For the last 10 months or so we have watched the precious metals mining sector try in vain to put in a decent rally only to run out of steam and disappoint some of its most ardent supporters – including us. Stock prices have tumbled and now present us with cheaper entry levels. Are they worth buying now? We don’t think so. Here’s why we still hold that view. Words: 415
So says Bob Kirtley (www.gold-prices.net) in edited excerpts from his most recent article* as posted on Seeking Alpha.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Kirtley goes on to say, in part:
Taking a quick look at the chart below we can see that the 400 level has been penetrated on the HUI index…The MACD is heading south and getting close to the 30 level, which is usually an indication that the stocks have been oversold but, unfortunately, the RSI has turned and is now heading south as well. [Also read this excellent article on the near term prospects for the HUI, gold and silver.]
Click to enlarge image.
We remain unimpressed by the performance of the mining sector and are relieved that we have kept our powder dry for the last 18 months or so, as stock prices have tumbled and now present us with cheaper entry levels. Are they worth buying now? We don’t think so. From today until Labor Day in the United States, Sept. 3, a holiday mood will take over with the markets trading in a narrow range and remaining flat. This time last year the precious metals stocks did rally heartily on the back of a massive move in gold prices. However, we are not expecting a repeat of that event.
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There could be a black swan event putting fear into the markets, which could drive a small rally in the price of gold and silver. Again, when its a “fear on” trade, the main beneficiary appears to be the U.S. dollar, which has reached a recent high of 83.66 on the U.S. dollar index. A year ago it was struggling to hold the 74 level. It would appear that bad news, normally good for gold, is no longer boosting gold and silver prices, but restraining them.
We need a turnaround in sentiment and interpretation of these factors to cause gold prices to rally strongly, thus setting the stage for a massive rebound in the mining sector. Until we have some indication that this is happening, we will not increase our exposure to the mining stocks. Instead, we will continue to look for opportunities in the options arena (it’s not for the fainthearted and you should never deploy money that you cannot afford to lose,) where a small move in the underlying asset leverage can result in a profitable trade.
*http://seekingalpha.com/article/724611-gold-stocks-fail-to-sparkle (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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