Gold & Precious Metals

The Gold Report: Were you surprised by the collapse of the prices of gold and silver?

Chris Mancini: Yes, I was very surprised. I thought that the macro backdrop for gold and silver was very positive at the beginning of the year. The Federal Reserve had just begun its process of Quantitative Easing 3 (QE3): printing $85 billion ($85B) a month. Japan announced it would undertake its own QE program, which would be a much bigger percentage of its GDP than the U.S. plan.

TGR: And Mario Draghi said he’d do “whatever it takes”?

CM: Yes. The president of the European Central Bank said he’d do whatever it takes to ensure that there was a recovery in Europe, implying a willingness to buy bonds with printed money. It seemed that all this liquidity splashing around should have been positive for gold.

TGR: What, if any, is the relationship between QE and the price of gold?

CM: I think what drives the gold price is the view that gold is the ultimate savings instrument. It can’t be tampered with, is not replicable and is nobody else’s liability. With QE1 and QE2, that money found its way to the highest-growth economies: China, India, Thailand, Vietnam and other countries in Asia. These countries experienced high rates of inflation because this money was chasing scarce resources. And so the average guy on the street was getting 3–4% interest rates on his savings in a the equivalent of a six-month certificate of deposit versus price increases of goods of more than 10%. In other words, negative real interest rates. Holding cash in the bank is a money-losing proposition. This led to an increased demand for gold.

“What drives the gold price is the view that gold is the ultimate savings instrument.”

With QE3, we have continued to see a lot of demand from China, India and other countries in Asia, especially as the gold price has come down. But we also heard this steady drumbeat of talk that QE was going to end because the economy was doing really well. And because the economy was doing well, people should be in income-producing investments, like stocks or even bonds. So they started getting into them.

This became a self-fulfilling cycle: stocks went up, which meant that the economy was supposedly getting better, which meant that QE was ending, so you shouldn’t have any gold. Then we had the crash in April.

TGR: Don’t some people believe that QE is the only thing keeping us from economic disaster?

CM: Over the past three quarters, we’ve had enormous and unprecedented amounts of fiscal and monetary stimulus, while the U.S. economy has grown on average by less than 1%. What I don’t understand is why people expect the economy to grow at 3–4% without any monetary or fiscal stimulus.

Interest rates were pushed way down by QE, and so people needed to find yield. They weren’t finding any in bonds. So they went into dividend-paying stocks. So you had this enormous rise in the stock market so far this year, which I think has been mostly due to QE and forcing investors out of other assets, bonds specifically.

TGR: That’s what they say about inflation—the money has to go somewhere, right?

CM: What the stock market is showing us is the effect of the creation of $85B every month.

TGR: Let’s assume there will be a tapering of QE. What effect will this have on the price of gold?

CM: I don’t think a relatively small tapering of QE would have a meaningful effect because it has already been priced in to a large degree. If QE ends completely, I think the S&P 500, Dow and NASDAQ will correct meaningfully. And then you’ll hear a tremendous clamor from the markets for more QE. If that happens, there will be a realization that we’re in this for good, and I think that this would be good for gold.

TGR: You have probably come across these stories of skullduggery in paper gold. One story heard often these days is that the Comex in London has no physical gold. Another is of tremendous amounts of paper gold being leased in order to drive down the price. Do you put any credence in these stories?

CM: I don’t know the intricacies of it, so I can’t really say. However, the severe drop in gold on those two days in April made very little sense from a pure supply and demand perspective. It just didn’t smell right.

TGR: Even before the gold price collapse, gold equities were in the doldrums. So with gold in the $1,300s, what is the case for gold equities?

