Gold Speculator - Zeal, LLC http://www.gold-speculator.com/ Adam Hamilton/Scott Wright Proprietors of Zeal, LLC. zealllc.com en Fri, 10 Sep 2010 07:40:11 GMT vBulletin 60 http://www.gold-speculator.com/images/misc/rss.jpg Gold Speculator - Zeal, LLC http://www.gold-speculator.com/ Gold-Mining Margins http://www.gold-speculator.com/zeal-llc/37406-gold-mining-margins.html Fri, 03 Sep 2010 15:53:56 GMT Scott Wright September 3, 2010 2479 Words

Gold mining is a tough business. In the quest to meet growing global demand these miners are constantly barraged with challenge after challenge. They are attacked by environmentalists, targets of governmental meddling, purveyors of a science that is not exact, and must always fight to renew their finite resources.

Gold miners are also at the mercy of fluctuating gold prices. Prices can be radically different from when a mine initially commences development to when it pours its first gold years later. Even on a month-to-month or week-to-week basis, miners can see material differences in their revenues based on what prices are doing. But thankfully, this blitz of opposing forces proves worthwhile in a secular bull market.

With the price of gold going from an average of $272 in 2001 to $1165 in 2010, pulling gold from the ground has become a lot more alluring. And the miners able to deliver gold to market at these record-high prices have seen huge increases in revenues. So long as this revenue growth outpaces costs, these miners have had the potential for fast-growing margins and stellar profits.

And this potential for profits leverage is what makes the stocks of these miners so appealing to investors. The venerable HUI gold-stock index is up a whopping 1155% from its 2001 low to its latest interim high for a reason. Gold miners should be cashing in on a secular bull in their underlying metal. But as always, there is much more than meets the eye in this wild and wacky industry.

Even though the miners are generating higher revenues, the challenges don’t go away. In fact, there are even more challenges today than there were 10 years ago. And prudent gold-stock traders must be aware of and understand these challenges in order to profit in this arena.

Over the years I’ve written a series of essays on gold-mining challenges, and one of the most transparent challenges is on the cost front. As we’ve learned over the course of this bull, miners have really struggled to control costs. And the hopes of only moderately-rising expenses are pure fantasy for most.

To really understand these costs across the industry and at an individual-company level, analysts and investors alike have a couple different options. They can either meticulously dig in the financial statements and craft their own cost measures, or use a common metric that most miners offer as part of their headline performance data. I prefer the easy option, and this “cash cost” metric indeed provides a high-level summary of the expense side of producing an ounce of gold.

Fortunately most miners submit to a canned format of calculating cash costs according to a standard (non-GAAP) implemented by the Gold Institute (GI) back in 1996. Prior to this standard gold miners were very creative and non-uniform in how their expenses were presented to investors. And while not all miners submit to today’s standard, or comply to a tee, the GI-coined “Production Cost Standard” has since become a relatively uniform metric across the industry.

According to this standard, total cash costs are calculated by adding cash operating costs (direct mining expenses, stripping and mine-development adjustments, third-party smelting/refining/transportation costs, and then adding back byproduct credits if applicable) to royalties and production taxes. This number is then divided by total ounces produced to get a per-ounce figure.

Now bear in mind that cash costs are not the complete tell-all of a miner’s strategic health, future direction, or ability to generate cash flow. But this standard performance measure does offer investors a pretty good idea of its interim financial standing.

Cash costs tallied across the greater complex also offer a read on how the industry is trending. And thanks to a unique dataset that we painstakingly compile in-house here at Zeal, we can get this industry read. With quarterly cash-cost figures cataloged for all the major gold stocks trading in North America since 2001, we are able to calculate average annual cash costs. And with the average annual gold price thrown into the mix we are able to calculate gross margins.


For purposes of this analysis I used the simple average cash costs of the nearly two-dozen companies in our pool. And since these companies collectively produce about half of the global mined supply of gold each year, I would say this is a fair representation of the industry as a whole.

Focusing on cash costs first, you can’t miss the upward trend over the course of gold’s bull. It’s also hard to miss the change in slope just over halfway through this timeline. Early on the miners were able to control costs for the most part. In each of the first six years cash costs increased by an average of 8% per year, which is equivalent to about $15 per ounce per year.

Conditioning was among the main reasons for this early moderate rise in cash costs. Over the entire decade of the 1990s the gold price averaged a ghastly-low $350, and the gold miners were forced to adapt. And those miners that survived the ravenous secular bear preceding this bull were producing gold from mines with very favorable mineralization. They learned to operate under lean cost structures.

But these somewhat-restrained rises in costs were smashed coming into 2007. In the last four years cash costs have progressively blasted higher, increasing by an average of 22% per year, or about $75 per ounce per year. At $554, 2010’s average cash costs are 214% higher than they were in 2001. Even more astonishing is today’s cash costs are double 2001’s average gold price!

There are a number of reasons for this meteoric rise in cash costs. And provocatively one of the biggest reasons is the rising gold price. These historic highs are allowing miners to develop deposits that would not have been economical several years earlier. And the newer mining operations that pull from lower grades and more complex ores are naturally going to have higher operating costs. More and more of these higher-cost mines have come online in recent years, thus driving up industry cash costs.

And speaking of lower grades, this higher gold price affords the option of a sneaky system of selectivity that you won’t hear many executives openly discuss in their conference calls. What is commonly referred to as “low-grading” is an opportune way to extend a mine’s life without compromising too much on the revenue front. This of course only works in a rising-gold-price environment.

In simple terms, low-grading involves mixing and/or shifting the ore that is being mined. Mixing is nothing more than intentional dilution. Occasionally you’ll see miners mix higher-grade reserves with waste rock, tailings, or lower-grade ore in order to preserve the higher-grade stuff for later if gold prices are lower. You’ll also see operators shift mining to lower-grade portions of a deposit, again to preserve the higher-grade material for future use.

