The price bottom associated with gold's 13-1/2 month cycle is
ideally due right now. The problem is that gold does not
always bottom exactly when it is supposed to, and there is still
work yet to do.
By that I mean that there are tasks associated with this
cycle bottom which gold has not yet accomplished.
I mentioned
back in April 2014 that gold was currently in "left
translation" for this current cycle, and that this implies we
should see a price low at the cycle bottom which goes below the
December mid-cycle low. That means a dip to below around
$1190/oz.
There is another feature of some of these cycles which I believe is
making an appearance this time, and that is the tendency to see a
late blowoff move just ahead of the final cycle low. The blue
arrows in the chart above highlight some examples of this behavior,
and it is not just a recent phenomenon. Here is a look back
further in time, to show that this tendency for a late blowoff has
been with us for a long time.
These late blowoff moves do not appear in every iteration of this
cycle. But they do appear often enough to allow us to
understand that it can be a regular part of the cycle
behavior. But the difficulty stems from the fact that it is
really hard to differentiate a potential late blowoff move from the
initiation of a new upward phase for the next cycle. This is
especially hard, given that the real final price bottom can arrive
up to a month early or late versus the idea date. The
question is whether an up move is starting the new up phase of a
new cycle, or is it just a late blowoff at the end of the last
cycle, ahead of a plunge to a lower final low?
That's the rub, and it is quite often very difficult to tell.
So one way to deal with that is to take every buy signal when the
major cycle low is near, accepting the risk that the market might
suddenly move against you but the big up move will bail you out in
the long run. I confess that I have trouble with that
approach, because I like to be more precise. That approach
does not always work out in my favor.
For the current situation, I have been remaining bearish in spite
of the June 2014 pop, and counting on the promise of a lower price
low at the major cycle bottom, lower than the mid-cycle low seen
back in December 2013. That means a dip to below the $1190/oz
level at some point between June and August 2014. We have a
month left for that to get done.
That expectation comes from the fact that we have had "left
translation" in this current cycle, meaning that the price top
before the December 2013 mid-cycle low was above the price top
after that mid-cycle low. Whenever left translation occurs,
the expectation is that the price of gold will dip below the level
seen at the mid-cycle low when the major cycle bottom
arrives.
If we do not see a price low below that Dec. 2013 level ($1190/oz)
at this major cycle low, then this would be the first time in 2
decades that there has been left translation which did not
"work". It might seem to be extreme to look for another
$100/oz decline in gold prices within the next month, but it is
more extreme to make a bet that something which has worked
consistently for at least the past 3 decades will suddenly fail
this time.
Given all of this information, my interpretation is that the June
2014 pop in gold prices is another example of this late blowoff
behavior, and that we still have the final "thud" yet to
come. If that final down move arrives before late August, it
would still be considered to be a case of the cycle bottom arriving
"on time", given that +/- 1 month tolerance.
As a final note about gold, it was personally fun for me to have
Timer Digest say that
I am the #1 Gold Timer thus far for 2014, although there
are still 6 months yet to go.
Join the legends of Technical Analysis in Seattle on August 8 and
9. John Murphy, Martin Pring, Alexander Elder, Richard Arms,
Arthur Hill and more! Visit
http://stockcharts.com/chartcon for more details.
Golden Minerals has been a phenomenal performer this year given
an oversold bounce and given its intention to restart mining at its
Velardena Project. .
Despite investor enthusiasm I suspect that the company will not
be able to make money at $21.50/oz. silver, although it can have
positive operating cash-flow. .
Further, investors should be skeptical that the company's lower
production cost estimate is permanent.
For this reason the stock doesn't offer good value at the
current silver price.
Given the company's large silver resource relative to its
valuation Golden Minerals has substantial leverage to the silver
price, and it remains a quality stock for silver bulls.
One of the best performing stocks that I follow year to date,
and over the past month or so has been Golden Minerals (
AUMN).
The stock has nearly tripled for the year given a few factors.
Silver and gold miners in general have been rising given their
2013 weakness and given the recent strength in the underlying
metals.
Golden Minerals had been especially depressed, as a confluence
of events took the stock from over $20/share to $0.50/share.
Golden Minerals
announcedthat it would be
restarting production at its flagship Velardena Project in Mexico
on June 18th.
The shares now trade at $1.30 each, and a chart of the stock
reveals an onslaught of investor interest.
But despite this bullish interest and despite the fact that I
own the stock I don't think the company is by any means out of the
woods yet.
To see why let me first recap my initial investment thesis.
My Initial Investment Thesis
Back on September 1st I
arguedthat Golden Minerals was one of the best
ways for investors to get leverage to the silver market. The
company's production costs were too high to produce at $20/oz.
silver and so it shut down its Velardena Mine and the stock
subsequently fell. But I believe that shutting the mine down was
the correct decision.
In the article I don't even discuss the cash-flow potential of
the mine at $20/oz. silver, and in fact the lowest level I
discussed was $35/oz. given that it had plans in place to get
production costs
downto $30/oz. But the NEV of the company was abut $27
million versus its potential to produce nearly 1 million ounces per
year or 1.7 million ounces longer term. In addition the company
owns the late-stage exploration project El Quevar in Argentina,
which contains an estimated 60 million ounces of silver. You can
imagine that, given the company's valuation, the potential to
generate a profit of just $5-$10 per ounce meant incredible upside
from the share price of $1.14 (as of September of last year).
This is what drew me to the stock, but I had no delusions
regarding its speculative nature, and its contingency on a rising
silver price.
What About Now?
Given the recent price action it is almost as if people believe
that Golden Minerals can be a viable, cash-flow positive investment
at the current silver price. And if you look at the above-cited
press release this certainly seems plausible. This is the case
because the company claims that it can get cash-costs down to $12 -
$15 per ounce of silver mined net of by-products.
But let's keep a few things in mind.