CM: The equities are highly leveraged to the gold price. So if the price of gold goes back up to where it was at the beginning of the year, $1,500–1,600/ounce ($1,500–1,600/oz), the profitability for gold miners is going to be highly leveraged on the upside. The other case to be made is that given that the average all-in cost of production is around $1,100/oz and there are plenty of mines that produce at $1,350/oz or above, there will be mines that will come offline. So that supply coming offline should support the gold price. The companies are cutting costs right now, and the cost base should be relatively fixed. With gold at, say, $1,600/oz, the companies will be very profitable given the cost cuts taking place now. I believe they’ll then pay down debt, and then they’ll hopefully start returning cash to shareholders in the form of dividends. I think there is a very good argument to be made that if you own the miners now and you want exposure to upside movement in the gold price, the miners are a very good way to do it.

TGR: You’ve divided gold companies into three categories “relative to their ability to be able to weather the current storm.” These categories are the “Good,” the “Not-So-Bad” and the “Maybe Ugly.” Which criteria determine the good company?

CM: Access to cash, access to cash flow and the ability to take advantage of the current distress in the market. The best example now is a royalty or streaming company.

TGR: What royalty and streaming companies do you like?

CM: I like Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) andSilver Wheaton Corp. (SLW:TSX; SLW:NYSE). All of these companies have access to cash. They are all cash-flow generative. None of them has real operating leverage. They have royalty or streaming rights to lower-cost mines, which really aren’t at much risk of coming offline in the lower gold-price environment.

“The severe drop in gold on those two days in April made very little sense from a pure supply and demand perspective.”

Some are taking advantage of the downturn. Franco-Nevada bought a royalty on Pretium Resources Inc.’s (PVG:TSX; PVG:NYSE) Brucejack deposit in British Columbia. It bought a royalty on Midas Gold Corp.’s (MAX:TSX) Golden Meadows deposit in Idaho, so that Midas could finance its existence going forward.

TGR: Is Franco-Nevada your second-largest holding?

CM: Yes. We’ve held it since its initial public offering. Franco is able to benefit in good times because companies expand and also find more gold, but it doesn’t have to put up any capital. And it has the ability to capitalize during the bad times by picking up some good royalties and good properties at very good valuations, which is what it has done in the past couple of quarters.

TGR: Could you name some other companies in your good category?

CM: B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX) has net cash on its balance sheet and generates cash flow. The company is building its Otjikoto project in Namibia, which is low cost. Once that is completed, it has no further capital commitments. It has a credit line of about $150M that it could use to finance another project. If it doesn’t make an acquisition, it should be fine. If it does, it has the ability to make a very accretive acquisition.

Another company in the Good category would be Fresnillo Plc (FRES:LSE), a Mexican company.

TGR: Your fourth-largest holding?

CM: Yes. Fresnillo has net cash on its balance sheet. It has some of the lowest-cost production in the industry for silver and gold. It is generating cash flow now. It is building mines. And it is starting to fund some juniors that are running out of cash. Now is a great time to do it.

TGR: When you spoke to The Gold Report in January, Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE) was No. 1 of your holdings, around 12%. At the end of June, that’s up to 13.8%. Why do you like it so much?

CM: Randgold has been through a number of cycles. It has net cash on its balance sheet and has low-cost operations. It should be able to benefit from this downturn when we come out on the other side. The company has good managers, and it is building in an environment where input costs are becoming less tight. Its Kibali project in the Democratic Republic of Congo should begin production at the beginning of 2014. After that, I could see Randgold buying exploration-stage properties in distress or continuing to earn into properties by financing their exploration.

TGR: What characterizes the Not-So-Bad companies?

CM: Access to enough cash that they won’t need to finance anytime soon or access to capital through cash flow. One example is Comstock Mining Inc. (LODE:NYSE.MKT), which built its Nevada mine in an unconventional way. In a typical Canadian model, a company would go out and spend a lot of money drilling a deposit, then trying to finance it into production or sell it. Comstock knew that it had gold: a very economic, small, oxidized, heap-leachable deposit. It decided to bring that into production while still exploring. So now it is cash-flow generative and will become more so as the mine scales up. As it explores, it will be able to show how big the deposit could be. That said, Comstock’s balance sheet is kind of tight right now: only a few million at the end of Q2/13. Hopefully, it won’t have to finance again. If it doesn’t, I would promote it to the Good category.