These methods will obviously drive per-ounce costs higher since it costs the same to process a ton of ore regardless of the grade. While investors aren’t usually keen on this strategy, it helps secure longevity in a business that is constantly fighting time.

Another major factor influencing these sharply-rising costs is energy-related expenditures. From fueling a mining fleet to generating power in processing facilities, mining is an energy-intensive business. Gold miners are therefore very sensitive to energy costs. And with the price of oil going from $50 in early 2007 to nearly $150 in mid-2008, miners were indeed seeing their energy costs skyrocket.

Last but certainly not least of the major factors negatively impacting costs are the effects of byproduct credits. Gold mineralization is often accompanied by other minerals, predominantly economic grades of copper, silver, lead, and zinc depending on the specific geological makeup of a given deposit.

As noted in the formula above, it is customary for gold miners to use the revenues from the sales of these byproduct metals to credit cash costs. And with silver and the base metals enjoying huge bull markets of their own, these byproduct credits have had material impacts on gold’s net cash costs. The higher the prices of these metals, the lower gold’s cash costs will be. But if the prices of these metals decline, the resulting lower revenues make for less of a byproduct credit. And this naturally leads to rising cash costs.

Interestingly all these major byproduct metals peaked and turned south around the same time cash costs started to balloon. Zinc saw its high in Q4 2006, and even after a strong 2009 recovery it is still trading well less than half its high. Lead saw its high in Q4 2007, with its subsequent price activity very similar to zinc’s. Copper saw its first major high in Q2 2006, ground sideways for a couple years, and then got a huge panic haircut. Even after a major recovery its price is still well below its 2006 high. Silver saw its high in Q1 2008, and so far has been unable to challenge those levels again. Overall this byproduct weakness over the last several years has indeed had an adverse affect on gold cash costs.

Ultimately with the cost of doing business rising at such an astronomical pace, you’d think this industry was broken and failure was imminent. Not many businesses can withstand a more than double in unit costs over a short period of time and survive. But thankfully gold mining is not your typical business. Incredibly, thanks to the rising gold price these miners are seeing their margins as robust as they’ve ever been.

As you can see in this chart, increases in the average gold price have easily outpaced cash-cost increases. With gold’s average price rising by 328% since 2001, well ahead of cash costs’ 214% rise, gross margins have actually improved. Assuming the miners are selling their gold at spot, the price/cost spread has grown by over $500 per ounce since 2001. And even with these sharply rising cash costs, a simple gross-margin calculation shows that business is doing just fine.

Gross margin is defined as the proportion of each dollar of revenue that the company retains as gross profit. And with GMs over 50% each of the last 5 years, these miners should be in pretty good shape. But of course there is more to what these raw GM numbers tell us.

Gross margins over 50% are certainly nothing to complain about, but with such sharply rising revenues shouldn’t we see consistent growth on the margin front? We should, but we don’t. Interestingly over gold’s entire bull market the vast majority of GM growth occurred over only two years, 2002 and 2006. If you look closely you’ll notice two major stretches of flat GMs. These stretches highlight the toll of rising cash costs.

Even though the average gold price was up 43% from 2002 to 2005, gross margins were flat. And then from 2007 to current even though gold is up 67%, we again see no growth on the GM front. Thanks to these rising cash costs, margins have just not opened up as one would expect with gold achieving record highs.

It is also important to keep in mind that “gross” margins are indeed gross. Not included in Gold Institute cash costs are depreciation, depletion, and amortization costs (DDA), along with reclamation and mine-closure costs. These non-cash expenses, charges/credits for the capital investment that was made in the past, are tacked on to cash costs to create what the GI classifies as “Total Production Costs” (still non-GAAP).

These margins thin even more when we consider miners’ expenses outside of operating a mine. Such endeavors as procuring mineral rights and exploration require significant capital. And if economic grades of gold are actually found, developing a mining operation comes with an enormous price tag. It can cost northwards of $1.0b just to build a decent-sized mine!

Since mining is inherently a risky and capital-intensive business, gold miners need higher margins in order to maintain and grow their pipelines. Don’t let these robust gross margins have you believing that gold miners are swimming in cash. This just isn’t the case considering non-cash opex and capital outflows on the exploration and development fronts.

As long as gold demand continues to rise, which it will, this industry will be faced with a lot of supply pressure. And in order to handle this pressure the miners will need to continue to spend a lot of money to build out the necessary infrastructure to replace depleted mines and build additional mines at a fast-enough pace to meet demand.

Overall the gold price should continue to trend higher over the course of this bull based on its solid fundamentals. But with more higher-cost mines coming online, cash costs are likely to continue to trend higher as well. Thankfully this current cost-and-margin picture tells us that even though miners have yet to control costs, rising gold prices allow them to maintain margins that should allow for healthy financials.

So as investors we need to ask ourselves how these miners are managing their margins. And we need to ask this question because many don’t do a good job of it. You’d be amazed to find that a lot of gold miners with strong gross margins have unhealthy financials and future direction. But the miners that do successfully manage their margins have and will continue to leverage gold’s gains, and thus greatly reward their shareholders.

Fortunately it is not too late to capitalize on the potential fortunes of owning gold-mining stocks. As a group they still have a lot of room to run higher, in the near term and over the course of this bull. In fact, most gold stocks are bargains at today’s prices. The stock-panic overhang still has this sector well undervalued relative to its historical relationship with gold. And even better, now is one of the seasonally strongest times to buy.

If you are wondering which ones to buy, you can leverage our expertise with a subscription to one of our acclaimed newsletters. In the brand-new September issue of our monthly newsletter, we recommend three new gold-stock trades and a silver-stock trade as part of a campaign to position ourselves for what we believe to be a coming strong upleg for gold and gold stocks. Subscribe today to get all our recommendations along with cutting-edge market analysis.

