Napoleon Bonaparte once said “never interfere with an enemy when he is making a mistake.” Our analysis suggests that many gold mining and exploration stocks are literally “on sale” based upon several of our valuation and technical gauges. They are being given away. As always, very few investors ever take advantage of low prices in anything. Perhaps we can learn a lesson from Napoleon in addressing the opportunities investors miss in gold stocks when frustrated shareholders are selling their gold stocks. Lesson? Say nothing and quietly accumulate the shares while they are undervalued. One French Canadian working as a broker in New York City said to me years ago that “every other investor is your enemy.” He was correct, work silently and share little information. 

 

1-We have said it before and will say it again, for a bull market in gold stocks, we need to have a bear market in the large cap industrial stocks such as the Dow Jones Industrials.

 

2-The world’s central bankers want to keep the price of gold bullion and gold stocks down as rising gold prices carry an image of fiscal uncertainty and possible financial chaos.

 

3- But at the same time, price weakness in gold bullion allows the central banks of China, India and Russia the opportunity to buy gold bullion at low prices……and they do just that.

 

4-The major negative to the price of gold is a strong U.S. Dollar…if my technical analysis is correct, the strength in the dollar should be finished with 2 to 3 months and the dollar should be moving down. The chart is telling me a story; I hope that it is not lying to me!

 

5-Why have we seen such weakness in the gold stocks? Besides the fact that gold’s price is being manipulated as we have seen with middle of the night “paper sales” when the market is thin which is designed to create price weakness, another primary reason is that there are no longer the large number of market makers offering support for stocks when the stocks are being sold. In the past, there were solid market makers and at the same time, research support from the brokerage houses.

Today, both are almost non-existent and stocks drop much further in price than they did in the past. However, that does offer investors opportunities to buy shares at lower prices than was possible in the past as there are no longer specialists/market makers offering buying support and buying when the stocks are bottoming.

 

6-Insider (officers and directors) selling of their own personal shares of the large Industrial stocks has been at a very high rate touching approximately $500,000,000 worth of stocks in a recent week with less than $40,000,000 total value of buying in the same week. Yet, the Canadian gold stocks have displayed very little selling and a high rate of buying. Many have very large percentages of the shares owned by their managements as well.

 

7-Cycles in Gold? Very important cycles in gold are scheduled to be turning up soon, at the same time; the cycles also suggest that the stock market could be making a major top. That is not to say that we should not invest in industrial stocks, rather perhaps take money off the table and buy during periods of weakness. Personally, we are almost always fully invested.

 

8-In July of 2013, we suggested that many gold mining stocks were starting to make their price bottoms. Many gold stocks have made their price bottoms since then and while price drops could occur again, we find that trying to buy many small cap mining shares in any volume is difficult.                            Thank you, K.C.G.