TGR: What are some other companies in this category?

CM: Detour Gold Corp. (DGC:TSX) is coming into production and should be cash-flow generative at $1,300/oz gold. It has a little bit of debt and just did an equity deal to get it through this startup period. I’d put Detour in the Not-So-Bad category now, but once it’s at full commercial production, if it operates according to plan and begins to pay down some of its debt, I would promote it to the Good category.

I would rate Continental Gold Ltd. (CNL:TSX; CGOOF:OTCQX) in the Not-So-Bad category. It can weather the storm. It has a lot of cash. The company can get its project in Colombia to the preliminary economic assessment or prefeasibility stage with the cash on its balance sheet. Once that’s done, it will be able to show it has a very good, very high-grade gold deposit, which shouldn’t require a large upfront capital expenditure. After it demonstrates the economics of the deposit through a prefeasibility study, it could be bought by a major.

TGR: How do you rate companies that have financed, but will need to go to the markets again?

CM: I would rate them between Maybe Ugly and Not-So-Bad. The true Maybe Ugly companies don’t have a defined resource and don’t have economics surrounding the resource. They’re just exploring and need cash.

“If the price of gold goes back up to where it was at the beginning of the year, $1,500–1,600/oz, the profitability for gold miners is going to be highly leveraged on the upside. “

Golden Queen Mining Co. Ltd. (GQM:TSX) is not like that because it has a defined feasibility study, and it has a permit to mine. It is actually building its very economic, heap-leach deposit in Mojave, Calif. It has $10M, which should get it maybe to the beginning of 2014. It is going to need to finance again, but when it does, it should be able to show that any return on incremental capital being committed by an equity investor will be high even at $1,300/oz gold. I think Golden Queen is OK.

Eastmain Resources Inc. (ER:TSX) also has the potential to move into the Not-So-Bad category. It has a very high-grade deposit in a good jurisdiction: Eau Claire in north-central Quebec. It will publish a resource within the next couple of months showing about 1+ million ounces of very high-grade, open-pittable gold. It also has mineral rights to a vast, prospective and never explored vein field adjacent to Eau Claire.

TGR: How do you rate the majors?

CM: Newmont Mining Corp. (NEM:NYSE) is in the Good category now. The company is cutting its cost structure and doesn’t need to finance. It has cash on its balance sheet. Newmont is in the process of completing construction on a new mine called Akyem in Ghana. It is also in the process of completing a pit layback on a copper-gold deposit in Indonesia called Batu Hijau, which should give it access to increased cash flow.

Barrick Gold Corp. (ABX:TSX; ABX:NYSE) is in the Not-So-Bad category. It has some of the best mines in the world, is the biggest producer and one of the lowest-cost producers. But Barrick has a lot of debt, and in this lower gold price environment, all its excess cash flow is going to service that debt.

Goldcorp Inc. (G:TSX; GG:NYSE) is in the Good category. It is building the Cerro Negro project in southern Argentina, the Éléonore project in northern Quebec (adjacent to Eastmain’s Eau Claire deposit) and an expansion to its Red Lake mine in Ontario. So Goldcorp is spending a lot right now, but it has a net-neutral balance sheet. Once these projects are completed by the middle of next year, they should generate a lot of cash. Goldcorp owns 10% of Eastmain, and if it were to finance Eastmain at reasonable valuations, I think that would be accretive for it.

Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) is in the Good category and shouldn’t have any issues with financing in the short term. It is building a heap-leach project called La India in Mexico, which should be brought on-line by the middle of 2014. The key issue is its LaRonde mine, which will be getting to some higher-grade ore hopefully by the beginning of next year. This will generate a lot of cash. Agnico has taken advantage of the downturn by financing some juniors. It has bought stakes in ATAC Resources Ltd. (ATC:TSX.V), Kootenay Silver Inc. (KTN:TSX.V), Probe Mines Limited (PRB:TSX.V) and Sulliden Gold Corp. (SUE:TSX; SDDDF:OTCQX; SUE:BVL).