First, the company is going to be losing money after the initial
start-up, and cash-costs will come in at $30/ounce before the
ramp-up period in 2015 gets the cash-costs down to $12-$15 per
ounce level that would justify mining. Note that cash-costs do not
include G&A at the corporate level, exploration, or sustaining
costs, and for many silver mining companies these figures really
add up: depending on the project they can be anywhere from $3/oz.
to $10/oz.
Second, the company will be producing less silver than it had
been prior to shutting down the mine last summer.
Third, the company plans on mining a particular set of
mineralized veins--the San Mateo and Terneras veins--and other than
portions of the San Mateo vein this ore has not been formally
studied and analyzed in the company's NI 43-101 technical report.
While the company has data supporting that these veins are
especially high grade (4 gpt of gold and 200-250 gpt of silver
versus 3.4 gpt of gold and 175 gpt of silver for the rest of the
resource) any projections coming from this data--which consists of
a few very promising drill holes--are speculative.
My takeaway from this is that management plans on mining these
high grade veins initially--under the assumption that it can do so
profitably--with the hope that the silver price will rise over the
next couple of years so that the mine can continue to operate
profitably once the company goes back to producing at the lower
grade zones.
Between A Rock And A Hard Place
In short the company has an ambitious execution plan and it is
attempting to time the silver market. The safe approach would be to
just sit on its assets until the silver price rises. But if it did
this then the company would still bleed cash, and at some point it
would have to stop drilling (an endeavor that has proven successful
in the past few months) and just wait while it slowly bleeds
cash.
While neither decision seems to be ideal there are reasons to
support management's decision, including the fact that the silver
price seems to be forming a very solid base in the $18.60 - $20/oz.
range and the fact that there are high grade ore zones that can
potentially be mined profitably even at the current silver price. A
few things have to go right for management's seemingly aggressive
approach to work out, but if it does and the silver price begins
its upswing again then we can see a clear path from today to the
strong cash-flow situation that I discuss in my September article.
If it fails then management will have to shut the Velardena Mine
down again, and we will likely see dilution.
Management's Strategy for the Next 12 Months
A: Efficiency Measures
Golden Minerals really believes that it can operate the
Velardena Mine profitably on a limited basis at the current silver
price. In addition to its believe that the San Mateo and Terneras
veins are high grade and can support production for a few quarters
management has set several other efficiency-driven measures into
effect. For instance it is going to operate the mine with 2/3 less
staff, and this will significantly cut labor costs. It will also
cut labor costs through a new labor agreement that covers 100 of
the mine's 150 employees. It has also hired a new mine manager in
order to find inefficiencies.
In addition it is implementing a new overhand cut and fill
mining method meaning that ore will be removed from the bottom of
the pit working upwards, and this should allow for narrow ore
veins--as narrow as half a meter--to be isolated for extraction.
This should limit the amount of waste that is mined and it will
ultimately cut costs. the mine's operators can do this because just
before management suspended the operation it built a ramp into the
mine, which will now prove to be extremely beneficial.
B: Schedule And Costs
As I mentioned above the company is going to start operating the
mine on a small scale at just 150,000 silver equivalent ounces per
quarter, or about 75,000 ounces of silver. The company expects the
loss plus the mine's startup cost to total about $4 million with a
$1 million gain due to the fact that the mine will be taken off of
"care and maintenance." The company should be able to absorb the
net $3 million loss considering that its cash position was $15
million as of the end of March (with no debt) and given that its
cash burn rate has been $4 million per quarter. Of course this also
means that we can expect the company's net loss including G&A
and operating the mine for 2014 will be the aforementioned $3
million plus another $4 million for 2 quarters of G&A assuming
the same rate. But again, the company should be able to absorb a $7
million cash drain.
In 2015 the company hopes to ramp up its Velardena operation and
it is at this point when costs will come down to $12 - $15/oz.--the
company's mid 2015 goal. Now a big question concerns the production
costs
duringthe ramp-up period, or during the beginning part of
2015. If the company has just $4 million left at the end of 2014
and if the silver price remains the same we might see some dilution
assuming G&A costs remain the same. But during that time-frame
production costs will come down, and so the net $3.5 million per
quarter burn rate will be gradually shrinking.
By 2015 the company hopes to be producing 275,000 ounces of
silver equivalents, or about 137,500 ounces of silver per quarter
or about half a million ounces of silver per year. Now assuming no
sustaining or exploration costs, and assuming $2 million in
quarterly G&A expenses if the mine is able to produce at
$12/oz. then it is still losing money at $21.50/oz. silver ($2.8
million).
Now on the one hand we are using the optimistic end of
production cost data and maybe this isn't appropriate. But we
should also keep in mind that the $12 - $15/oz. range is net of
by-product credits, and these include gold, which the company
assumes is $1,250/oz. With the price at $1,340/oz. today this range
should come down somewhat, especially since roughly 50% of the
mine's revenue on a co-product basis comes from gold.
On the other hand the $2 million G&A cost assumes that the
Q1 figure remains constant. But this figure is larger than the
company's average, For instance the figure was $1.3 million in the
fourth quarter. If we lower our G&A assumption by 20% we still
get $6.4 million, and the company is still losing money, but very
little.
Conclusion: Remarks On the Above Strategy and the Future of
the Velardena Project
Despite the extremely strong share price performance we can see
that unless the silver price rises, or unless the company can
substantially cut its G&A expenses the company will lose money.
But the Velardena Project ex-corporate G&A can make money.
There are, of course, a couple of questions. First, given that
the project's San Mateo and Terneras veins haven't been thoroughly
analyzed one has to wonder how long the company can mine them
before it has to go back to mining the lower grade veins. With the
overall resource's grade 20% lower than the anticipated grade at
the San Mateo and Terneras veins it stands to reason that we can
see cash costs rise. They won't rise by 20% because mining G&A
is a relatively fixed cost included in the cash-cost model. However
cash costs should rise. Therefore, if the San Mateo and Terneras
veins run out before the silver price rises--assuming that it even
will rise--then the Velardena Project's profitability on an
operating basis will come into question.