The bottom line is even though cash costs are on the rise, the sharply rising gold price allows gold miners to maintain strong margins. But though these margins show the potential for legendary profits, they don’t tell the entire story considering the challenging business these miners are in.

These robust margins have and will make the stocks of these companies very attractive to investors. And it is critical for these margins to remain high if the miners are going to have any chance of meeting gold’s growing demand.

Scott Wright September 3, 2010 Subscribe
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]]> Zeal, LLC GoldSpeculator http://www.gold-speculator.com/zeal-llc/37406-gold-mining-margins.html Ostrich Investors 2 http://www.gold-speculator.com/zeal-llc/36947-ostrich-investors-2-a.html Fri, 27 Aug 2010 23:28:37 GMT Adam Hamilton August 27, 2010 2925 Words

Ostrich investors are a major driving force in today’s financial markets. As the name implies, they are hiding their heads in the sand like the popular literary perception of the king of birds. Burned in 2008’s epic stock-market panic, they have shunned active investing ever since. Trillions of dollars of their capital languishes idle on the sidelines, earning zero in money markets or near-record-low yields in Treasuries.

I can certainly sympathize with them. In the heart of that brutal once-in-a-century stock panic in October 2008, the flagship S&P 500 stock index plummeted 30% in a single month! Elite blue-chip stocks long considered safe failed to weather that fear storm well. Because the economy has been slow ever since the panic, countless investors fear another extreme selling event. They still want nothing to do with stocks.

The reasons for investor anxiety today are legion. Investors fear a new recession, the ever-popular double-dip scenario of heading back into economic contraction. They worry about the sorry state of the jobs market, consumers’ ability to spend, and the shaky housing market. They fret about the incessant and stifling growth of big government in Washington, and the Democrats’ threats of record tax hikes.

It’s not a pretty environment out there, so it isn’t illogical to hide heads in the low-yielding sands of cash and bonds. Unfortunately for ostrich investors though, this strategy is doomed to failure. While it is challenging psychologically, the active investors braving these stock markets are thriving. Our wealth is multiplying while ostrich investors’ is stagnating. Those hiding out too long will never catch up.

I wrote my original ostrich-investors essay 16 months ago, fresh out of the despair lows in early 2009. At the time countless worries plagued the markets. Economists were convinced we were heading not into a recession, but a depression. The newly-elected Democrats promised smothering tax increases on investors. And the S&P 500 (SPX) had averaged just 808 since the despair low 6 weeks earlier.

If there was ever an environment that encouraged ostriching, early 2009 was it. If you had moved your capital to cash then, you’d essentially have the same amount today. But boy the opportunity cost of hiding on the sidelines has been staggering. Between March 2009 and April 2010, the SPX blasted 80% higher in a massive post-panic recovery. Believing the pervasive gloom and doom back then nearly cost you a doubling of your capital!

Although the stock markets have been volatile and stressful, the opportunities have been great. In 2009 the SPX rallied 23.5%. Yet in our popular Zeal Intelligence monthly newsletter, the average annualized gain on all the stock trades we realized last year ran 45.0%. In our weekly Zeal Speculator, where we trade more often and take more risks, our average stock trade in 2009 enjoyed an 88.9% annualized gain.

As of the middle of 2010, the SPX was down 7.6% year-to-date. Yet our average Zeal Intelligence stock trade closed this year had seen a 73.7% annualized gain (64.8% absolute)! Of course these averages include all our losing trades too, full performance data is always posted on our website. Despite all the fears and anxiety floating around, there is lots of money to be made in these markets. Active investors have a good shot at winning some, but ostrich investors are guaranteed to make nothing.

As investors we carry a huge burden, we are the financial stewards of our families’ futures. If we make wise decisions, our capital will grow and our families’ lives will improve. Similarly, poor decisions today will greatly reduce our future wealth. No one cares more about your financial future than you do, your active stewardship is crucial. Hiding out on the sidelines is an abdication of this stewardship responsibility, a flat-out failure. Tough markets require different strategies, not capitulating and cowering.

Provocatively, even the Bible speaks out on this principle of stewardship versus ostriching. Jesus Christ’s famous Parable of the Talents is chronicled in Matthew 25 and Luke 19. A nobleman who would be traveling long and far entrusted his servants with portions of his capital. The good servants went out and invested it, growing it for their master’s return. He praised and rewarded them. But one servant was afraid, so instead of investing the capital he was given he hid it. He was a first-century ostrich investor!

Far from being commended for returning the cash unharmed, this ostriching servant was called “wicked and lazy” when the master returned. He was effectively fired, with his capital given to a good servant who had wisely invested and multiplied his own capital allocation. While this parable teaches deep spiritual truths to Christians, its literal surface application on the financial front is no less valid. As investors our responsibility, our moral duty, is to multiply our capital, not hide it away.

These post-panic markets are certainly far-more challenging than the pre-panic ones, but that just means we have to step up our stewardship efforts. Investors can’t just buy anything and hope a rising tide lifts all boats. They can’t just buy anytime and hope their stocks will eventually rise. They have to study the markets, learning about their cycles and finding stocks that will thrive in this environment.

If you’ve been ostriching since the panic, you can’t change the past. Though you could have nearly doubled your wealth since through active investing, there is no sense beating yourself up about it. But you can change the future. Your decisions you make today will determine how much capital you have in the coming years. If you hide in cash, what you have today (minus inflation) is the best you can hope for. If you get back in the game though, fighting your anxiety, you could achieve a much better financial future for your family.

