Gecko Research reviews the past week in gold and charts their actions.
Gold lost 1.9% or $23 last week to close on Friday at $1,184.10. Silver
was, believe it or not, almost flat for the week as it closed at $16.51, down
only 4c. The gold to silver ratio was 71.7 at the end of the week.
Total GLD gold holdings
Pas Week: Tonnes 885.04 Previous week:
Tonnes 915.29 (source)
We will start to report weekly changes in the GLD holdings as it's a great
indicator, and we stress the word indicate, as to where the trend for
gold is likely heading. This week's loss comes to 30 tonnes, quite the
outflow. That fits in well with our own feeling this week, we didn't at all
like the performance in gold and had decided already on Monday/Tuesday that
we would lower our exposure for the time being.
We cut our overall exposure by immediately getting rid of half our holdings
in Endeavour
Mining Corp. (EDV:TSX; EVR:ASX), McEwen Mining
Inc. (MUX:TSX; MUX:NYSE ), Silver Wheaton
Corp. (SLW:TSX; SLW:NYSE) and Yamana Gold Inc.
(YRI:TSX; AUY:NYSE; YAU:LSE). That's the beauty of holding big and liquid
names as well, it's so easy to raise cash in an instant. We did sell a tiny
bit of Golden
Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCQB). The GRG we sold
were just a smaller trading position we had picked up on Nov 11t; our core
position is still intact. In fact, if precious metals will see $1,100 or
lower, we expect to pick up a lot of shares cheaper in several names,
including Golden Arrow. We love the Golden Arrow story and we are just a few
months away from finding out what the deal on Chinchillas will look like.
Going back to the subject of not liking what we see in terms of gold's
action and performance. The fact is that there has been plenty of damage made
in the charts and unfortunately, plenty of damage means plenty of time to
repair. It's way too early to say, but there's also a chance that this bull
is over. That is not our view, we're simply saying it's a possibility and we
have to weigh in all conceivable outcomes.
What we think is more likely to happen is that Fed will hike rates in
December which will lead to a stronger US$ and a continued weak gold market.
Our first "target" for gold is $1,100 and thereafter $1,075-1,080.
We could have a small bounce here up to $1,225 or so but that is no more than
an opportunity to raise some cash in our mind.
Although Fed might raise rates further, they can only do so much. There are
plenty of signs that inflation expectations are growing, not only in the U.S.
but elsewhere as well. With higher inflation, we are likely to remain in a
negative real interest rate environment which is where gold thrives. How long
gold's "grinding and repairing" will last is anyone's guess, but we
would say at least 2-3 months, likely longer. That doesn't mean that the
market will be completely dead, the opposite is actually true.
Fortunes are made by contrarian investors and to have the guts and conviction
to go against the heard has proved to be a great game-plan in the past. Not
only will we now be prepared for adding in our favorite stocks when the
opportunity presents itself, we will also be able to introduce new ideas in a
better environment. We hate to chase stocks in a strong market, better to buy
when no one else dares to.
Gecko Research
is composed of a small group of private investors whose aim is to broadly
share knowledge and investment ideas. Its research is independent and is
based on its view of the company or sector based on publicly available
information.
Chart provided by Gecko Research
