Gold & Silver Report
Due to the recent downside corrective action in the precious metal's complex (as well as other commodities) we thought we would go back and check out the raw numbers and data to see what they may be saying.
Below we will first report on the overall action of gold and silver and the precious metal stocks as occurred last week. Following that information is some data you may find most interesting.
In covers the highs and lows back through 2005 in not only the precious metals and hui index, but in the crb, oil, and the US dollar. This is done in a very easy to read table format.
Following the first table and a few comments, a second table is offered. It has more summary data such as the various percent increases from lows to highs, and the recent losses from highs to present levels, as well as the percent that present levels are above their lows.
We believe that the information provided helps put the recent market action in a bit of a different perspective then is put forth in the media and my most market mavens. There are luckily a few exceptions. It is good to see the forest from the trees, as well as the trees from the forest. We trust you will agree after indulging.
Gold was down $33.33 for the week, closing at $576.67 for a loss of 5.77%. Silver closed down $1.33 to $10.80 or a loss of 12.31%.
The HUI Gold Stock Index lost 39.55 points, closing at 298.42, for a loss of 11.82%. The XAU lost 14.43 points to close at 126.38 for a loss of 10.24%.
Below are three charts comparing various pm assets with other assets. We will not be presenting the standard gold or silver or pm stock index charts this week. A different tack has been chartered as you will find after the next three charts.
Since October of 2005 the HUI has outperformed crude oil for all but a short time from May to June of 2006. Prior to October oil had outperformed the HUI for a considerable time.
HUI Gold Stock Index
The following chart compares the performance of the HUI Gold Stock Index with physical Gold. The blue arrows highlight the five (5) times that the ratio dropped below its 50 dma and subsequently signaled a low, resulting in a rally up.
The two (2) red arrows point out RSI levels coincident with two previous lows. At the bottom of the chart are the price performance of both the HUI and Gold. The HUI/Gold ratio appears to be heading towards another buy signal.
StreetTRACKS Gold Index
Below is a chart comparing the performance of the HUI Gold Stock Index to streetTRACKS Gold Index, which is a proxy for owning physical gold (more or less - perhaps less than more).
The blue arrows show the five (5) past times when the ratio fell below its 50 dma, marking a low just as we saw with the above physical chart of gold.
At the bottom of the chart are the price performances of the US Dollar and the 10 Year Note.
Facts & Figures
Next we are going to offer a discussion and presentation of various facts and figures on gold, commodities, oil, the HUI, and the US Dollar.
The reason we are doing this is to show what the numbers say - not what some reporter or guru is saying. It also presents price data in a different way then a chart does. The data is presented in table formats that illustrate information that a chart does not readily reveal.
There has been much talk in the media and from various pundits that the death knell has sounded for gold, silver, oil, and the other commodities. We leave it to the reader to decide based on the evidence presented or lack thereof.
|Market||2005 Low||2005 High||2006 Low||2006 High||Today|
|OIL||Jan 3 - 42.12||Sept 1 - 69.47||Feb 15 - 59.25||July 14 - 78.71||64.02|
|CRB||Jan 7 - 278.86||Mar 15 320.50||Sept 15 306.32||May 11 - 365.35||306.32|
|HUI||May 16 - 166.46||Dec 29 280.91||Jun 13 - 273.73||May 10 - 394.32||298.42|
|GOLD||Feb 8 - 412.88||Dec 12 527.42||Jan 5 - 525.00||May 11 - 715.73||576.80|
|DOLLAR||Jan 3 - 81.33||Nov 16 - 92.39||May 12 - 83.88||Mar 10 - 90.83||85.97|
The above table shows some interesting commodity statistics that can help place the ongoing correction in a different perspective then just staring horrified at plunging prices. It helps to see the forest from the trees, and the trees from the forest.
For example: the table shows that the month of May saw the most number of either highs or lows. The total for the month of May was five (5) out of twenty (20) or 25%. Two (2) numbers were lows, and three (3) were highs.
Oil hit its low for 2005 on January 3, at $42.12 per barrel - the very same day that the US Dollar made its low for 2005.
Four (4) days later on Jan. 7, 2005 the CRB put in its low. This shows three (3) out of five (5) markets making their lows within four (4) days of one another.
On February 8, 2005 gold made its low of $412.88. The last market to make its low was the HUI Gold Stock Index on May 16, 2005 at 166.46.
The dollar was the first market to put its 2006 high in place on March 10, at 90.83. On May 10, 2006 the HUI Gold Stock Index made its high of 394.32. The very next day saw both gold and the CRB make their highs for 2006 (so far to date).