The opportunities are truly vast right now in the stock markets, despite their big gains already booked since the panic lows. In nearly 100 weekly essays written since that panic, by business partner Scott Wright and I have detailed many awesome opportunities. Most of the key post-panic trends that have rewarded us and our subscribers with such massive realized gains in the past couple years are still ongoing.

To understand why, you have to consider cycles and sentiment. Stock markets move in great 34-year cycles I call Long Valuation Waves. The first half is a 17-year secular bull, like we saw from 1982 to 2000. The second half is a 17-year secular bear, like we’ve been experiencing since 2000. Within these sideways-grinding secular bears, smaller multi-year cyclical bulls and bears oscillate. Check out my essay delving into these critical cycles. We are in one such mid-secular-bear cyclical bull today.

Cyclical bulls within secular bears average 3 years in duration, but can be as short as 2 or as long as 5. Yet our current one was only 13 months old in late April when the stock markets peaked before their recent correction. This bull was far too young to give up its ghost then, which strongly suggests it is very much alive and well today. I recently wrote another essay explaining all this in depth.

In addition, secular bears have giant horizontal trading ranges. In SPX terms our current one runs from roughly 750 on the low side to 1500 on the high side. We hit this upper resistance in late 2007 at the top of the last cyclical bull, and lower support in late 2008 at the height of the panic. Today the stock markets remain low within this secular-bear trading range.

The upshot of our position today in these critical cycles that all investors should study is that probabilities strongly favor the stock markets rallying from here. These bull-bear cycles are strong and nearly ironclad, nothing stops their ultimate progression. All the news you hear every day, all the anxiety and worry, is nothing but ephemeral noise. The markets are always fretting about something, but it is soon forgotten (remember European sovereign debt, the oil spill?).

With our position in the bull-bear cycles firmly on investors’ side today, ostriching now is as irrational as it was in early 2009. Sure, you can bury your talents in cash over the next year and dig them up with just minor real losses after inflation. But that is not investing, it is just poor stewardship. If you take a little time to learn about the markets and seize the opportunities, you could really grow your capital in the coming year.

In addition to the cycles, all this rampant fear and anxiety itself is extremely bullish. Sentiment is all-important in the financial markets, driving most short-term price action. Sentiment is like a giant pendulum, perpetually swinging back and forth between greed and fear. When stock prices have long been rallying to highs, greed reigns supreme. When they have been falling to lows, fear dominates. But like a pendulum, once either extreme is reached you can be sure the next extreme will be the opposite one.

There is no doubt that this summer has been dominated by the fear side of the sentiment continuum. The stock markets have been weak thanks to the major SPX correction in May and June. Investors are scared of countless threats, worried that something even worse is coming. As is always the case when stock markets are weak, bearish and pessimistic theories dominate newsflow and consciousness. When prices are down, investors want to be scared and look for reasons to rationalize their emotions.

Yet it is fear episodes that birth all great rallies. Eventually fear and anxiety drive everyone interested in selling anytime soon into pulling the ripcord and bailing out. And once this selling-exhaustion threshold is hit, there are no more sellers left. Then no matter how bad the news is, the markets start rallying anyway because only buyers remain. And after this new rallying is established for a few weeks, newsflow turns positive as investors start feeling greedy and look for justifications to buy.

The great sentiment pendulum endlessly swings from greed to fear and back again. And since it spent most of the past few months deep into fear territory, the only place it can go from here is back towards greed. The only thing that can drive widespread greed is a big rally. Thus in pure sentiment terms, the stock markets are perfectly set up to enjoy a major rally in the coming months. The markets abhor extremes, and fear has ruled for too long. Greed is overdue to make an appearance.

If you study the markets, you have no choice but to acknowledge the bull-bear cycles and the greed-fear swings in sentiment. Many ostrich investors I’ve talked with over the past year have some level of awareness of cycles and sentiment. But they still argue that hiding in the sand is rational, because they fear another stock-market panic or crash. Together crashes and panics are extreme selling events.

From the widely-hailed Hindenburg Omen in the news lately, to all kinds of more obscure theories, perma-bears offer dozens of reasons why we face a crash or panic this autumn. Never mind that these perma-bears always think a new crash or panic is imminent! If you follow one of these guys, read what he was predicting back in early 2009. It will be a crash or panic, not the massive rally I predicted then. Gloom and doomers are broken records, they perpetually forecast calamity and lead investors astray.

An extreme selling event in the coming months is terribly unlikely, its probability approaching zero. Ostrich investors need to understand this, as constantly expecting an event with exceedingly-low odds of occurring is no excuse for burying their capital in the sand. There are a couple key reasons why we won’t see a crash or panic this autumn. Today’s bull-bear cycles are in the wrong place to spawn them and the last extreme selling event happened too recently.

Crashes, a 20%+ plunge in the stock markets in a matter of days, only occur at one very specific time in cycles. Crashes always erupt near multi-year highs deep in secular bulls, like in 1929 and 1987. Crashes are born in extreme greed when retail investors are fully deployed and almost no one is hiding in cash on the sidelines. Obviously today with widespread fear and ostrich investors hiding trillions in cash, this environment is all wrong for a crash. And the April SPX high of 1217 was far below the October 2007 high of 1565 at the end of the last cyclical bull. A crash ain’t gonna happen folks.

Panics, a 20%+ plunge in the stock markets in a matter of weeks, also only occur at one very specific time in cycles. Unlike crashes starting from multi-year highs, panics cascade out of lows in cyclical bear markets. A bear persists for a year or so, mauling about 25% out of the stock markets. Then some high-profile catalyst ignites a frantic rush for the exits, and the resulting intense selling drives another 20%+ loss in a matter of weeks. Like crashes, panics require heavily-deployed retail investors. People have to be in before they can panic!