The second question is: there are a lot of proposed changes here
and they haven't been fully studied by an outside analyst. How are
we supposed to evaluate their accuracy? A few miscalculations and
the company burns through its cash and has to either shut the
Velardena Project down or it has to dilute shareholders.
Given these points I must reiterate what I said above: an
investment in Golden Minerals is predicated largely on a rising
silver price. If the silver price rises this strategy will work,
the company will make money, and it will eventually be able to go
back to mining lower grade ore. Given that the mine has an
estimated 30 million ounces of silver and 60 million ounces of
silver equivalents it should be able to operate for years to come.
A rising silver price will also mean that the company's 62 million
ounce El Quevar deposit is more valuable.
Thus if you were fortunate enough to bottom-fish on this one and
get some shares when the stock was trading around the level of cash
on its balance sheet then now might be a good time to take profits.
If you want optionality on the silver price, considering that the
company has over 90 million ounces of silver and over 120 million
ounces of silver equivalents (not to mention its estimated $11
million in cash and its exploration properties), then buying this
stock is a great way to get it.
Editor's Note: This article covers a stock trading at less than
$1 per share and/or with less than a $100 million market cap.
Please be aware of the risks associated with these stocks.
Big volume in IAG yesterday. Actually, looking at a monthly
chart, exheeds monthly volume many years back and only a few days
into this month! Something going on?
Jittery investors who are looking to the indexes for signs of an
approaching bear market might do better by focusing their attention
elsewhere: on the yield curve. So says Jeffrey Kleintop, chief
market strategist at LPL Financial, who asserts in a note Tuesday
that the yield curve has a perfect track record of predicting the
top of the stock market over the past 50 years, and it’s not
signaling a bear market right now.
Shutterstock
The yield curve is another way of describing the difference between
short-term Treasury yields and long-term yields. It’s a favorite
tool among financial and economics wonks because of what it says
about the economy. The widening between the yields of different
maturities,
known as a steepening curve, often signals a brightening
economic outlook. On the contrary, if the curve flattens
considerably, the growth outlook tends to be souring.
If the Federal Reserve aggressively hikes its key policy rate,
short-term Treasury yields in turn rise swiftly. If short-term
yields climb higher than long-term rates, the curve is said to
invert. An inverted yield curve is generally a sign that a
recession is about to begin, which means that it’s also a predictor
of the top of a bull market in equities, says Kleintop.
There are a number of different Treasury maturities one can use to
calculate the yield curve, but Kleintop chooses to find the spread
between the 3-month T-bill
3_MONTHand the 10-year note
10_YEAR-2.52%. Here’s where that differential has turned negative over
the past 50 years, and how it compares with the S&P 500
index
SPX-0.24%:
Writes Kleintop:
“Every recession over the past 50 years was preceded by the Fed
hiking rates enough to invert the yield curve. That is seven out of
seven times — a perfect forecasting track record. The yield curve
inversion usually takes place about 12 months before the start of
the recession, but the lead time ranges from about five to 16
months. The peak in the stock market comes around the time of the
yield curve inversion, ahead of the recession and accompanying
downturn in corporate profits.
So now you’re worried about when the curve will invert. The yield
curve has
certainly been flattening over the last half year as bond
investors fret about when the Fed will begin hiking its lending
rate, which has been pegged near zero for the past half decade. But
the good news is that the curve is still steep — and certainly a
long ways from inverting. Here’s what the curve looked like on
Monday:
As Kleintop writes:
“Even if long-term rates stay at the very low yield of 2.6%, to
invert the yield curve by 0.5% the Fed would need to hike rates
from around zero to over 3%! Based on the latest survey of
current Fed members that vote on rate hikes, conducted earlier this
year, members do not expect to raise rates above 3% until sometime
in 2017, at the earliest. The facts suggest the best indicator for
the start of a bear market may still be a long way from signaling a
cause for concern.
Welcome
to COTs Timer's first post in 2014. Lots of new signals to report
taking effect on this week's open of trading.
See my
latest signals table for the details and trader positioning in the 10
markets I trade using the free weekly Commitments of Traders
reports.
The new signals:
- Cash for the
BKX U.S. Bank Index,
natural gas and
gold.
- Bearish for
silver.
Sorry for my delayed post this week. There was last week's
holiday delay for the data - plus we missed our connection thanks
to storm flight chaos in New York last night.
VALUATION WARNING:
Our models find that overvaluation is at
levels typically seen when market pullbacks occur. Overvalued
stocks now make up 77% of our stocks assigned a valuation and 46%
of those equities are calculated to be overvalued by 20% or
more. 15 of 16 sectors are calculated to be overvalued--13 of
them by double digits.
The
Hindenburgomen is a series of market characteristics some
people believe portend a major
market
crash. Mathematician Jim Miekka developed the criteria, and the
Hindenburg omen can be highly accurate in some cases. Financial
media may report when the conditions meet the criteria and will
take note of any market shifts in the wake of the announcement.
This is only one among many metrics investors can use to predict
market movements.
According to proponents of the Hindenburg omen, the
characteristics indicate shifting consumer confidence, which can
precede a meltdown in the market. The omen is named for a famous
zeppelindisaster that occurred in the 1930s, when the German
airship
Hindenburgcrashed in a fiery explosion in New Jersey. The
name implies that the market can quickly go up in flames when
certain conditions occur.
Statistics from the New York
Stock Exchangeform the basis of the criteria. All of them must
occur on the same day for the Hindenburg omen to be in play. The
first is that at least 2.2 of the listed stocks must be making new
highs
andlows, reflecting positive and negative activity. The
new highs cannot be more than double those of the new lows; if 10%
of stocks are making new highs and 3% are making new lows, the
criteria for the Hindenburg omen are no longer met. In addition,
the 10-week
moving averagefor the market must be on the rise. Finally, the
McClellan oscillator, a metric for determining overbought and
oversold stocks, must be negative.