I think AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE), Sibanye Gold Ltd. (SBGL:NYSE) and Harmony Gold Mining Cos. (HMY:NYSE; HRM:LSE) are really going to struggle, given their high costs and labor issues in South Africa.

TGR: What about some other of the larger companies?

CM: Newcrest Mining Ltd. (NM:TSX; NCM:ASX) is in the Not-So-Bad category now, and hopefully it can get into the Good category. In this lower gold price environment, it has really taken its medicine. It’s modified its mine plan at its biggest mine, Lihir, to maximize cash flow. It modified the mine plan at Telfer to some extent. Once its best mine, Cadia East, gets to full production capacity—it’s an underground block cave that has copper and gold—it will generate a great deal of cash. It has a little bit of debt now, and it will have to deal with that.

I’d put Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) in the Good category. It has financial flexibility. It is building three mines now: Ernesto/Pau-a-pique, Pilar and C1 Santa Luz. When they are finished, we’ll see how much cash flow they generate. Of its current stable, the most economic mines are El Peñón, Chapada and Mercedes, which make up around half of Yamana’s production. They are good, very low-cost mines. Their other mines are only OK, but they do generate good cash flow at $1,300/oz gold.

I think Kinross Gold Corp. (K:TSX; KGC:NYSE) is a little stuck. I’d put it in the Not-So-Bad category. It has deferred Tasiast, which was its big capital item, so I don’t think it’s going to need finance any time soon. Its balance sheet is OK, but its mines are not generally great, and some are relatively high cost. So at $1,300/oz, it’s not going to be generating a lot of free cash flow. If Kinross doesn’t build Tasiast, then it’s difficult to see where it goes from here.

TGR: If trillions of dollars keep being created to forestall deflation, what does this mean for gold in the long term?

CM: I don’t think anyone really knows the answer to that. To the degree that we had economic growth over the past 10 years, it’s been predicated on increased leverage. After the leverage bubble popped, consumers couldn’t borrow any more. The way we avoided deflation was through increased government borrowing and money printing. Eventually, it comes down to people questioning the value of the dollars in their pockets, and when people begin to doubt paper money, gold should be a very valuable alternative and do extremely well.

TGR: Chris, thanks so much.

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Chris Mancini, CFA, is a research analyst at the Gabelli Gold Fund Inc., specializing in precious-metals mining companies. He has over 13 years of investment management experience, including research analyst positions at hedge funds Satellite Asset Management and R6 Capital Management. Mancini earned a bachelor’s degree in economics with honors from Boston College.

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DISCLOSURE: 
1) Kevin Michael Grace conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Franco-Nevada Corp., Pretium Resources Inc., Comstock Mining Inc., Detour Gold Corp., Continental Gold Ltd., Goldcorp Inc., Probe Mines Limited and Sulliden Gold Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Chris Mancini: I or my family own shares of the following companies mentioned in this interview: Agnico-Eagle Ltd., Barrick Gold Corp., Comstock Mining Inc., Continental Gold Ltd., Eastmain Resources Inc., Franco-Nevada Corp., Fresnillo Plc, Golden Queen Mining Co., Goldcorp Inc., Newcrest Mining Ltd. and Randgold Resources Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. 
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

U.S. stocks rose, giving the Dow Jones Industrial Average its biggest gain since July 11, as exports from China topped forecasts and corporate acquisitions fueled optimism in the world’s largest economy.

The equities gauge has rallied 17 percent this year as the Fed continued to provide stimulus to the economy. A report Sept. 6 showed payrolls in the U.S. climbed less than projected in August and gains in the prior two months were revised downward, fueling speculation that any Fed move to taper its stimulus program will be limited.