We aren’t at the end of a multi-year bull near multi-year highs, so no crash is coming. We aren’t a year into a cyclical bear near lows, so no panic is coming. And extreme selling events can’t happen in an environment like today’s plagued by ostrich investors, when trillions of dollars are already hiding outside of the stock markets. Extreme-selling-event-magnitude declines require fully-deployed investors. Even Wall Street often acknowledges how chronically underinvested people are today.

Proximity to the 2008 panic is another strong argument against another extreme selling event anytime soon. Extreme selling events are so scary that everyone without nerves of steel is driven to sell. Some of these investors are so discouraged they never come back, and others gradually tiptoe back in over years. So throughout market history, you always see at least a decade between extreme selling events. It takes that long after one for enough investors to quit worrying and get fully deployed again.

So ostrich investors can’t latch on to some perma-bear’s flawed extreme-selling-event thesis and use that as an excuse for abdicating their family’s financial stewardship. Probabilities are virtually zero of seeing another panic or a crash anytime in the coming years. And without extreme-selling-event worries, the bull-bear cycles and sentiment pendulum become even more compelling. They are very bullish today.

Ostrich investors also bring up the horrible state of Washington as an excuse. They understandably worry about our out-of-control government’s epic debt binge. And the way the Marxists (Democrats using class-warfare rhetoric) want to raise job-killing taxes on hard-working American businessmen. And the terrible encroachment by the federal government into all aspects of our lives through insane overregulation.

There is no doubt at all that the Democrats’ terrible anti-prosperity philosophy, monstrous overregulation bills, and endless threats of higher taxes have strangled this post-panic recovery. But this isn’t the first time we’ve had an abominable government in America. Remember Jimmy Carter? The beauty of the United States is we can vote out these thieving socialists. We’ve done it before and we’ll do it again in November and 2012. Don’t extrapolate out our current bad government into infinity. This too will pass.

Realize that oversold or undervalued stock markets can rally strongly even when we are saddled with a terrible government for a season. Remember that back in early 2009 we had the misfortune of the same openly-Marxist Obama Administration and prosperity-hating Democratic Congress we do today. Yet despite all the despicable things Washington has done to us taxpayers since then, the SPX is still up 80% at best since its lows!

Ostrich investors have really lost out since the panic, giving up nearly a doubling in their wealth. But they don’t need to bear such crushing opportunity costs forever. If you have been hiding out in zero-yielding cash or low-yielding bonds, get back in the game! Start redeploying a small fraction of your capital in stocks. As you get more comfortable and enjoy gains, gradually move more of your capital back into stocks. Eventually you’ll be out of ostrichdom and back into wise financial stewardship of your family’s future.

We can help you. At Zeal we study the markets constantly, always looking for high-probability-for-success trading opportunities. We specialize in commodities stocks, the great secular bull market of the past decade. We publish acclaimed monthly and weekly newsletters analyzing the markets, explaining what is going on and why, and detailing which stocks we are buying and selling (and when) to ride these trends. Our subscribers have been richly rewarded by our trades even in these tough times. Join us!

The bottom line is there is no excuse to be an ostrich investor. Hiding your capital in the zero-yielding cash sands is a failure, a millennia-old abdication of stewardship responsibility. Tough markets are not as easy to grow your wealth in as normal markets, but with a little time and effort you can still thrive as an investor. Get your anxiety and fear in check, buckle down, and start investing to win again.

The markets are actually very bullish right now, with almost no chance of an extreme selling event like the perma-bears perpetually prophesy. Stocks are in a great place in their bull-bear cycles to rally strongly in the coming months. And the very poor sentiment we’ve weathered this summer ensures the next sentiment swing will be towards greed. The only thing that can generate it is a major stock-market rally.

Adam Hamilton, CPA August 27, 2010 Subscribe ]]> Zeal, LLC GoldSpeculator http://www.gold-speculator.com/zeal-llc/36947-ostrich-investors-2-a.html Big Autumn Silver Rally 2 http://www.gold-speculator.com/zeal-llc/36414-big-autumn-silver-rally-2-a.html Fri, 20 Aug 2010 18:50:50 GMT Adam Hamilton August 20, 2010 2687 Words

Silver has been drifting in a rather lackluster summer. Ever since surging to $19.50 in mid-May, this often-popular white metal has been grinding sideways to lower. By late July it had fallen over 10% to about $17.50. But despite silver’s recent excitement-bereft sojourn, it actually has excellent potential for a big autumn rally in the coming months.

The primary reason is gold. Since the early 1970s, silver has closely followed and sometimes amplified the price moves of the granddaddy of precious metals. Over the vast majority of this decades-long span, silver has been nearly perfectly statistically correlated with gold. When gold is strong, traders flock to silver. And when gold is weak, they abandon its smaller cousin. In hard technical price-chart terms, there is no doubt at all that silver is a derivative play on gold.

Of course autumn is typically an excellent time of the year for gold, and therefore for the whole precious-metals complex. Big seasonal factors converge which tend to seriously ramp up global gold demand and hence gold prices. These include income-cycle drivers like Asian harvest, after which farmers invest some of their year’s surplus income in gold. They also include cultural drivers, like Indian wedding season where brides are adorned with intricate and expensive gold-jewelry dowries.

While the usual autumn gold rally is very bullish for silver, it certainly isn’t the only thing silver has going for it right now. This essay will explore those other factors, including silver technicals coiled like a spring and ready to launch as well as silver’s continuing undervaluation relative to gold. Even if gold somehow managed to languish flatlined this autumn, silver’s own intrinsic merits are exceptionally bullish today.

This first chart looks at silver’s impressive technicals. Silver and its key moving averages are tied to the right axis, while Relative Silver is rendered in red on the left. Relativity is a measure of oversoldness and overboughtness, helping traders understand when prices are exceptionally low (the time to buy) or exceptionally high (the time to sell). rSilver is computed by dividing the close in silver by its 200-day moving average. The result charted over time creates a horizontal constant-percentage trading range.