Together, these criteria suggest faltering investor confidence.
Even for investors who do not take the Hindenburg omen as the final
authority, it can be a warning sign. When trading activity is mixed
in this way, investors may be nervous and could be prone to panic.
A major market event or a big piece of political news could set the
market into turmoil and create a nosedive in market values as
investors jockey for position.
Once the Hindenburg omen is identified, investors will watch the
market closely for the next 30 days to see if it pulls out of the
pattern, breaking the criteria, or if it continues to move in
dangerous ways. Investors may reposition themselves to take
advantage of falls in the market, or may move investments around to
get their money in safer locations, such as out of volatile stocks
and into stable government securities. This can create a snowball
effect, as investors panic over the Hindenburg omen and create the
very
market conditionsthey fear.
AFP/Getty Images
Gold bugs may be in denial about the yellow metal’s fair value,
writes Mark Hulbert.
CHAPEL HILL, N.C. (MarketWatch) — Gold’s bear market is just
beginning.
That’s the depressing assessment from Claude Erb, a former
commodities portfolio manager for Trust Company of the West, and
co-author — with Campbell Harvey, a Duke University university
finance professor — of an academic study from last June that is
looking to be increasingly prophetic.
These developments prompted me to check in with them to see if
these recent developments had in anyway softened their bearish
assessment.
No such luck.
On the contrary, Erb told me Monday morning, he thinks it is
unrealistic to expect gold’s decline “to play itself out very
quickly.” Referring to the five stages of grief that were made
famous by Elisabeth Kubler-Ross, he believes the gold market right
now is just in the first stage: denial.
The next four stages, for those of you who need reminding, are
anger, bargaining, depression and, finally, acceptance.
As evidence of many gold investors being in denial, Erb referred to
the large number of institutional investors and hedge fund managers
who continue to own substantial gold positions. The “Denialists are
like those in 2007 who thought real estate would go up forever, or
Jim Glassman’s famous book at the top of the Internet Bubble
projecting DJIA 36,000.”
Erb continued that these institutional investors and hedge-fund
managers in coming days will have a lot of explaining to do with
clients for why they didn’t anticipate gold’s plunge — and to
convince those clients in any case why they should continue to
invest in gold.
If those investors and managers lose the faith and decide to sell,
and even if they don’t but if their clients do, then a huge amount
of additional selling pressure will hit the gold market.
For a fuller discussion of the hard questions that Erb and Harvey
ask about gold,
read my early-February Barron’s column about their research.
But to come up with an estimate of gold’s fair value, they
calculate a ratio of gold to inflation going back as far as they
were able to obtain data. They report that this ratio, when
expressed in terms of the U.S. Consumer Price Index, has averaged
about 3.2-to-1. Even at $1,400 an ounce, this ratio stands at
6.03-to-1, or nearly double this average.
And don’t be too quick to dismiss the awful implications of their
research. You might not agree with it, but the authors don’t ignore
the possibility that the under-reporting of actual inflation
justifies a much higher gold price. They also respond to the
argument that factors such as currency fluctuations automatically
translate into a gold bull market. Finally, it’s not the case that
they are biased against gold; Erb told me that he frequently
invested in gold when he was a commodities fund manager. (
Click here to read their
full study.)
Erb said that gold’s recent plunge is the all-too-predictable
result of an asset whose price has become disconnected from
fundamental value. While he allowed that gold could very well stage
a powerful rally from here, he predicted that its final bear-market
low will be a lot lower than where it stands today. After all,
every time in history in which gold’s price has deviated
significantly from fair value — as he and Prof. Harvey calculate it
— it eventually has returned to it.
Mark Hulbert is the founder of Hulbert Financial Digest in Chapel
Hill, N.C. He has been tracking the advice of more than 160
financial newsletters since 1980. Follow him on Twitter
@MktwHulbert.
The number of bears
in our weekly market poll increased again this week, which is
contrary to a lot of commentary we've been hearing lately about an
overly optimistic investment community. As shown below, 59%
of participants said the S&P 500 would be lower one month from
now, while 41% said the index would be higher. In the prior
week, there were 44% bulls and 56% bears, so the spread went from
-12 to -18. We saw a similar drop in bullishness in
AAII's weekly sentiment poll last Thursday.
When the stock
market is hitting new highs, we're used to seeing bullishness pick
up, but these days an overbought market brings the bears
out.
Newsletter
Subscribe to our email list for regular free market updates
as well as a chance to get coupons!
The community is delayed by three days for non registered users.
RIC weinstein base pattern playing out
Posted by steve101 on 10th of Aug 2014 at 12:16 pm
Bought this one when matt pointed it out. Was up 50% this past week:
http://stockcharts.com/h-sc/ui?s=RIC&p=W&yr=4&mn=0&dy=0&id=p44939838427&a=356457046&listNum=36
Richmont Mines: A Profitable Canadian Gold Producer With A Healthy Balance Sheet, Huge Upsideby Hard Asset Investments
This article was published on Sat, Aug. 9, 12:04 PM ET
Read the full article now »
The #1 Gold Timer views the 13 month cycle for gold as very bullish after we see another low below 1190 before the end of August
Posted by steve101 on 21st of Jul 2014 at 10:39 am
Fishing Around For a Gold Cycle Bottom
The price bottom associated with gold's 13-1/2 month cycle is ideally due right now. The problem is that gold does not always bottom exactly when it is supposed to, and there is still work yet to do. By that I mean that there are tasks associated with this cycle bottom which gold has not yet accomplished.
I mentioned back in April 2014 that gold was currently in "left translation" for this current cycle, and that this implies we should see a price low at the cycle bottom which goes below the December mid-cycle low. That means a dip to below around $1190/oz.
