chux03
21st February 2009, 18:19
Oh, let me count the ways!! Not....I'm telling nobody what to do. I'm only offering possibilities....
How about this? Here's a great article explaining the possibilities for BIG profits in investing in QUALITY producing mining stocks. And if anyone is of like mind and wants to post more good articles by authors who know what they're talking about in recommending quality miners, go ahead and post away.
Personally, I like the leverage mining shares offer and I like them as another aspect of DIVERSIFICATION to my PM portfolio. And I like the newsletter authors themselves, most of whom are of the free market, Libertarian point of view, much like ourselves here. Read on.
This is from Adam Hamilton of ZEAL with the link at the end.
Gold Stock Surge
Adam Hamilton February 20, 2009
Earlier this week, the US stock markets (S&P 500) fell 4.6% to their lowest close since November 20th’s panic low. It was a very unpleasant day as latent fears of bungled government meddling flared up again. But one sector, the gold stocks, was able to buck this very weak tape. That very day the HUI gold-stock index rallied 2.6%.
This action was actually a microcosm of what we’ve seen since the stock panic’s lows. At its very best in early January, the S&P 500 (SPX) was up 24.2% from its panic lows. That certainly wasn’t bad, but since then those gains have been pared to 4.8%. The stock markets aren’t plunging anymore, but they certainly aren’t recovering very enthusiastically either.
Meanwhile, gold stocks as measured by the HUI were up 76.0% in early January over the very same 30-trading-day span where the SPX saw its greatest post-panic gains to date! And provocatively, back in early January gold was only trading in the $860s so the growing gold excitement we’ve seen this week was not a factor behind gold stocks’ initial outsized post-panic gains.
At best from its own panic lows (as of this week), the HUI has soared 113.8% since late October! For investors and speculators looking for sectors that are thriving in this challenging time, gold stocks are it. The financial media’s oft-expressed lament that nothing is doing well in these markets is simply untrue. Gold stocks have already rallied strongly and odds are the majority of their surge is still yet to come.
It may seem odd to be very bullish on a sector that has already more than doubled in less than 4 months, but gold stocks are not your typical sector. Gold stocks have one major driver, the price of gold. In long-term fundamental terms, the gold price determines their profits and hence their ultimate stock prices. In near-term sentimental terms, the daily gold action drives traders’ desire to add capital to this tiny sector.
And as you know if you’ve seen any CNBC lately, the strong gold surge over the last week or so is a big deal. Even mainstreamers are getting interested as the psychological milestone of $1000 again looms large. With gold soaring $89, or 9.9%, in just 6 trading days, traders are naturally getting a lot more interested in the gold stocks that leverage this metal.
Long ignored by all but a few contrarians despite their epic 1331% bull run between November 2000 and March 2008, the gold stocks are still a tiny sector. At the end of January the total market capitalization of all the stocks of the HUI was a trivial $123b. Meanwhile the S&P 500’s was running at $7785b, 63x larger even at today’s depressed stock-market levels. So if even a small fraction of mainstreamers decide they want some gold-stock exposure, this sector will fly.
But interestingly, the bullish case for gold stocks goes far beyond the new interest $1k gold is generating. Like most sectors, gold stocks were sold off far too aggressively in the midst of the stock panic. They have yet to even reflect the low-$700s gold seen in the panic, let alone today’s much higher gold prices. If they simply mean-revert to their years-old historical relationship with gold, they will rally mightily.
Two charts will make this case crystal-clear. The first simply shows the price of gold (red) and the HUI gold-stock index level (blue) over the past year. Both vertical axes are zeroed so raw percentage changes are easier to compare visually. While gold really held up pretty well during the stock panic, gold-stock traders did not. They let their intense fears cloud their logic and judgment leading them to sell like mad.
Last summer the HUI was drifting lower in a typical modest downtrend often seen during the summer doldrums. But in late July, the HUI plunged below support. This was when the GSEs, Fannie Mae and Freddie Mac, were imploding which greatly exacerbated the credit crunch. Owners of the ubiquitous GSE debt, which is backed by American residential mortgages, started dumping their bonds and parking capital in vastly safer US Treasuries.
Of course foreigners first had to buy US dollars before they could buy Treasuries, so the US dollar surged in one of its strongest rallies ever witnessed. This led to a sharp $127 (13.9%) gold plunge in the first half of August. Not surprisingly the gold stocks, which are driven by gold, plummeted in sympathy. The chain of events from this bond panic ignited by the GSE implosion kicked off the HUI’s brutal 67.7% plunge.
