Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

…Risk On…Risk Off…

Stock-Markets / Financial Markets 2010 Dec 20, 2010 - 09:13 AM GMT

By: HRA_Advisory

Stock-Markets

Best Financial Markets Analysis ArticleIt doesn’t matter if you’re naughty or nice; Santa has been coming early to resource investors everywhere this year.  A somewhat ironic combination of fear buying in precious metals and fearless buying in most everything else has generated gains across the sector this month.

In fact, the gains were good enough to have us checking the numbers on many development stories to make sure we were not wearing rose coloured glasses.   We were mildly surprised to find that many stories looked, if not cheap, then at least like they still had headroom.  That is a testament to just how good metal price moves were this month.


While still comfortable, it’s worth remembering that no small part of those gains were generated by late to the party funds that might want to book some profits for year end. There are doubtless plenty of itchy fingered traders just waiting to ease into the next tax year to take some money off the table.  Neither of those is fatal flaws but the potential for year-end turbulence should not be underestimated.

Happily, there are plenty of exploration stories to keep the adventure in the Venture exchange. There are also many worthy causes in what is still a tough year for many, should you choose to book some profits early and want to play Santa yourself.

This past July the TSX .V S&P index bottomed for the year around 1350, double its post Crunch base in late ‘08, on 75 MM of volume.  The index has now passed 2100 and has days approaching 250 MM of turnover that have never been seen before. The gain of the past two years required five years to achieve from the bear market low at a similar level in 2000.  Even though the Venture exchange is still a 1000 points shy of its pre Crunch peak range, the increasing turnover suggests interest in its listings continues to build.   

That’s what a venture market looks like during a bull run, and TSX.V has a very heavy resource component.  Of course the peak of a venture market is like an equatorial sunset — blue sky to a brilliant play of color and then darkness all before the ice chips melt away.  Are we approaching late afternoon for this market? 

We keep saying this market is driven by underlying fundamentals.  In going through valuations for a broad swath of companies on our list we are impressed that, despite some large recent gains, as a group they are at or below levels justified by current metal pricing.  We still think the resource market is closer to noon than sunset.  However, noon is when the shadows shift around and we don't lack for caution.    

Gains in the precious metals space have been large.  Gold and silver are go-to assets right now, and are being priced higher without the usual reference to the US$ (see below).  Silver has doubled from post Crunch lows in two years, and half that gain has come in the past three months.  Gold is just shy of doubling through that period, on a chart that is steady as well as persistent.  Palladium has better than tripled, and platinum has more than doubled but is still below its 2008 high.

These gains are of course exaggerated by the hammering down of prices during the Crunch panic.  There are supply concerns for all but platinum, but for gold and silver much of that concern is because of investment demand.  It’s possible that demand will simply grow larger, but at some point it will level off and generate profits taking.  We aren't looking for an end to this secular market, but a leveling off that will impact buying of related companies. Nor are we suggesting we can date that shift.  Rather, our concern is that no one can time it other than recognizing it gets more likely as gains continue.  Its therefore important to stay on top what has been driving the gains.         

Fear has been a major contributor to rising metal prices.  Fear for the US economy and its Dollar has been most important.  The reactive gains for metals, and gold in particular, when the US Dollar weakens is a market standard.  It’s a simple equation that also has a comfortable normalcy in abnormal times.   The problem is it isn't just the US that is grappling with debt.  

The Euro world became a scarier place again in the past while.  Ireland, the former Celtic Tiger, finally gave up trying to deal with its debt hangover alone.  The EU has fronted it a €90 billion loan package under the emergency program it had hoped to never to actually use.  In return, Ireland is promising some serious budget cuts, though it will continue to be a tax haven of sorts.  Many Continental types are none too pleased about that.  The fact they granted the funding anyway is a measure of how serious the problem was getting. Among other things this will mean consolidating Ireland’s overextended bank sector. 

The country’s PM is promising an election now that the austerity plan is laid out.  The Irish public isn’t happy about the situation.  The cuts and tax increases are large in relation to Ireland’s budget, yet some doubt they are going to be enough.  A change in government seems likely but whoever wins the election will still have to make hard choices. 

That is just how it’s going to be in Ireland and plenty of other places until deleveraging is worked through.  It won’t be the last Eurozone member government to announce a budget that has the citizenry up in arms.  No small part of the problem is that little sovereign debt is considered “safe”.  A government perceived to be weak on reducing debt load sees its bonds hammered, which only increases the load if debt needs rolling over. 