There is another feature of some of these cycles which I believe is making an appearance this time, and that is the tendency to see a late blowoff move just ahead of the final cycle low. The blue arrows in the chart above highlight some examples of this behavior, and it is not just a recent phenomenon. Here is a look back further in time, to show that this tendency for a late blowoff has been with us for a long time.
These late blowoff moves do not appear in every iteration of this cycle. But they do appear often enough to allow us to understand that it can be a regular part of the cycle behavior. But the difficulty stems from the fact that it is really hard to differentiate a potential late blowoff move from the initiation of a new upward phase for the next cycle. This is especially hard, given that the real final price bottom can arrive up to a month early or late versus the idea date. The question is whether an up move is starting the new up phase of a new cycle, or is it just a late blowoff at the end of the last cycle, ahead of a plunge to a lower final low?
That's the rub, and it is quite often very difficult to tell. So one way to deal with that is to take every buy signal when the major cycle low is near, accepting the risk that the market might suddenly move against you but the big up move will bail you out in the long run. I confess that I have trouble with that approach, because I like to be more precise. That approach does not always work out in my favor.
For the current situation, I have been remaining bearish in spite of the June 2014 pop, and counting on the promise of a lower price low at the major cycle bottom, lower than the mid-cycle low seen back in December 2013. That means a dip to below the $1190/oz level at some point between June and August 2014. We have a month left for that to get done.
That expectation comes from the fact that we have had "left translation" in this current cycle, meaning that the price top before the December 2013 mid-cycle low was above the price top after that mid-cycle low. Whenever left translation occurs, the expectation is that the price of gold will dip below the level seen at the mid-cycle low when the major cycle bottom arrives.
If we do not see a price low below that Dec. 2013 level ($1190/oz) at this major cycle low, then this would be the first time in 2 decades that there has been left translation which did not "work". It might seem to be extreme to look for another $100/oz decline in gold prices within the next month, but it is more extreme to make a bet that something which has worked consistently for at least the past 3 decades will suddenly fail this time.
Given all of this information, my interpretation is that the June 2014 pop in gold prices is another example of this late blowoff behavior, and that we still have the final "thud" yet to come. If that final down move arrives before late August, it would still be considered to be a case of the cycle bottom arriving "on time", given that +/- 1 month tolerance.
As a final note about gold, it was personally fun for me to have Timer Digest say that I am the #1 Gold Timer thus far for 2014, although there are still 6 months yet to go.
Join the legends of Technical Analysis in Seattle on August 8 and 9. John Murphy, Martin Pring, Alexander Elder, Richard Arms, Arthur Hill and more! Visit http://stockcharts.com/chartcon for more details.
Tom McClellan
Editor, The McClellan Market Report
AUMN
Posted by steve101 on 14th of Jul 2014 at 11:01 pm
Golden Minerals Is Not Out Of The Woods Yet, But Shares Remain Attractive For Silver Bulls
Disclosure:The author is long AUMN. (More...)
Summary
One of the best performing stocks that I follow year to date, and over the past month or so has been Golden Minerals ( AUMN). The stock has nearly tripled for the year given a few factors.
The shares now trade at $1.30 each, and a chart of the stock reveals an onslaught of investor interest.
(click to enlarge)
(Source: Stockcharts.com)
But despite this bullish interest and despite the fact that I own the stock I don't think the company is by any means out of the woods yet.
To see why let me first recap my initial investment thesis.
My Initial Investment Thesis
Back on September 1st I arguedthat Golden Minerals was one of the best ways for investors to get leverage to the silver market. The company's production costs were too high to produce at $20/oz. silver and so it shut down its Velardena Mine and the stock subsequently fell. But I believe that shutting the mine down was the correct decision.
In the article I don't even discuss the cash-flow potential of the mine at $20/oz. silver, and in fact the lowest level I discussed was $35/oz. given that it had plans in place to get production costs downto $30/oz. But the NEV of the company was abut $27 million versus its potential to produce nearly 1 million ounces per year or 1.7 million ounces longer term. In addition the company owns the late-stage exploration project El Quevar in Argentina, which contains an estimated 60 million ounces of silver. You can imagine that, given the company's valuation, the potential to generate a profit of just $5-$10 per ounce meant incredible upside from the share price of $1.14 (as of September of last year).
This is what drew me to the stock, but I had no delusions regarding its speculative nature, and its contingency on a rising silver price.
What About Now?
Given the recent price action it is almost as if people believe that Golden Minerals can be a viable, cash-flow positive investment at the current silver price. And if you look at the above-cited press release this certainly seems plausible. This is the case because the company claims that it can get cash-costs down to $12 - $15 per ounce of silver mined net of by-products.
But let's keep a few things in mind.
First, the company is going to be losing money after the initial start-up, and cash-costs will come in at $30/ounce before the ramp-up period in 2015 gets the cash-costs down to $12-$15 per ounce level that would justify mining. Note that cash-costs do not include G&A at the corporate level, exploration, or sustaining costs, and for many silver mining companies these figures really add up: depending on the project they can be anywhere from $3/oz. to $10/oz.
Second, the company will be producing less silver than it had been prior to shutting down the mine last summer.
Third, the company plans on mining a particular set of mineralized veins--the San Mateo and Terneras veins--and other than portions of the San Mateo vein this ore has not been formally studied and analyzed in the company's NI 43-101 technical report. While the company has data supporting that these veins are especially high grade (4 gpt of gold and 200-250 gpt of silver versus 3.4 gpt of gold and 175 gpt of silver for the rest of the resource) any projections coming from this data--which consists of a few very promising drill holes--are speculative.
My takeaway from this is that management plans on mining these high grade veins initially--under the assumption that it can do so profitably--with the hope that the silver price will rise over the next couple of years so that the mine can continue to operate profitably once the company goes back to producing at the lower grade zones.