….read more on the Fed, Apple, the President in this detailed article HERE

Oil: The Key To It All

Posted by Nadia Simmons: Sunshine Profits

on Monday, 9 September 2013 18:45

Oil’s Relationship with Oil Stocks and Gold

In our previous Oil Update we examined major factors, which previously fueled the price of light crude. Before we move on to the technical part of our Oil Update, let’s take a closer look at the events of the previous week.

At the beginning of the last week President Barack Obama won the backing of key figures in the U.S. Congress, including Republicans, in his call for limited strikes on Syria. Additionally, a missile test by Israeli forces training in the Mediterranean with the U.S. Navy set nerves on edge. These circumstances fueled the oil market and resulted in a sharp pullback to over $108 per barrel. In spite of this growth, in the following days, the price of light crude was trading in the narrow range between the Tuesday’s low and top.

Looking at the chart of crude oil, we can conclude that investors came back to focusing oneconomic data, because further improvement in the U.S. labor market is the key for the Fed to begin scaling back its $85 billion a month of bond purchase. Friday’s data showed that U.S. employers hired fewer workers than expected in August and the jobless rate hit a 4 and a half year low as Americans gave up the search for work.

The weaker-than-expected U.S. payroll numbers for August raised doubts about whether the Federal Reserve will start paring its massive stimulus and resulted in higher prices of light crude.

Another factor, which fueled the price of light crude was the G20 summit in St. Petersburg. According to Reuters, crude oil rose 2% after President Obama told, that failure to act against Syria’s use of chemical weapons would embolden “rogue nations” to use them too. The U.S. President has faced growing pressure from Russia, China, the European Union and major emerging market countries not to carry out a strike without support from the U.N. Security Council. Taking the above into account, there are concerns about how the crisis could affect relations between Washington and Russia and China.

In spite of this, the main worry now is that Iran, an ally of Damascus, could get involved if the United States goes ahead with attacking Syria. In this case, the entire region could become inflamed yet further, causing major oil supply problems.

What impact did these circumstances have on light crude? Crude oil climbed above $110 per barrel. This is a largest weekly percentage gain in two months, at 2.7%, the highest since July 5. It is also the largest daily percentage gain since August 27.

Keeping in mind these factors and their impact on the price of light crude, let’s now move on to the technical part of our Oil Update. Just like a week ago, we take a look at the charts from different time perspectives to have a more complete picture of the current situation in the oil market.

Let’s start with a look at the monthly chart of light crude (charts courtesy byhttp://stockcharts.com).

simmons september92013 1

Looking at the above chart, we see that the situation hasn’t changed much.

Quoting our last Oil Update:

(…) light crude still remains above the two long-term declining resistance lines: one of them (bold red line) is based on the July 2008 and the May 2011 highs, and the second one is based on the September 2012 and March 2013 highs (the upper black line).

From this perspective the picture is bullish and the breakout above these two long-term declining resistance lines hasn’t been invalidated.

Now, let’s zoom in on our picture of the oil market and see the weekly chart.  

simmons september92013 2

On the above chart, we see that the situation has improved recently. Although the price of light crude dropped below $105 per barrel at the beginning of the previous week, oil bulls didn’t give up and pushed it higher in the following  days. In this way crude oil reached the strong resistance zone based on the March 2012 top and the upper border of the rising trend channel once again.

Taking the above into account, we should consider two scenarios. If the buyers manage to break above this strong resistance zone, the first price target will be close to the May 2011 top. However, if they fail, history will likely repeat itself and the price of light crude will come back to the consolidation range. In this case, the first price target for sellers will be around $105 per barrel.

From this point of view, the outlook is still more bullish than not at this time.

Now, let’s check the short-term outlook.

simmons september92013 3

In this daily chart, we see that the situation has improved in the recent days. At the beginning of the previous week the price of light crude dropped below $105 and reached the rising support line based on the August 8 and August 21 lows (marked in black). It’s worth noting that this area was also supported by the 50-day moving average, which stopped the decline in June and, again, at the end of August (it was not even reached). In both previous cases this moving average encouraged buyers to act, which resulted in a sharp rally in the following days.