In order to understand why silver looks exceptionally bullish emerging out of this year’s typical summer doldrums, we need some technical perspective. Back in the summer of 2008, silver was consolidating high after a massive rally in late 2007 (which started in autumn) and early 2008. Then the brutal stock panic hit like an F5 tornado, destroying the global appetite for all risky assets including silver. In just 4 months, this metal plummeted a sickening 53%!

Ever since that epic panic anomaly, silver has been relentlessly recovering. This recovery provides the critical strategic lens through which all recent price action must be considered. Silver had already stubbornly returned to its pre-panic price levels last autumn. It averaged $18.07 in July 2008 before the panic, and $17.90 in November 2009 after last year’s autumn rally. Since then, it has generally consolidated sideways.

Provocatively, this high consolidation over most of the past year occurred within the old pre-panic high-consolidation range. Silver did fall out of this range once, when it plunged 20% in 3 weeks in late January and early February 2010 in response to sharp gold and stock-market retreats. But that correction was quickly erased, silver rapidly climbed back up into this high-consolidation trend less than a month later.

High consolidations are basing events, very important technically. After any fast rally to new price levels not yet seen in a bull, traders are nervous about whether those seemingly-stellar prices are sustainable. Some traders, looking for a correction, sell. Meanwhile other traders, excited because the price has rallied so far, buy to ride the momentum. The net result is a high consolidation, prices grind sideways not far off their new highs while traders digest their implications.

The longer a high consolidation lasts, the more comfortable traders get with those new price levels. Back in early 2008, $18 silver seemed pretty high and overbought. While the silver-to-the-moon zealots loved it, more prudent traders were concerned since silver often plunges even faster than it rallies. Yet today, since we’ve seen $18 silver on and off for a few years now, it seems perfectly normal. Silver doesn’t feel overbought at all at $18, we’ve been conditioned to accept this level.

This base has been established over a long time, either since late 2009 or early 2008 depending on your perspective. The longer that a particular price level bases in a fundamentally-driven secular bull, the more powerful the inevitable rally out of that base. Since the stock panic was an ultra-rare once-in-a-century anomaly, silver’s base extends back to 2008 in my book. But if you want to be more conservative and consider it only relevant since late 2009, that is still a long basing period.

Remember, silver follows gold. Back in February 2008 when silver pierced $18 initially in this bull, gold averaged $926. Last month (July 2010) when silver averaged $18, gold averaged $1192 (29% higher). So as I’ll discuss after the next chart, silver’s high basing in the face of strong gold prices makes it look even cheaper today. This high base is the perfect springboard for a major silver rally.

There are some other bullish technical developments beyond this long high consolidation to note. First, silver’s key support zones are converging today. Its recent recovery-support line since the panic has just hit its old pre-panic high-consolidation support line. For technically-oriented traders who pay attention to these things, and most silver-futures traders do, a convergence of major support lines is a powerful incentive to buy. Right in time for the autumn rally!

More importantly, check out rSilver’s position in its horizontal range. Considered as a multiple of its 200dma, over the past 6 years or so silver has tended to run between 0.96x its 200dma when it is oversold and 1.40x when it is overbought. The last time rSilver traveled in the upper half of its long trading range was way back last autumn. Languishing at an average under 1.04x so far this month, silver is low in its range and near-oversold today. It’s been a long time since silver has seen any excitement.

The best time to buy anything is when traders aren’t excited about it, when it is low relative to its 200dma. And thanks to this year’s summer doldrums, rSilver has been grinding ever lower on balance since spring. To see silver mired in bearish sentiment, and hence low technically, right before the usual strong autumn seasonal factors kick in is exceptionally bullish. If silver was overbought instead, stretched well above its 200dma, too much greed could lead to a correction fighting against autumn seasonals.

But this isn’t the case today. As we exit the summer doldrums and head into gold’s strong autumn, rSilver is near the oversold end of its secular trading range and traders aren’t excited at all about this metal. Meanwhile silver has been consolidating high for at least a year and building a strong base from which to launch its next big rally to new bull highs. On top of all this, the recovery support line has converged with silver’s high-consolidation support. Together these facts create a great environment to be long silver.

Way back in the heart of the stock panic, we bought silver stocks aggressively and encouraged our subscribers to do the same. Why? Silver was radically undervalued relative to gold. Since then, I’ve advanced this argument several times using the Silver/Gold Ratio. Prior to the panic silver traded in a definite range relative to gold. The panic anomaly blew that apart as risky silver plummeted much faster than much-safer gold. But ever since that panic, silver has been gradually recovering relative to gold.

This next chart highlights the state of the Silver/Gold Ratio today, another powerfully-bullish driver for silver this autumn. Since the silver price divided by the gold price yields a difficult-to-parse small decimal, I prefer dividing gold by silver and then inverting the axis to get an easier-to-understand proxy for the SGR. This SGR is rendered in blue on the right axis, while the raw silver price is slaved to the left in red.


For years prior to that stock-panic anomaly, the SGR was actually climbing higher in a secular uptrend. And this makes sense. Strong gold prices get traders interested in leveraging the precious-metals bull in silver. So the longer a gold bull persists, and the higher it runs, the more traders want silver exposure. And the more traders bidding silver higher, the faster its price rises. Since silver is such a tiny market compared to gold, as a gold bull matures silver gradually gains ground relative to the gold price.

Between January 2005 and August 2008, the time of normalcy before all the wild dislocations the panic spawned, the SGR averaged 54.9x. An ounce of silver traded for about 1/55th the price of an ounce of gold. In addition, silver had a correlation r-square with gold of 95% over this span! In other words, 95% of the daily price action in silver was directly explainable statistically by gold’s own price action. This was the normal precious-metals secular-bull environment.