Once again this shows that three (3) of the five (5) markets made their highs during the same month (May) and within one day of each other.
Oil went from its 2005 low of $42.12 up to its 2006 high at $78.81 for a gain of 36.69 points or 87% - not an insignificant return of profit.
Presently WTIC crude oil closed the week out at $64.02 or 14.79 dollars (18.76%) off its previous high (78.81), which is above its low (42.12) by $21.90 dollars (64.02 minus 42.12) or 51.99%.
Yes - the losses have been great, but greater still have been the profits (at least up until the present).
Leaders or Followers or Neither
As far as oil leading the other commodities down, the data does not support such a view. As a matter of fact, oil was the last market to put in a top - on July 14, 2006. All the other markets had put in their tops months before. Oil was also the first to put in a low in 2005.
In other words - oil has had the longest ongoing move from its low in January of 2005 until its recent peak in July of 2006: a time span of 19 months. The CRB's move was 17 months in length, while gold's was 16 months, the dollar's 15 months, and the HUI 13 months.
The data also seems to go against the view that gold follows the dollar, as both have just had moves upward during the same time frame of a year and a quarter.
However, the magnitude of the move heavily favors gold. Gold rose from 412.88 to 715.83, a rise of 302.95 points or 73%.
During that time the dollar moved from 81.33 to 90.83 for a gain of 9.5 points or 11.68%. It then fell from 90.38 to 83.88 for a loss of 6.5 points or 7.19%. Currently the dollar is at 85.97 or 2.09 points above its loss or 2.49%.
Gold vs. Dollar
What does gold's move of 73% compared to the dollar's move of 12% tell us: that gold is in a bull market and that the dollar is in a counter-trend bear market rally.
But wait - what of gold's recent fall from grace? Well, let's take a closer look. Gold's peak was at $715.83 and presently it sits at $576.80, for a loss of $139.03 or -19.42%. Gold is $163.92 dollars above is low (576.80 minus 412.88 = 163.92) or 39.70%.
Computing the other markets in the same manner we find:
The CRB bottomed at 278.86 and then rose upwards 86.49 points to 365.35 or 31%. After peaking at 365.35 the CRB has fallen 59.03 points to 306.32 (365.35 minus 306.32 = 59.03 points) or 16.15%. Currently it is up 27.47 or 9.84% from its low of 278.86.
The HUI Gold Stock Index saw a low of 166.46 from which it advanced to 394.32 or 227.86 points (+136.88%).
Since making its high the HUI has fallen to the present level of 298.42, for a loss of 95.90 points or -24.32%. Presently the HUI is up 131.96 points from its low (166.46) or 79.27%.
|Market||Increase From |
Low to High
|Loss From |
High to Present
|Current Increase |
|OIL||37 pts or +87%||15 pts or -19%||22 pts or +52%|
|CRB||86 pts or +31%||59 pts or -16%||28 pts or +10%|
|HUI||228 pts +137%||96 pts or -24%||166 pts or +79%|
|GOLD||303 pts or +73%||139 pts or -19%||163 pts or +40%|
|DOLLAR||9.5 pts or +12%||6.5 points or -7%||2 pts or +2.5%|
Survival of the Fittest
The weakest of the above markets has been the US Dollar, which is up 2.5% from its lows. This is because the primary trend of the dollar is down, as it is in a BEAR market. The recent move is a counter trend bear market rally. Nothing more - nothing less.
It is what it is: a paper fiat debt currency that is continuously losing purchasing power and subsequently headed for worth-less-ness. The dollar is in a primary bear market.
The next strongest market is the CRB or overall commodities index. It is presently up 10%, which if it holds is a pretty good return. It may go down more and it may go up more. Time will tell. No one can predict the future - no one.
The above figures only went back to 2005. Beyond this time frame the CRB has rallied further and has been in a primary bull market.
Gold is up a strong 40% to date from the 2005 lows. Once again, prior to this time gold made further increases in price, as it is in a primary bull market. However, this study only goes back to 2005.
We are of the opinion that the golden bull will continue from quite some time, and that more upside potential awaits then has been put in place thus far. Time will tell.
Oil is up a substantial 52% since its 2005 lows. This is a stellar performance and prior to this oil racked up even larger gains, as it too has been in a primary bull market.
Bull markets remain in effect until they don't: by making a lower high AND a lower low. It takes BOTH to signal the turn from bull to bear. Until such time it's a bull.
Lastly the HUI Gold Stock Index. Since the 2005 lows it is up a large 79% - the best performer out of the group of five.
Gold has been and still is within a primary bull market. The HUI has seen a 900% rise since the bull began 5-6 years ago.