Between A Rock And A Hard Place
In short the company has an ambitious execution plan and it is attempting to time the silver market. The safe approach would be to just sit on its assets until the silver price rises. But if it did this then the company would still bleed cash, and at some point it would have to stop drilling (an endeavor that has proven successful in the past few months) and just wait while it slowly bleeds cash.
While neither decision seems to be ideal there are reasons to support management's decision, including the fact that the silver price seems to be forming a very solid base in the $18.60 - $20/oz. range and the fact that there are high grade ore zones that can potentially be mined profitably even at the current silver price. A few things have to go right for management's seemingly aggressive approach to work out, but if it does and the silver price begins its upswing again then we can see a clear path from today to the strong cash-flow situation that I discuss in my September article. If it fails then management will have to shut the Velardena Mine down again, and we will likely see dilution.
Management's Strategy for the Next 12 Months
A: Efficiency Measures
Golden Minerals really believes that it can operate the Velardena Mine profitably on a limited basis at the current silver price. In addition to its believe that the San Mateo and Terneras veins are high grade and can support production for a few quarters management has set several other efficiency-driven measures into effect. For instance it is going to operate the mine with 2/3 less staff, and this will significantly cut labor costs. It will also cut labor costs through a new labor agreement that covers 100 of the mine's 150 employees. It has also hired a new mine manager in order to find inefficiencies.
In addition it is implementing a new overhand cut and fill mining method meaning that ore will be removed from the bottom of the pit working upwards, and this should allow for narrow ore veins--as narrow as half a meter--to be isolated for extraction. This should limit the amount of waste that is mined and it will ultimately cut costs. the mine's operators can do this because just before management suspended the operation it built a ramp into the mine, which will now prove to be extremely beneficial.
B: Schedule And Costs
As I mentioned above the company is going to start operating the mine on a small scale at just 150,000 silver equivalent ounces per quarter, or about 75,000 ounces of silver. The company expects the loss plus the mine's startup cost to total about $4 million with a $1 million gain due to the fact that the mine will be taken off of "care and maintenance." The company should be able to absorb the net $3 million loss considering that its cash position was $15 million as of the end of March (with no debt) and given that its cash burn rate has been $4 million per quarter. Of course this also means that we can expect the company's net loss including G&A and operating the mine for 2014 will be the aforementioned $3 million plus another $4 million for 2 quarters of G&A assuming the same rate. But again, the company should be able to absorb a $7 million cash drain.
In 2015 the company hopes to ramp up its Velardena operation and it is at this point when costs will come down to $12 - $15/oz.--the company's mid 2015 goal. Now a big question concerns the production costs duringthe ramp-up period, or during the beginning part of 2015. If the company has just $4 million left at the end of 2014 and if the silver price remains the same we might see some dilution assuming G&A costs remain the same. But during that time-frame production costs will come down, and so the net $3.5 million per quarter burn rate will be gradually shrinking.
By 2015 the company hopes to be producing 275,000 ounces of silver equivalents, or about 137,500 ounces of silver per quarter or about half a million ounces of silver per year. Now assuming no sustaining or exploration costs, and assuming $2 million in quarterly G&A expenses if the mine is able to produce at $12/oz. then it is still losing money at $21.50/oz. silver ($2.8 million).
Now on the one hand we are using the optimistic end of production cost data and maybe this isn't appropriate. But we should also keep in mind that the $12 - $15/oz. range is net of by-product credits, and these include gold, which the company assumes is $1,250/oz. With the price at $1,340/oz. today this range should come down somewhat, especially since roughly 50% of the mine's revenue on a co-product basis comes from gold.
On the other hand the $2 million G&A cost assumes that the Q1 figure remains constant. But this figure is larger than the company's average, For instance the figure was $1.3 million in the fourth quarter. If we lower our G&A assumption by 20% we still get $6.4 million, and the company is still losing money, but very little.
Conclusion: Remarks On the Above Strategy and the Future of the Velardena Project
Despite the extremely strong share price performance we can see that unless the silver price rises, or unless the company can substantially cut its G&A expenses the company will lose money. But the Velardena Project ex-corporate G&A can make money.
There are, of course, a couple of questions. First, given that the project's San Mateo and Terneras veins haven't been thoroughly analyzed one has to wonder how long the company can mine them before it has to go back to mining the lower grade veins. With the overall resource's grade 20% lower than the anticipated grade at the San Mateo and Terneras veins it stands to reason that we can see cash costs rise. They won't rise by 20% because mining G&A is a relatively fixed cost included in the cash-cost model. However cash costs should rise. Therefore, if the San Mateo and Terneras veins run out before the silver price rises--assuming that it even will rise--then the Velardena Project's profitability on an operating basis will come into question.
The second question is: there are a lot of proposed changes here and they haven't been fully studied by an outside analyst. How are we supposed to evaluate their accuracy? A few miscalculations and the company burns through its cash and has to either shut the Velardena Project down or it has to dilute shareholders.
Given these points I must reiterate what I said above: an investment in Golden Minerals is predicated largely on a rising silver price. If the silver price rises this strategy will work, the company will make money, and it will eventually be able to go back to mining lower grade ore. Given that the mine has an estimated 30 million ounces of silver and 60 million ounces of silver equivalents it should be able to operate for years to come. A rising silver price will also mean that the company's 62 million ounce El Quevar deposit is more valuable.
Thus if you were fortunate enough to bottom-fish on this one and get some shares when the stock was trading around the level of cash on its balance sheet then now might be a good time to take profits. If you want optionality on the silver price, considering that the company has over 90 million ounces of silver and over 120 million ounces of silver equivalents (not to mention its estimated $11 million in cash and its exploration properties), then buying this stock is a great way to get it.
Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Took VJET four days ago, older trade idea, 4-6 days to cover most 3D printers. Playing out
Posted by steve101 on 17th of Jun 2014 at 02:31 pm
http://stockcharts.com/h-sc/ui?s=VJET&p=D&yr=0&mn=4&dy=2&id=p11129691439&a=352906113&listNum=59
IAG gold stock
Posted by steve101 on 4th of Jun 2014 at 10:44 am
Big volume in IAG yesterday. Actually, looking at a monthly chart, exheeds monthly volume many years back and only a few days into this month! Something going on?
article today, argues the yield curve has correctly predicted bear markets for 50 years
Posted by steve101 on 14th of May 2014 at 11:33 am
Bear market won’t come until the yield curve says so: Kleintop
Jittery investors who are looking to the indexes for signs of an approaching bear market might do better by focusing their attention elsewhere: on the yield curve. So says Jeffrey Kleintop, chief market strategist at LPL Financial, who asserts in a note Tuesday that the yield curve has a perfect track record of predicting the top of the stock market over the past 50 years, and it’s not signaling a bear market right now.
The yield curve is another way of describing the difference between short-term Treasury yields and long-term yields. It’s a favorite tool among financial and economics wonks because of what it says about the economy. The widening between the yields of different maturities, known as a steepening curve, often signals a brightening economic outlook. On the contrary, if the curve flattens considerably, the growth outlook tends to be souring.
If the Federal Reserve aggressively hikes its key policy rate, short-term Treasury yields in turn rise swiftly. If short-term yields climb higher than long-term rates, the curve is said to invert. An inverted yield curve is generally a sign that a recession is about to begin, which means that it’s also a predictor of the top of a bull market in equities, says Kleintop.
There are a number of different Treasury maturities one can use to calculate the yield curve, but Kleintop chooses to find the spread between the 3-month T-bill 3_MONTH and the 10-year note 10_YEAR -2.52% . Here’s where that differential has turned negative over the past 50 years, and how it compares with the S&P 500 index SPX -0.24% :
Writes Kleintop:
This puts Kleintop in the same camp as Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, who also claims the the bull market has more room to run because a recession isn’t imminent.
So now you’re worried about when the curve will invert. The yield curve has certainly been flattening over the last half year as bond investors fret about when the Fed will begin hiking its lending rate, which has been pegged near zero for the past half decade. But the good news is that the curve is still steep — and certainly a long ways from inverting. Here’s what the curve looked like on Monday:
As Kleintop writes:
Is NAMO chart a bit too oversold for much more downside now?
Posted by steve101 on 27th of Mar 2014 at 11:02 pm
NAMO chart
SPX 15
Posted by steve101 on 26th of Mar 2014 at 06:45 pm
http://stockcharts.com/h-sc/ui?s=$NAMO&p=D&yr=1&mn=6&dy=0&id=p53102129765&a=260150616&listNum=61
Steve, Matt,
Does this limit the downside action? This seems to have contained most of the moves down over the past year and a half.
COTS Timer says commitment of traders data indicates sell signal for silver, cash for gold
Posted by steve101 on 7th of Jan 2014 at 08:47 pm
Tuesday, 7 January 2014
Storms Brings Flurry of New COT Signals
See my latest signals table for the details and trader positioning in the 10 markets I trade using the free weekly Commitments of Traders reports.
The new signals:
- Cash for the BKX U.S. Bank Index, natural gas and gold.
- Bearish for silver.
Sorry for my delayed post this week. There was last week's holiday delay for the data - plus we missed our connection thanks to storm flight chaos in New York last night.
Room to go for a 38% fib retracement in Dow vs Gold historical chart
Posted by steve101 on 8th of Dec 2013 at 02:47 pm
http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-historical-chart
Commentary: Valuation model with good record flashing sell
Posted by steve101 on 14th of Aug 2013 at 09:21 am
Friday August 2nd valuation warning from investment service
Posted by steve101 on 3rd of Aug 2013 at 08:44 pm
VALUATION WARNING: Our models find that overvaluation is at levels typically seen when market pullbacks occur. Overvalued stocks now make up 77% of our stocks assigned a valuation and 46% of those equities are calculated to be overvalued by 20% or more. 15 of 16 sectors are calculated to be overvalued--13 of them by double digits.
ValuEngine Index Overview
ValuEngine Market Overview
ValuEngine Sector Overview
WiseGeek Hindenburg Omen criteria and definition
Posted by steve101 on 2nd of Jun 2013 at 12:42 pm
The Hindenburgomen is a series of market characteristics some people believe portend a major market crash. Mathematician Jim Miekka developed the criteria, and the Hindenburg omen can be highly accurate in some cases. Financial media may report when the conditions meet the criteria and will take note of any market shifts in the wake of the announcement. This is only one among many metrics investors can use to predict market movements.
According to proponents of the Hindenburg omen, the characteristics indicate shifting consumer confidence, which can precede a meltdown in the market. The omen is named for a famous zeppelindisaster that occurred in the 1930s, when the German airship Hindenburgcrashed in a fiery explosion in New Jersey. The name implies that the market can quickly go up in flames when certain conditions occur.
Statistics from the New York Stock Exchangeform the basis of the criteria. All of them must occur on the same day for the Hindenburg omen to be in play. The first is that at least 2.2 of the listed stocks must be making new highs andlows, reflecting positive and negative activity. The new highs cannot be more than double those of the new lows; if 10% of stocks are making new highs and 3% are making new lows, the criteria for the Hindenburg omen are no longer met. In addition, the 10-week moving averagefor the market must be on the rise. Finally, the McClellan oscillator, a metric for determining overbought and oversold stocks, must be negative.
Together, these criteria suggest faltering investor confidence. Even for investors who do not take the Hindenburg omen as the final authority, it can be a warning sign. When trading activity is mixed in this way, investors may be nervous and could be prone to panic. A major market event or a big piece of political news could set the market into turmoil and create a nosedive in market values as investors jockey for position.
