Gold Stocks Poised to Move Higher

Gold 

gold

The following chart (thanks to Kitco) shows the continued drop in the price of gold this year. From a high of $1,900 US in 2011, gold has continually drifted lower.

If you haven’t noticed, the price of an ounce of gold continued its fall in June. It hit a low of $1,180 US in June as ETF’s and gold funds continued to liquidate their positions. This was almost a 40% drop from its high, and in technical terms, most drawbacks from a high comes close to the 40% mark. In technical terms, this re-tracement in the price of gold is quite normal in a normal market.

As the investing world turned against commodities and gold, investors withdrew their money from the funds that bought gold. This reversed a multi-year trend during which the demand for gold drove the gold price ever higher.

If you want to understand what happened, read why the commodities market crashed. This was an event that compounded upon itself into a vicious cycle. 

Why Gold Fell so Dramatically

In a short explanation, some powerful traders picked a time and drove the price of gold dramatically lower almost instantly. They made fortunes doing this. When the price fell, investors got frightened and started to redeem their investments in gold funds. In order to give investors back their money, the funds sold gold, thereby creating an imbalance whereby there were more sellers than buyers, and the price of gold fell further.

This continued until all reason had left the market. If you want a picture to illustrate this, the following chart (again from Kitco) shows this phenomenon of gold being snapped up in ever increasing amounts to meet investor demand.  

Exchange Traded Fund's Physical Gold Holdings Chart [CPM Group]

Unwinding this massive position created a temporary oversupply of gold, and the price of gold fell.

Gold is Recovering

Look at the top chart. Gold fell too far, and too fast. When there is a decline in the value of something in the market, it is rapid, vicious, and more times than not, overshoots the bounds or reason. Gold fell too far and too fast. It did a double bottom, and bounced up. At today’s close, it was $1,345.00, or an increase of $165 or 14%, and is showing signs of more strength.

 Understanding When to Invest

I have often written on how investors had to take a longer term view of the market. When markets fall, they invariably fall too far. Investors invariably react too severely and the smart money uses these events to make super profits. Whether it be Warren Buffet, or Baron Rothschild, the advice is the same. Buy when fear pervades the market and bargains abound. 

Gold and gold stocks are on sale right now. A great time to buy.

Everyone is watching gold imports by India and China to project the future short term price of gold. Last week, India released official numbers showing that 262 tons of gold had been imported. This caused a flurry and a day later this figure was revised to 172 tons, and then to 26 tons of gold. China had equally distorted numbers released. 

Today, there was fear because India has put new restrictions on the import of gold. Yet the price of gold did not fall. For the market to react to these distorting numbers, is just fluff. Look past the headlines – look into the trend.

The simple facts are that

  • the correction in gold was within the normal parameters of a normal correction in the market (40%),
  • in spite of tremendous selling pressure from gold funds the price of gold is now moving up
  • India is putting curbs on gold imports because too much gold is being imported
  • the cost of production of an ounce of gold is now approaching the selling price of an ounce of gold

 Buy When There is Blood in the Streets

 If you wait for Boxing Days sales to shop, this is Boxing Day. Prices of gold miners and producers are moving up and the downtrend has reversed. Look at our stock picks.

We may or may not have positions in securities we name. In making an investment decision consider numerous factors such as portfolio balancing, timing, cash and capital reserves, asset allocation and other. Do your own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.

Views expressed are opinions and not investment advice. You should retain a licensed professional to guide you and  not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.