Stunning Gold & Silver Charts Reveal Shocking Global Situation

Today the man who provides macro research and commentary to many of the largest financial institutions and top hedge funds around the world sent KWN 5 absolutely stunning gold and silver charts illustrating the shocking global situation in both metals. Eric Pomboy, who is founder of Meridian Macro Research, and whose sister Stephanie Pomboy appears in Barrons, also provided incredible commentary to go along with the 5 stunning gold and silver charts, as well as what all of this means going forward for the gold and silver markets.

“The Net Commercial Gold Position has moved even closer to positive territory (reduction of 20% for week ending 6/25). The nearly $560/oz drop since the announcement of QE3 in mid-Sept. 2012 has resulted in the most bullish Commercial reading since August 2002 when Gold was $310/oz.

Given the enormous volume for just Wednesday-Friday (total of 873,719 contracts…the largest 3-day volume since the mid-April smash), I would not be surprised to see the net short position cut nearly in half by next week, with a net long reading not far off.

The next chart offers a different look at the COT data as we wanted to get a sense of Gold’s performance relative to the very bullish Net Commercial position. Since October 2012, the Commercials have pared their net short position by 87%, yet the overdone selling in Gold has resulted in a huge disconnect when compared to prior cycles.

Friday was a strong day for the Gold miners. Spot Gold was up $34, and the GDX (+7.5% on the day) traded a record 75.3 million shares…more than 1 million shares above the April 15 (previous) record when Spot Gold dropped $135/oz (GDX -10% on the day). The (14 day) Relative Strength Index for GDX surged +11.1 points on Friday to 39.14…above the 30 ‘oversold’ level….

“The RSI has been below 30 three times this year (all since late February). The last time we saw 3 consecutive oversold readings in just a 4 month span was when Gold made its bottom in 2008. In sum, it would seem the Gold miners may finally be back on firm ground.

Looking at the Dow/Gold ratio, in the ’74-’76 period the Dow rose +73% while gold retreated -40%. Gold has retreated -36% from its Sept. 2011 high (-38% if using Friday’s intra-day low), while the Dow has risen +127% from its 2009 lows (up +40% since Sept. 2011). In our estimation, the ratio reversal should not be far off, if not already here.

Our last chart shows value of US Gold Reserves is at historic lows relative to Monetary Base, below 2001 levels when Gold was in the mid-$200’s. Gold would have to be $3,850 today for Reserve Value just to match 31% of Monetary Base seen in 2008 as the recession took hold.

Gold has endured quite a drubbing, and the naysayers are piling on. The bear case: Gold pays you nothing and its 15 minutes of fame have come and gone. That’s the extent of the forensic analysis. There is no mention that the global economy is in continued crisis and that easing policies are set to ramp up, not down.


Gold returns, bonds die, plus other investing themes to watch for

Everything is changing, so what sort of themes should you look for in the balance of the year? Read on to find out.

The year is half over and investors don’t have much to show for it: A TSX loss of nearly 4%, the Canadian market is underperforming the U.S. and just about everything else, and there’s a market backdrop where all the rules for Canadian investors seemed to have changed overnight.

What’s new? Plenty and it’s not good.

Golds, which every Canadian has loved for 12 years, are dying. Every day, it seems, the sector is taken down another notch, even as they seem ‘cheap.’ The problem: massive fund redemptions and no buyers in sight.

REITs, which provided stable income and gains to investors for a decade, are now treated like lepers.

And telcos, one of the best places historically for both income and growth, are now dropping like a junior miner’s shares thanks to seemingly random CRTC rules on competition.

Everything is changing, so what sort of themes should you look for in the balance of the year? We’ve outlined five to consider, but keep in mind we are in a rapidly changing landscape. Flexibility might be an investor’s key to surviving what lies ahead.

Interest rates will keep rising, but not as much as you think

The devastation in the REIT and utility sector this past month was brought about by higher interest rates, and, more importantly, the fear of more rate increases to come. Suddenly, fixed-income payouts don’t seem so attractive.

But, seriously, is the economy really fixed? Are we surging so much that interest rates need to move way higher to slow things down? Hardly.