There is no easy balance between citizens who had planned against promised services, and debt holders who don't want to be stuck with the bill for those services.  Within the Eurozone a partial solution could be creation of €bonds for all users of the common currency.   Of course Germans aren’t happy with the thought of their interest rates being boosted for of the sake of leveling the Euro playing field.  Many are reminiscing about the D-Mark.  The banks Germans stash savings wouldn't be any more solvent with D-Mark if the government bond issues those savings have been placed in default. 

The other suggested solution is to curb the shorting of government bonds to stabilize rates.  Problem is capital would simply shift away from those bond markets, which is much the same in the end.  The reality is that reducing sovereign debt is the only real solution.  It will require prolonged economic pain, but doing anything would only put that pain off.    

On the other side of the globe, North Korea is saber rattling again.  Some see this as Kim Jong Un, the dictator’s youngest offspring and political heir, earning his chops. Others take it as the military sending a message to everyone, including the ruling family, which they really call the shots in the Hermit Kingdom.

Either way, the omens don’t look good at the moment.  It could be another in the long line of extortion attempts disguised as nuclear disarmament talks, but shelling civilians is beyond even that outer pale.  The Hermit King not seeing that is as scary as flexing nuclear muscle.  This is how war is backed in to.

These events have led to some wild swings in the market as traders go from “risk on” responses to events to “risk off” trades when incremental economic gains show up in stats.  Interestingly, “risk on” selling hasn't included the gold market.  Most other metals have seen selling, though mostly in short term reactions.  Gold has become a general uncertainly hedge, and its price has survived most shifts back to the US$.  At least so far. 

Base metals have had an expected correction, though a short lived one.  Copper is again hitting new highs on quite real supply concerns.  Other base metals have also been recovering, which we consider more follow the red metal leader than fundamentals.  These will be determined by China and other growth economies.

Inflation has continued rising in China and its government has increased bank reserve requirements again.  Many believe Beijing will be forced to move to interest rate increases to cool its real estate sector.  That should lead to even more upward pressure on the Yuan.  If China finally let the currency rise the way it should it would be a big help on the inflation front.  

Traders recently snapped up a Yuan denominated bond issue in minutes in the expectation that increased currency value would make up for any loss on the interest rate side.  Whether that turns out to be wishful thinking remains to be seen.  It has become a working premise for this market simply because Yuan is the only paper most people like these days.  What China’s government mostly wants is stability.  Economic gains have provided that so far, but if a cooler economy is needed to still unruly crowds cold water will be found.  It wouldn't end China’s growth, but it could slow metal markets.     

Resources, but metals in particular, have become the easy money trades.  Financings in the base metal space have multiplied in recent weeks, and on the basis of real fundamentals.  We are not concerned about the medium term, nor are we worried about a wholesale exit from the sector any time soon.  But after rapid gains it’s important to look for signs of fatigue, and to turn paper gains into actual gains before it sets in. 

Ω

It’s a secular bull market for metals and resources. We’ve been saying that for nine years. And we’ve been right. Another thing we’ve been right about is the growing importance of the Yukon as an exploration destination and, more recently, Area Play. HRA was there early and continues to follow several of the biggest winners in the play and is tracking dozens of others for potential inclusion in HRA publications. 

CLICK HERE to access your FREE Yukon Report from HRA now! HRA initiated coverage on 15 companies since early 2009 – the average gain to October 10, 2010 is 278%! 

By David Coffin and Eric Coffin
http://www.hraadvisory.com

    David Coffin and Eric Coffin are the editors of the HRA Journal, HRA Dispatch and HRA Special Delivery; a family of publications that are focused on metals exploration, development and production companies. Combined mining industry and market experience of over 50 years has made them among the most trusted independent analysts in the sector since they began publication of The Hard Rock Analyst in 1995. They were among the first to draw attention to the current commodities super cycle and the disastrous effects of massive forward gold hedging backed up by low grade mining in the 1990's. They have generated one of the best track records in the business thanks to decades of experience and contacts throughout the industry that help them get the story to their readers first. Please visit their website at www.hraadvisory.com for more information.

    © 2010 Copyright HRA Advisory - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

    HRA Advisory Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in