Once the Hindenburg omen is identified, investors will watch the market closely for the next 30 days to see if it pulls out of the pattern, breaking the criteria, or if it continues to move in dangerous ways. Investors may reposition themselves to take advantage of falls in the market, or may move investments around to get their money in safer locations, such as out of volatile stocks and into stable government securities. This can create a snowball effect, as investors panic over the Hindenburg omen and create the very market conditionsthey fear.
How seriously should we take the recent Hindenburg Omen?
Posted by steve101 on 2nd of Jun 2013 at 12:37 pm
http://blogs.stockcharts.com/chartwatchers/2013/06/hindenburg-omen-triggered-after-fridays-big-market-reversal.html
Mark Hulbert article this morning....
Posted by steve101 on 16th of Apr 2013 at 09:09 am
MARK HULBERT Archives | Email alerts
April 16, 2013, 8:31 a.m. EDT
Gold’s fair value is $800 an ounce
Commentary: What price is justified by gold’s fundamentals?
By Mark Hulbert, MarketWatch
AFP/Getty Images Gold bugs may be in denial about the yellow metal’s fair value, writes Mark Hulbert.
CHAPEL HILL, N.C. (MarketWatch) — Gold’s bear market is just beginning.
That’s the depressing assessment from Claude Erb, a former commodities portfolio manager for Trust Company of the West, and co-author — with Campbell Harvey, a Duke University university finance professor — of an academic study from last June that is looking to be increasingly prophetic.
Gold prices plummet, but not at jewelry stores
Gold prices may be down more than 20% since 2011, but those looking to wear the precious metal rather than invest in it won’t find a similar decline at the jewelry counter.
In that study, the authors calculate that gold’s fair value is close to $800 an ounce. Though many of gold’s true believers were inclined to dismiss such a bearish projection when their study came out, it’s beginning to be taken a lot more seriously: Bullion’s recent slaughter has eliminated more than 40% of what a year ago they concluded was bullion’s overvaluation — including $240 over the last week alone.
These developments prompted me to check in with them to see if these recent developments had in anyway softened their bearish assessment.
No such luck.
On the contrary, Erb told me Monday morning, he thinks it is unrealistic to expect gold’s decline “to play itself out very quickly.” Referring to the five stages of grief that were made famous by Elisabeth Kubler-Ross, he believes the gold market right now is just in the first stage: denial.
The next four stages, for those of you who need reminding, are anger, bargaining, depression and, finally, acceptance.
As evidence of many gold investors being in denial, Erb referred to the large number of institutional investors and hedge fund managers who continue to own substantial gold positions. The “Denialists are like those in 2007 who thought real estate would go up forever, or Jim Glassman’s famous book at the top of the Internet Bubble projecting DJIA 36,000.”
Erb continued that these institutional investors and hedge-fund managers in coming days will have a lot of explaining to do with clients for why they didn’t anticipate gold’s plunge — and to convince those clients in any case why they should continue to invest in gold.
If those investors and managers lose the faith and decide to sell, and even if they don’t but if their clients do, then a huge amount of additional selling pressure will hit the gold market.
For a fuller discussion of the hard questions that Erb and Harvey ask about gold, read my early-February Barron’s column about their research. But to come up with an estimate of gold’s fair value, they calculate a ratio of gold to inflation going back as far as they were able to obtain data. They report that this ratio, when expressed in terms of the U.S. Consumer Price Index, has averaged about 3.2-to-1. Even at $1,400 an ounce, this ratio stands at 6.03-to-1, or nearly double this average.
And don’t be too quick to dismiss the awful implications of their research. You might not agree with it, but the authors don’t ignore the possibility that the under-reporting of actual inflation justifies a much higher gold price. They also respond to the argument that factors such as currency fluctuations automatically translate into a gold bull market. Finally, it’s not the case that they are biased against gold; Erb told me that he frequently invested in gold when he was a commodities fund manager. ( Click here to read their full study.)
Erb said that gold’s recent plunge is the all-too-predictable result of an asset whose price has become disconnected from fundamental value. While he allowed that gold could very well stage a powerful rally from here, he predicted that its final bear-market low will be a lot lower than where it stands today. After all, every time in history in which gold’s price has deviated significantly from fair value — as he and Prof. Harvey calculate it — it eventually has returned to it.
Click here to learn more about the Hulbert Financial Digest.
Mark Hulbert is the founder of Hulbert Financial Digest in Chapel Hill, N.C. He has been tracking the advice of more than 160 financial newsletters since 1980. Follow him on Twitter @MktwHulbert.
Sucks.
OT: Boston Marathon bomb
Posted by steve101 on 15th of Apr 2013 at 03:40 pm
Does this article stated very high hedge fund short levels in gold anticipate coming upside breakout seem credible to you?
Posted by steve101 on 15th of Mar 2013 at 09:08 pm
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/15_Incredibly_Important_Developments_In_Gold_%26_Silver_Markets.html
whoops here is the link, since it wouldn't post....
Posted by steve101 on 10th of Mar 2013 at 06:42 pm
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=8&dy=14&id=p65977273677&a=268297530&listNum=61
Remember this chart Steve posted a while back.... we're here....
Posted by steve101 on 10th of Mar 2013 at 06:41 pm
This sentiment data argues for more upside!
Posted by steve101 on 11th of Feb 2013 at 09:52 am
More and More Bears
The number of bears in our weekly market poll increased again this week, which is contrary to a lot of commentary we've been hearing lately about an overly optimistic investment community. As shown below, 59% of participants said the S&P 500 would be lower one month from now, while 41% said the index would be higher. In the prior week, there were 44% bulls and 56% bears, so the spread went from -12 to -18. We saw a similar drop in bullishness in AAII's weekly sentiment poll last Thursday.
When the stock market is hitting new highs, we're used to seeing bullishness pick up, but these days an overbought market brings the bears out.