Yes, there is economic improvement, but we are not out of the woods yet. Rates are unlikely to head to 6% from their 2% levels now. Yields of 7% on REITs such as Artis (AX.UN/TSX) will start to look attractive again at some point.

Bonds are… dead

Despite the first theme, it might indeed be over now for the bond market. After years of bubble talk, the bond market may not have popped, but it surely has sprung a leak.

A bond coupon of 2% that is taxed at the highest rate, and then subtract 2% for inflation, means you lose money on your so-called safe investment. Compare that with the 14% market return in the U.S. and you can see why investors are reconsidering — and selling — their bonds.

Dividend growth is back

If the economy is going to grow again, investors will want to participate in that growth. Being the nervous nellies that investors are, however, they are still going to want dividends. Any company paying dividends that also has the ability to grow its dividend is going to attract interest.

For example, Alaris Royalty Corp. (AD/TSX) has increased its dividend not once, but twice this year alone. Its stock is up 30% on the year and investors ponied up $92-million for new Alaris shares this week.

Gold shares will bounce

Seriously. We don’t know when it will happen, but many gold companies are trading near their cash values or far below the replacement value of their still-profitable mines.

We’ve talked to many investors this month who are physically sick over the sector’s plunge. Generally, this means the bottom might be close. (Warning: It could still get very ugly before it gets better.)

We think the best buying opportunity will be in the late fall, when year-end tax-loss selling and portfolio position causes even more sector selling.


Reefton’s gold rush over

Reefton is pinning its hopes on a possible new underground goldmine in the area after Australian goldminer OceanaGold Corporation said it would mothball the Globe Progress mine in two years.

OceanaGold said the plunging gold price led to its decision to place Globe Progress, near Reefton “in care and maintenance” from mid-2015, cutting its life by two years.

It is another blow to the West Coast‘s mining community, which lost 230 jobs late last year when the underground Spring Creek coalmine was mothballed by state coalminer Solid Energy.

OceanaGold said a week ago it was reviewing the mine’s future. About 260 people work at Globe Progress, which opened in 2006.

The company said it would keep in place the plant and equipment and would evaluate other opportunities in the Reefton gold field, such as the potential to mine the ore body underground at Globe Progress and at the historic Blackwater mine.

It had a technical study under way on the Blackwater Project, about 15 kilometres south of Globe Progress. If the economics stacked up and received board approval, development could start in 2014-2015, OceanaGold’s chief executive, Mick Wilkes, said.

Despite the mothballing news, OceanaGold shares ended the day 4 cents higher at $1.44. The price has been falling steadily since last year’s peak of $4.50 in October.

Gold plumbed fresh three-year lows yesterday, falling below US$1200 (NZ$1536), then rising again, with investors battered and bruised after a 30 per cent drop in the price this year. Speculators in China were reported to be selling.

Reefton Area School principal Wayne Wright said about 30 families at the school would be affected by Globe Progress halting operations in mid-2015. The mine was an important part of the Reefton economy and community.

“The spinoff in terms of money in the community has been wonderful,” Wright said.

“Reefton as a community kind of adapts very quickly to the highs and lows of the mining industry and always seems to remain buoyant.”

The community was looking to the prospects of the Blackwater project.

“[OceanaGold] do have other initiatives in the area they would like to open up. The Blackwater proposal is at Waiuta, in that area there they will go underground. Those possibilities are there for people.”

Mining had its peaks and lows and “people get on with it”. Private coalmining was going on in Reefton as well, Wright said.

OceanaGold said in April that, from a deep drilling programme, it estimated Blackwater had an inferred resource of 600,000 ounces of gold. It had been drilling near the historic Blackwater Mine.

A fresh study would expand on previous conceptual mining scenarios and would include a study of mining method options aiming for production of 50,000 to 60,000 ounces of gold a year. The study was expected to be completed late this year.

Wilkes said in April that the drilling gave the firm confidence about the continuation of the ore body below the historic mine.

Engineering, Printing and Manufacturing Union area organiser Garth Elliott said mine staff were given a presentation about the future of the mine and the choices available to the company a few months ago. They were therefore aware an announcement like yesterday’s could come.

The union has 126 members at Globe Progress. Most lived in Reefton, Greymouth and Westport.