But when highly-speculative silver plunged far faster than gold during the panic, this relationship was blown apart. Between September and December 2008 when the extreme the-sky-is-falling panic psychology reigned, the SGR averaged a dismal 75.8x. At worst at the panic’s nadir, it easily hit its lowest point of the entire secular bull (1/84th the price of gold!). And in correlation terms silver started following the US stock markets rather than gold, its r-square with the yellow metal fell to an unbelievable 53%.

Now if you’ve studied silver’s historical relationship with gold, even in the bowels of the panic it was crystal-clear this anomaly couldn’t be sustained. It was the best opportunity of this entire secular bull to buy silver stocks, so we and our subscribers did aggressively. And time has vindicated our hardcore contrarian stance then, as silver has indeed been recovering relative to gold since.

From January 2009 to today, the SGR has regained a 66.4x average. And silver’s correlation r-square with gold is back up to 89%, nicely returning towards historic norms. But I don’t believe this post-panic recovery is over yet. Remember that silver is highly-speculative, and thus exceptionally sensitive to prevailing sentiment in the financial markets. And ever since the panic, widespread fear and anxiety have continued to dominate. This ugly environment has slowed silver’s recovery relative to gold, but not stopped it.

Depending on where you want to measure it from, silver’s undervaluation relative to gold today runs somewhere from substantial to enormous. Ever since this post-panic recovery got underway in earnest in early 2009, the SGR has been recovering in the uptrend rendered above. Today the SGR is down low near its support, silver is unloved thanks to the summer doldrums. But if the SGR merely climbs back up to resistance, we are looking at an SGR of 58x or so.

At $1200 gold, this yields a silver price of $20.70. But gold tends to rally in the autumn, and is set up beautifully this year (low in its relative trading range, near its 200dma). At $1300 gold, a 58x SGR yields a silver price approaching $22.50. But for a variety of reasons, I think merely using this SGR recovery uptrend’s resistance line is far too conservative. Ever since the panic, I’ve argued that silver ought to at least regain its old secular pre-panic average SGR near 55x.

At $1200 and $1300 gold, this yields “fairly-valued” silver prices around $21.75 and $23.50. Of course these are well into new-bull-high territory, as silver achieved its best level of this secular bull ($20.77) back in March 2008. And you better believe that as soon as silver surges to new bull highs, interest in buying silver stocks is going to soar. Probabilities are high that we’ll see new bull highs in silver this autumn.

For me, a return to the old pre-panic average SGR is plenty bullish enough. But for some investors, silver is a religion. They hold nothing but physical silver and silver stocks, and their whole financial future revolves around a silver moonshot. While not being diversified is extremely risky, this all-or-nothing bet on silver is common enough to throw out some optimistic projections for these silver zealots.

Check out the SGR’s old pre-panic secular uptrend rendered above. Today its support extends to 46x and its resistance to 35x. Remember the longer a precious-metals bull persists, the more traders get interested in silver and the higher it is bid relative to the gold price. So it is probable at some point, though almost certainly not this autumn, that the SGR will re-enter this pre-panic trend. If you plug a 46x or 35x SGR into a reasonable gold price in the coming years, you get some silver-price projections that will make even the raging bulls smile.

Back to a more reasonable 55x in the near term, $1200 and $1300 gold projections are conservative. On average seasonally, gold rallies about 5% between mid-August and late September and then another 12% between late October and late February. Together these rallies average around 14% in the autumn and winter buying season. If gold rallies 14% this year from its recent late-July low, we’d be looking at $1325 before next spring.

Heck in last year’s autumn rally, which was admittedly quite exceptional, gold soared 31% between late July and early December. A similar rally this year, which I’m not betting on since its odds aren’t great, would push gold up above $1500! Even at the pre-panic average 55x SGR, this would yield a silver price around $27.25. And even if we don’t see this until autumn 2011, the appreciation potential of silver stocks is vast thanks to silver’s continuing post-panic recovery relative to gold.

So while gold and hence silver seasonals are always bullish in autumn, this year looks like it has greater potential than normal. Silver has been basing for a long time getting traders comfortable with $18ish levels. It looks cheap technically trading near its 200dma and sentiment, while not exactly rotten, is certainly still totally bereft of any greed or excitement. On top of all this, silver remains very undervalued relative to gold, and is even trading near support in its post-panic-recovery SGR uptrend. What an explosive setup heading into autumn!

At Zeal we are riding this big-autumn-silver-rally potential in investments and speculations in elite silver stocks. You ought to join us. We sold many of our short-term silver-stock trades near highs before the summer doldrums hit, then we started redeploying for autumn this week in our weekly Zeal Speculator newsletter. It should be a very profitable campaign.

We’ve done extensive fundamental research to narrow down the silver-stock universe to our favorites, which we profile in comprehensive reports. We also publish an acclaimed monthly newsletter, Zeal Intelligence. In it I analyze the financial markets looking for high-probability-for-success trading opportunities in commodities stocks. Subscribe today and get back in the game of growing your capital!

The bottom line is silver looks very bullish heading into autumn 2010. Big seasonal gold-demand spikes are approaching, and rising gold prices get traders excited about silver. After consolidating high and forming a strong base for at least a year, silver has the perfect springboard from which to launch to new bull highs. Couple this with converging major support lines, near-oversold technicals, and little enthusiasm today, and silver is perfectly positioned for a fast ride higher in the coming months.

Overarching all these bullish silver technicals is this metal’s continuing panic-driven undervaluation relative to gold. Until this valuation gap is fully closed, silver has a lot of ground to regain and thus should rally faster on balance to catch up. Thanks to all these bullish influences, this year’s big autumn silver rally certainly has the potential to surprise on the upside. And silver stocks will naturally soar if all this comes to pass, creating a great opportunity for traders today.

