; www.sangoldcorp.com
Semafo Inc.
SMF.TO; 2.71%; www.semafo.com
Silver Standard Resources Inc. SSRI; SSO.TO; 6.7%; www.silverstandard.com
SilverCorp Metals
Inc. SVM; SVM.TO; www.silvercorpmetals.com
St Barbara Ltd. SBM.AX; 1.6%; www.stbarbara.com.au
US Gold
Corp. UXG; UXG.TO; www.usgold.com
Ventana Gold Corp. VEN.TO; 1.21% www.ventanagold.com
This listing
courtesy www.pdegraaf.com
DISCLAIMER:
Please do your
own due diligence. Investing involves taking risks. I am NOT
responsible for your trading decisions.
Happy trading!
Peter Degraaf
Pdegaaf.com
Also
by Peter Degraaf
Peter Degraaf is
an on-line stock trader with over 50 years of investing experience. He sends
out a weekly Email to his subscribers. For a 60 day free trial, contact
him at itiswell@cogeco.net, or
visit his website www.pdegraaf.com.
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