With gold weak, gold-stock traders’ psychology was already shaken before the stock panic. And gold actually recovered by mid-September, blasting $160 (21.5%) higher in just 7 trading days. The HUI rallied sharply on gold’s strength, hitting 354 in late September. It probably would have continued rallying from there, but then the psychological maelstrom of the Great Stock Panic of 2008 slammed into the markets. Gold stocks did not escape.
A panic is a bubble in fear, investors and speculators rush to sell anything and everything in order to raise cash fast. In just 5 weeks, gold-stock traders sold so aggressively that they drove the HUI 57.2% lower! The HUI has never seen anything like this before and probably won’t again in our lifetimes, since true stock panics are once-in-a-century types of events. This was catastrophic for gold-stock sentiment.
But the great irony of all this is gold only fell 18.9% over that 5-week stock-panic span. Throughout history, even during stock bears, the gold stocks tend to follow gold on balance, not the stock markets. Sure, extreme fear in general stocks can temporarily spill into gold stocks from time to time. But strategically they always ultimately march to the beat of the gold drummer. Since gold governs their future profits and current psychology, it rules them with an iron fist. So this huge disconnect was very strange.
Even if gold had done nothing since, even if it had lingered in the low $700s, it was crystal clear during the panic that gold stocks were radically oversold. We were buying aggressively in late October and early November, as the best time to go long is when everyone else is terrified so the bargains are the greatest. A pair of new gold-stock and silver-stock investments I recommended to our newsletter subscribers near those panic depths were already up 69.2% and 105.8% as of this week.
I was buying when everyone else was selling because the longstanding relationship between gold stocks and the price of gold was all out of whack. In the 5 years before the stock panic, the HUI/Gold Ratio (HGR) had usually traded in a tight range between 0.46x and 0.56x. It averaged 0.511x over this secular time frame. In other words, the HUI index generally traded around half the price of gold. You can see a long-term chart of this HGR relationship in an essay I wrote just after the stock panic.
This narrower span over the past year offers higher resolution on the HGR developments during the stock panic. When the HGR is rising, it means the HUI is outperforming gold. Conversely when the HGR is falling, it means gold is outperforming the HUI. Often in this latter case, as the blue HGR line below shows, gold’s outperformance means gold is simply not falling as fast as the HUI in a correction.
Read the rest here:
www.zealllc.com/2009/huisurge.htm
How about this? Here's a great article explaining the possibilities for BIG profits in investing in QUALITY producing mining stocks. And if anyone is of like mind and wants to post more good articles by authors who know what they're talking about in recommending quality miners, go ahead and post away.
Personally, I like the leverage mining shares offer and I like them as another aspect of DIVERSIFICATION to my PM portfolio. And I like the newsletter authors themselves, most of whom are of the free market, Libertarian point of view, much like ourselves here. Read on.
This is from Adam Hamilton of ZEAL with the link at the end.
Gold Stock Surge
Adam Hamilton February 20, 2009
Earlier this week, the US stock markets (S&P 500) fell 4.6% to their lowest close since November 20th’s panic low. It was a very unpleasant day as latent fears of bungled government meddling flared up again. But one sector, the gold stocks, was able to buck this very weak tape. That very day the HUI gold-stock index rallied 2.6%.
This action was actually a microcosm of what we’ve seen since the stock panic’s lows. At its very best in early January, the S&P 500 (SPX) was up 24.2% from its panic lows. That certainly wasn’t bad, but since then those gains have been pared to 4.8%. The stock markets aren’t plunging anymore, but they certainly aren’t recovering very enthusiastically either.
Meanwhile, gold stocks as measured by the HUI were up 76.0% in early January over the very same 30-trading-day span where the SPX saw its greatest post-panic gains to date! And provocatively, back in early January gold was only trading in the $860s so the growing gold excitement we’ve seen this week was not a factor behind gold stocks’ initial outsized post-panic gains.
At best from its own panic lows (as of this week), the HUI has soared 113.8% since late October! For investors and speculators looking for sectors that are thriving in this challenging time, gold stocks are it. The financial media’s oft-expressed lament that nothing is doing well in these markets is simply untrue. Gold stocks have already rallied strongly and odds are the majority of their surge is still yet to come.
It may seem odd to be very bullish on a sector that has already more than doubled in less than 4 months, but gold stocks are not your typical sector. Gold stocks have one major driver, the price of gold. In long-term fundamental terms, the gold price determines their profits and hence their ultimate stock prices. In near-term sentimental terms, the daily gold action drives traders’ desire to add capital to this tiny sector.