The recent correction of 96 points or 24% sounds scary if only taken at face value - isolated out of context, instead of compared to the entire picture.
It must be remembered that since the move off its 2005 low, the HUI gained 228 points or 137%. The correction of 96 points (24%) is not even at the standard Fibonacci retracement levels of .318 or 50%, as shown on the charts below.
Bull markets experience corrections of 1/3 to 1/2 and up to 2/3's on a regular basis. Those who are singing the death knell of the golden bull are a bit premature in our opinion. The reader can decide for themselves based on the evidence presented or the lack thereof.
The following chart is from our dear friend Alex. Once again she has been kind enough to share her work with us. Her charts are works of art that also contain lots of pure info. The chart is self-explanatory and fits like a glove to the report above. Enjoy the chart.
(Jeremy - I've attached the chart from Alex - you'll probably have to downsize it - if you can't get it to work just delete it and everything above from A Chart down to hear. Then just continue with what's below.
Gold Stock Portfolio
As one can tell from viewing our gold stock portfolio (below) we were fortunate enough to book profits on most of our positions just before the recent correction began.
However, as we stated weeks ago when we began accumulating the positions: we were of the opinion that before any meaningful intermediate term advance would begin in the gold stocks that a test of the June lows would likely occur. That is presently occurring.
We also stated that we INCREMENTALLY accumulate our positions as prices fall towards their 200 dma's. Sometimes prices even fall below the 200 dma. Our recent paper: Gold & Silver: Bull or Bear Market - Gnazzo illustrated such past price action on several occasions.
The positions were bought full well knowing that a correction was in the future and that we were more than comfortable with holding the positions for the intermediate term if need be, as opposed to the short term move that we were playing at the time.
Further to the above the game plan was to book whatever profits were offered, and that all positions were part of an incremental intermediate term accumulation plan if short term profits did not present themselves.
We still are of the opinion that because of the SA Rand Currency situation that the SA gold stocks (GFI & HMY) offer very good upside potential once the present correction is over and a new intermediate term move up begins. We expect this to happen before the New Year.
South Africa's Rand fell for the fifth week in a row. This was its worst loss since June. SA appears to want a weaker currency in an attempt to boost economic growth.
Because gold is priced in US Dollars and the cost of production is priced in the SA Rand, the fall of the Rand will boost the SA Gold Miner's bottom profit line.
Below are the charts of GFI and HMY.
Gold Fields Ltd.
Note the previous lows as indicated by the blue vertical lines and the levels of the various indicators. These were the best buying opportunities because they were HARD TRADES.
Harmony Gold Mining
Once again note the lows indicated by the vertical blue lines and the level of the various indicators at such time. These were the most profitable times to buy the stock. It's called doing the HARD TRADE. Buying on weakness and selling into strength.
The overall stock market looks a bit precarious unless or until the transports confirm the Dow Industrials. The Fed still has its inverted yield curve. We think it is a bit perverse that 30 day paper pays more interest then long term bonds.
The dollar is in a bear market counter trend rally, as is the stock market. Gold and silver are in bull markets and are experiencing a counter trend correction. Unreal estate is starting to feel the affect of higher rates. If rates continue up there will be hell to pay. That's why the Fed's number one concern is to protect the long end of the yield curve - regardless what it takes to do it.
Election time is fast approaching and the powers that be have provided a hard fall in commodities to present the no inflation (disinflation/deflation) scenario to bolster the animus politic.
Ayn Rand was right about the "undertaker". The most recent addition to the home team is an insider's insider from Wall Street, cut from the same cloth as Sir Alan, if not a bit courser. The beat goes on and the team looks ready to play hardball.
Regardless, we believe the gold bull lives on, but as you can see by the position we added to our gold stock portfolio this past week (HMY) - we also put our money where our mouth is. We plan on buying more positions on any further weakness, or a break out to the upside.
But beware, if such a move up materializes - it doesn't mean it's just going to keep going up. There will be both upside and downside action in the coming weeks. A lower low than was put in on Friday is most likely to occur as further testing of the June low plays out.
Before the New Year begins we expect a new intermediate term move up to start - the third of the third that was touted by many - until last week when many turned and cut bait. There are weak hands and strong hands. The strong survive - the weak do not.
Come visit are website and read the full +25 page report on all the markets. There is also a ton of information on gold, silver - and Honest Money, including a gold stock portfolio of actual trades, noting the buys dates and prices, and the sell dates and prices. A live bulletin board is offered as well. Drop by and check it out.
COMING SOON: A REQUEST FOR AN AUDIT OF US GOLD RESERVES