As you see on the above chart, we had a similar situation in the previous week. Light crude rebounded to over $110 per barrel and climbed above the March 2012 on an intraday basis, however, the breakout was not confirmed.

At this point it’s worth mentioning that the recent correction is shallow and similar to the previous ones, which is a bullish factor. Additionally, when we factor in the Fibonacci price retracements, we clearly see that the recent corrective move has been quite small because it hasn’t even reached the 38.2% level.

When we take a closer look at the above chart, we see that a consolidation has been formed inthe recent days. On Friday, buyers managed to break above the Tuesday’s top, which (according to theory) should result in further growth and the price target for the pattern is below the May 2011 top (around $113.45).

Where are the nearest support levels? The first is the 50-day moving average (currently at $105.52). The second one is the rising line based on the August lows (slightly below $105). The third one is the Tuesday low at $104.21. The next one is a zone (between $102.22 and $103.50) based on the bottom of the previous corrective move (the August 21 low) and the August low. As you see, there is also the 38.2% Fibonacci retracement level, which reinforces this support zone.

Summing up, although there was a downward move, which took the price of light crude below $105, technically, the short-term outlook for light crude is still bullish. The uptrend is not threatened at the moment, because the recent decline was shallow and similar to the previous ones.

Once we know the current outlook for crude oil, let’s examine the NYSE Arca Oil Index (XOI) once again to find out what the current outlook for the oil sector is.

Let’s start with the long-term chart.

simmons september92013 4

On the above chart, we see that the situation hasn’t changed much. We’ve been seeing a consolidation in the recent months and the NYSE Arca Oil Index is trading between the July top and the July low.

The XOI remains quite close to the May 2011 top and it’s still above the previously-broken long-term declining resistance line based on the 2008 and the 2011 highs and the breakout hasn’t been invalidated. The oil index also remains in the range of the rising trend channel.

Taking the abovementioned observations into account, the situation is still bullish.

Let’s take a closer look at the weekly chart.

simmons september92013 5

Looking at the above chart, we see that most of what we wrote in our last Oil Update is up-to-date today.

(…) the NYSE Arca Oil Index still remains above the medium-term support lines. Keep in mind that the strong support line (marked in black) stopped the decline in June, which resulted in a rally in the following weeks.

Please note that we should still keep an eye on the above-mentioned support line, because it is also the lower border of the rising wedge. As you know, this is a bearish pattern and if buyers fail, it will likely lead to a decline which may take the oil index at least to the lower medium-term support line (the red one).

The medium-term uptrend is not currently threatened, and the situation remains bullish.

What about the relationship between light crude and the oil stocks?

When we take a look at the above chart and compare weekly closing prices in both cases, it may seem that oil stocks were weaker in the previous week, because they didn’t reach a new local top in terms of weekly closes. As you see, light crude close the whole week above the closing level of February 21, 2012. However, it’s worth noting that the XOI climbed above this level at the end of January. Additionally, light crude still remains below the May 2011 top.

Now, let’s turn to the daily chart.

simmons september92013 6

Quoting our last Oil Update:

(…) it’s worth noting that the XOI closed the previous week at the 50-day moving average, which still serves as support. If it holds, we may see a pullback to the Wednesday high.

As you see on the above chart, the 50-day moving average stopped further declines and encouraged oil bulls to push the oil index higher. In this way, the XOI came back above the 61.8% Fibonacci retracement level (based on the entire July-August decline) and closed theprevious week slightly above the July 30 low (in terms of daily closing prices).

Please note that the next resistance level is the declining line based on the May and July highs (currently close to the 1,404 level). If it is broken, the buyers’ next target will be the July peak, and then the May top.