And as you know if you’ve seen any CNBC lately, the strong gold surge over the last week or so is a big deal. Even mainstreamers are getting interested as the psychological milestone of $1000 again looms large. With gold soaring $89, or 9.9%, in just 6 trading days, traders are naturally getting a lot more interested in the gold stocks that leverage this metal.
Long ignored by all but a few contrarians despite their epic 1331% bull run between November 2000 and March 2008, the gold stocks are still a tiny sector. At the end of January the total market capitalization of all the stocks of the HUI was a trivial $123b. Meanwhile the S&P 500’s was running at $7785b, 63x larger even at today’s depressed stock-market levels. So if even a small fraction of mainstreamers decide they want some gold-stock exposure, this sector will fly.
But interestingly, the bullish case for gold stocks goes far beyond the new interest $1k gold is generating. Like most sectors, gold stocks were sold off far too aggressively in the midst of the stock panic. They have yet to even reflect the low-$700s gold seen in the panic, let alone today’s much higher gold prices. If they simply mean-revert to their years-old historical relationship with gold, they will rally mightily.
Two charts will make this case crystal-clear. The first simply shows the price of gold (red) and the HUI gold-stock index level (blue) over the past year. Both vertical axes are zeroed so raw percentage changes are easier to compare visually. While gold really held up pretty well during the stock panic, gold-stock traders did not. They let their intense fears cloud their logic and judgment leading them to sell like mad.
Last summer the HUI was drifting lower in a typical modest downtrend often seen during the summer doldrums. But in late July, the HUI plunged below support. This was when the GSEs, Fannie Mae and Freddie Mac, were imploding which greatly exacerbated the credit crunch. Owners of the ubiquitous GSE debt, which is backed by American residential mortgages, started dumping their bonds and parking capital in vastly safer US Treasuries.
Of course foreigners first had to buy US dollars before they could buy Treasuries, so the US dollar surged in one of its strongest rallies ever witnessed. This led to a sharp $127 (13.9%) gold plunge in the first half of August. Not surprisingly the gold stocks, which are driven by gold, plummeted in sympathy. The chain of events from this bond panic ignited by the GSE implosion kicked off the HUI’s brutal 67.7% plunge.
With gold weak, gold-stock traders’ psychology was already shaken before the stock panic. And gold actually recovered by mid-September, blasting $160 (21.5%) higher in just 7 trading days. The HUI rallied sharply on gold’s strength, hitting 354 in late September. It probably would have continued rallying from there, but then the psychological maelstrom of the Great Stock Panic of 2008 slammed into the markets. Gold stocks did not escape.
A panic is a bubble in fear, investors and speculators rush to sell anything and everything in order to raise cash fast. In just 5 weeks, gold-stock traders sold so aggressively that they drove the HUI 57.2% lower! The HUI has never seen anything like this before and probably won’t again in our lifetimes, since true stock panics are once-in-a-century types of events. This was catastrophic for gold-stock sentiment.
But the great irony of all this is gold only fell 18.9% over that 5-week stock-panic span. Throughout history, even during stock bears, the gold stocks tend to follow gold on balance, not the stock markets. Sure, extreme fear in general stocks can temporarily spill into gold stocks from time to time. But strategically they always ultimately march to the beat of the gold drummer. Since gold governs their future profits and current psychology, it rules them with an iron fist. So this huge disconnect was very strange.
Even if gold had done nothing since, even if it had lingered in the low $700s, it was crystal clear during the panic that gold stocks were radically oversold. We were buying aggressively in late October and early November, as the best time to go long is when everyone else is terrified so the bargains are the greatest. A pair of new gold-stock and silver-stock investments I recommended to our newsletter subscribers near those panic depths were already up 69.2% and 105.8% as of this week.
I was buying when everyone else was selling because the longstanding relationship between gold stocks and the price of gold was all out of whack. In the 5 years before the stock panic, the HUI/Gold Ratio (HGR) had usually traded in a tight range between 0.46x and 0.56x. It averaged 0.511x over this secular time frame. In other words, the HUI index generally traded around half the price of gold. You can see a long-term chart of this HGR relationship in an essay I wrote just after the stock panic.
This narrower span over the past year offers higher resolution on the HGR developments during the stock panic. When the HGR is rising, it means the HUI is outperforming gold. Conversely when the HGR is falling, it means gold is outperforming the HUI. Often in this latter case, as the blue HGR line below shows, gold’s outperformance means gold is simply not falling as fast as the HUI in a correction.
Read the rest here:
www.zealllc.com/2009/huisurge.htm