Diehards and Last-Ditch Campaigns

TORONTO – “This is the worst I’ve seen in 30 years.”

The scene was the recent Sprott-Stansberry Natural Resource Symposium in Vancouver. The subject was mining equities. And the opinion was becoming familiar …

 

gonu

Golden pet rock as found in nature … the Camel Gold Nugget – 9,3 kg

Photo credit: Arthur Lukyanov

 

The price of gold is down by about 8% over the last five years. Precious metals miners, as measured by the Market Vectors Gold Miner’s ETF, are down by about 70% over the same time.

 

1-GDX and goldGDX (at the top) vs. gold over the past five years – click to enlargte.

 

Mining execs say banks won’t return their calls. Promoters say they are thinking about taking their firms into cloud computing, video games, or Chapter 11.

“What do you know about cloud computing?” we ask.

“Nothing. But I know gold mining. And I know it’s no place to make money.”

In the broader markets, everything was green on Wednesday – almost. The Dow was up. Oil was up. Shanghai stocks were up. But gold fell $2.50 in New York to close at $1,096 an ounce. And it was down another $10 in overnight electronic trading.

Here at the Diary, we are champions of the down and out. We support diehards and last-ditch campaigns. Partly, it’s a romantic and poetic attachment to the underdog. But there’s a practical reason, too: There’s often money to be made in woebegone assets.

We favor Russian and Greek stocks… provided you have a very long time horizon for your investments (and a strong constitution to boot). The Russian and Greek economies are said to be at death’s door.

 

2-RSX and GREKMore woebegone assets: RSX (Russian stock market ETF) and GREK (Greek stock market ETF). The woebegone stuff is what one actually needs to buy if one wants to make serious money investing in the long term. Often this takes a lot of patience and a good stomach. But it is is almost always worth it – click to enlargte.

 

Greece is in trouble because it has lived beyond its means for too long and because it creaks under a corrupt and sclerotic bureaucracy. Russia, meanwhile, has been hit by a double whammy.

The first came when the price of oil got cut in half from its peak of $108 in July 2014. Roughly half of Russia’s tax revenues come from oil exports. Half-price crude oil export prices mean half-full government coffers. That’s why Putin just slashed over 100,000 government jobs.

The second came when the U.S. and the E.U. came up with a provocative plan to impose economic sanctions for alleged misbehavior in Ukraine. Greece and Russia may be down. But they are unlikely to be out forever.

 

An Avalanche of Bearish Sentiment

Nor is the mining industry…

Unloved. Unbought. Unwanted. Mining is the Greece of investment sectors. Particularly unloved is mining for gold. Market Insight editor Chris Lowe has begun to prepare a weekly internal memo highlighting particularly absurd trends in the popular financial trend.

 

3-Gold OptixThe gold optimism index, which shows the average of the most important gold sentiment surveys and positioning data. Its current reading of 12 is the second lowest in history, undercutting even the excessive bearishness at the end of a 20 year long bear market in the year 2000 – click to enlargte.

 

It’s soon to be available to lifetime subscribers to The Bill Bonner Letter. But for now, it’s circulated exclusively among our analysts and researchers around the world. This week’s memo focuses on the intense loathing in the gold market.

Reports Chris:

 

“As is the norm when the gold price falls, the mainstream press is going through a bout of Schadenfreude

The Washington Post for example recently ran an article under the headline “Gold is Doomed”

Bloomberg says gold is a “a textbook short”

And Jason Zweig in the Wall Street Journal claims gold is nothing more than a “pet rock”.”

 

What to make of all the negative sentiment toward gold in the mainstream press? Chris again:

 

“This is exactly the sort of thing that happens during panic sell-offs and major lows. In the same way that wildly bullish articles come out at the top, there’s an avalanche of bearish commentary as we approach the lows”

 

World Trade Slows

Also unloved, but definitely not in the pet rock category, is copper.

“Copper is the most important metal in the sector,” said mining mogul Robert Friedland at the Sprott-Stansberry event on Tuesday.

“More important than gold. Because copper is in everything. Houses. Autos. Computers. Much of the Internet functions on copper. So if the price of copper goes down, it tells us that the whole world economy is soft.”

Here’s the Financial Times with more about the global slowdown:

 

“The latest World Trade Monitor showed the volume of world trade falling in May by 1.2 per cent. It has slid in four out of five months in 2015 and risen just 1.5 per cent in the past 12 months — less than the growth in global output and far below the long-term average of about 7 per cent a year.

The problem has been getting worse for some time. Trade bounced back fairly well in 2010 after the global recession but it has disappointed ever since, growing by barely 3 per cent in 2012 and 2013. Now it seems the world cannot manage even that.”

 

4-world trade monitorThe volume of trade in goods has declined rather noticeably – and unit prices have declined even more.

 

If the global economy is slowing, as the numbers suggest, there is little reason to expect a comeback in copper any time soon.

 

5-CopperCopper: down, but certainly not out. An interesting price/RSI divergence has developed recently – click to enlarge.

 

On the other hand, there’s no way copper is going to disappear from the world economy. It’s essential. And it’s intensely cyclical. Prices go up; miners produce more. Prices go down; they cut back until supplies are tight again. So, although the price may be down… copper is not out.

And as we explained on Monday, you can count on the Fed – and other major central banks – to exaggerate the commodities cycle with more cheap credit. We doubt gold is out for the count either.

Excess debt set off the 2008 global financial crisis. Today, according to McKinsey, there’s about $60 trillion more debt in the world than there was back then. It is only a matter of time before today’s counterfeit stability gives way to genuine panic.

Then the “pet rock” will turn out to be “man’s best friend.”

 

Charts by: StockCharts, wolfstreet.com, SentimenTrader

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

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3 Responses to “Gold Miners, RIP …”

  • RagnarD:

    ” Calling tops and bottoms is a fool’s game.”
    But calling “textbook head-and-shoulders pattern forming over the November-June period” is….?
    What are you “calling”?

    • VB:

      Go read up on the “head-and-shoulders” pattern. I didn’t call a bottom – I wrote that the price was likely to decline further. In fact, the pattern provides pretty clear levels for expected target (profit-taking) and how to quickly realize that the pattern has failed (stop-loss). It’s a pretty easy pattern to trade, really.

  • VB:

    The carnage in the gold sector shouldn’t be a surprise to any competent technician who bothered to notice the textbook head-and-shoulders pattern forming over the November-June period. I even warned about it here. Of course, none of the always-bullish-on-gold promoters bothered to notice it. Oh, well. The lower it goes, the closer it is to a bottom, right? But let’s wait for a clear trend change instead of trying to catch falling knives – and that goes for Russia and Greece, too. Calling tops and bottoms is a fool’s game.

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