The nearest support is at the 50-day moving average (currently at 1,373.74). The next support zone is based on the August 27 and August 30 lows (1,361-1,364), and a further one is based on the August 21 bottom and the 61.8% retracement level (1,338-1,339).

On a side note, we’ll comment on the relationship between the WTI and the XOI in the short term. Despite the negative divergences at the beginning of the previous week, the second half looked pretty much the same in both cases and we saw increases.

Summing up, from the long and medium-term perspectives the outlook for oil stocks is still bullish and the uptrend is not threatened at the moment. Taking into account the relationship between light crude and the oil stocks, it seems that crude oil is still a step behind the oil index.  

Speaking of relationships, let’s take a closer look at the chart below and check the link between crude oil and gold. Has it changed in the recent days? Let’s examine the daily chart.

simmons september92013 7

In the last week of August we noticed that light crude hit its top a bit earlier and when we saw a downward move in oil, gold was still rising. However, after the yellow metal reached its highest level during Wednesday’s session, light crude accelerated its declines. In the following days both commodities continued to show weakness.

On the above chart we see that in both cases the buyers stopped the downward move on Tuesday. In the days following the sharp pullback, crude oil was trading in the narrow range between the Tuesday’s bottom and top. What’s interesting, at the same time gold declined once again. In other words, the consolidation in light crude triggered another move lower in gold. Despite the negative divergences, the last session of the previous week looked pretty much the same and in both cases we saw growths.

Taking the above into account, it’s worth taking a closer look at the medium-term outlook for gold.

Let’s turn to the weekly chart of the yellow metal.

simmons september92013 8

In our last Oil Update we wrote:

(…) gold (…) reached a strong resistance zone based on three important levels: the first of them is the June’s top; the second one is the April’s bottom (in terms of weekly closes); and the third one is the 38.2% Fibonacci retracement level based on the September 2012 – June 2013 decline.

As you see on the above chart, the yellow metal attempted to move above this resistance zoneonce again, but this try failed for the second time, and the breakout was invalidated.

The medium-term situation seems quite bearish and if gold drops below the declining resistance line based on the October 2012 and February highs the outlook will be even more bearish.

Summing up, taking the long and medium-term relationship between light crude and the oil stocks into account, it seems that the oil index is a step ahead of crude oil. If this assumption is true, in the nearest future we will likely see an upward move in crude oil to at least the May 2011 top. Looking at the relationship between crude oil and gold, we first noticed the negative divergence. As we previously wrote, the consolidation in light crude triggered a downward move in gold. Additionally, crude oil broke above the Tuesday’s top and approached the September top on Friday. Meanwhile, gold was trading significantly below the Tuesday peak, which is a bearish sign. Taking this into account and combining it with the current situation in the yellow metal, it seems that the acceleration of the downtrend in gold is still ahead of us. Connecting the dots, the short-term link between the yellow metal and crude oil may wane in thecoming weeks.

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Thank you.

Nadia Simmons

Sunshine Profits‘ Contributing Author

Gold Trading Tools and Analysis – SunshineProfits.com

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Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Michael Woodford is a professor at Columbia University. He is the leading academic in terms of his contributions to the field of Monetary Policy, and his work is considered one of the foremost influences on the world’s central bankers today. His policy recommendations like forward guidance (promising low rates until seeing improving prospects of economic growth) provide a basis for how investors postion themselves in financial markets today. 

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Global Insights – Sept 9th

Posted by Kevin Konar, RBC

on Monday, 9 September 2013 17:14

Kevin Konar

»» Equities rose and safe-haven bonds fell following solid economic data across regions—U.S. employment report aside.

»» Weak job gains are unlikely to derail the Fed’s tapering plans.

»» For 10-year Treasuries, 3% is set to become the new 2%. That has far reaching implications across regions. Investors should position portfolios accordingly. (page 3)

»» Global Roundup: Overview of Canada’s strong employment report. Is the market ahead of itself regarding the BOE’s easing bias? Interesting comments by Chinese officials about local government debt. (pages 3-4)

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