Adam Hamilton, CPA August 20, 2010 Subscribe
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]]> Zeal, LLC GoldSpeculator http://www.gold-speculator.com/zeal-llc/36414-big-autumn-silver-rally-2-a.html HUI Bull Seasonals 3 http://www.gold-speculator.com/zeal-llc/36412-hui-bull-seasonals-3-a.html Fri, 20 Aug 2010 18:49:09 GMT Adam Hamilton August 13, 2010 2604 Words

Precious-metals stocks really haven’t had a great summer by any means. After rallying initially in June, they started relentlessly drifting lower in July. The net result of this lackluster summer trading is a lethargic drift sideways. Naturally this listlessness has weighed on sentiment among this sector’s traders.

At the end of May just before the dawn of the financial-market summer, the flagship HUI gold-stock index closed at 454. Since then, it has generally been flat averaging just 458 on close. At best so far this summer, the HUI was up 8.8% in mid-June. At worst, it was down 4.7% in late July. For a sector accustomed to wild volatility and exciting action, 10 weeks of drifting can feel very discouraging.

But it shouldn’t be. Gold stocks almost always tend to drift sideways to lower in the PM summer doldrums. Such uninspiring behavior is par for the course this time of year. I wrote an essay explaining the research behind the PM summer doldrums that was published the very day the HUI peaked this summer (June 18th). At that time when traders were pretty excited about PM stocks’ prospects I concluded…

“The bottom line is summer isn’t a great time for precious metals. Led by gold, the entire PM complex tends to drift sideways to lower in the summer doldrums in June, July, and August. This listless price action is driven by the combination of no seasonal gold-demand surges and the general lack of investor interest that plagues all markets in the summer months. Sun, sand, and surf simply provide too much competition for traders’ attention this time of year.”

But today a couple months later, the financial-market summer is starting to wane. We’re on the verge of emerging out of the wilderness that was the summer of 2010. After forming a relentless headwind retarding gold stocks’ progress this summer, the major seasonal influences affecting this sector are shifting back towards a favorable tailwind. The HUI bull seasonals are looking up, a very bullish omen.

Yes, believe it or not seasonals do affect gold-stock price levels! This probably sounds counterintuitive initially. Investors and speculators can buy and sell gold stocks anytime regardless of the passing of the calendar year, so why does the time of year matter? The answer is quite logical. It matters because calendar seasons greatly affect gold investment demand, and the gold price is the primary driver of gold stocks’ ultimate profits. When it rallies, they rally. And when it falls, they follow.

Gold seasonals are extremely important for all PM-stock traders to understand. Read my latest essay discussing them in depth if you are not up to speed. In a nutshell, deeply-ingrained income-cycle and cultural incentives drive big gold demand spikes in the autumn, winter, and spring. But in the summer, there is nothing to drive above-average capital inflows into gold. Thus it tends to grind sideways to lower, and the gold stocks trail in sympathy.

These gold-driven seasonal trends are readily apparent in the HUI. Since markets behave quite differently in secular bulls and bears, I like to start my seasonal analysis when today’s secular gold-stock bull was born in 2000. To distill out the HUI bull seasonals, I individually index each calendar year’s HUI action from the first day of that year. This ensures percentage changes within each year are perfectly comparable across years despite the HUI trading at progressively higher levels as its bull marches on.

Finally I average together all these individual-year HUI indexes and chart the results. This process reveals the HUI bull seasonals rendered below, which are very valuable for traders to understand. Regardless of everything else going on in the markets, gold stocks tend to be consistently strong and weak at certain times of the calendar year. These tendencies can be used to help investors and speculators execute superior trades.


It’s been two-and-a-half years since I last updated this thread of research, with an epic discontinuity defining the period since. During that crazy once-in-a-century stock panic we weathered in late 2008, gold stocks were ripped to shreds in the belly of the beast. Between July and October 2008, the HUI plummeted a jaw-dropping 67.7%! And around half these losses accrued in this span’s final month alone! It was not a fun time to own PM stocks.

Then between its brutal October 2008 lows and the end of that year, the HUI rebounded 99.5% higher. This index has never witnessed anything remotely like that panic span, so I was really curious about how such wild swings would alter the HUI’s seasonals. Surprisingly though, the blue HUI seasonal line in this chart didn’t change too much at all. This shows the value in averaging over a decade’s worth of years. No one year, even one as crazy as 2008, wields an outsized influence.

On average since 2000, the HUI has rallied around 27.6% per year (from an indexed level of 100.0 to 127.6). These are stupendous gains over an ugly decade where the general stock markets have languished in a secular bear. As a matter of fact, on the day the HUI bottomed in November 2000 the flagship S&P 500 stock index closed at 1383. Today a decade later it is 21% lower while the HUI is 1151% higher! Gold stocks have been a spectacularly-lucrative investment since 2000!

In this secular bull the HUI has tended to trade in the well-defined seasonal uptrend channel shown in this chart. It hits its seasonal support four times a year, in mid-January, mid-March, late July, and late October. These are the best times of the year seasonally to add new gold-stock and silver-stock positions for investors and speculators alike. Your odds of “buying low” around these support approaches are far better than they are the rest of the year.

Out of these major seasonal lows, the HUI’s largest seasonal rallies of the year emerge. The first runs from mid-March to early June and has averaged 14.5% over the course of this gold-stock bull. As long as gold stocks aren’t radically overbought in March, we diligently play this strong spring gold-stock rally every year. Our subscribers have made lots of money over the years buying PM stocks with us around mid-March and then selling them in late May or early June.

After this first big seasonal rally, the PM stocks enter the dreaded summer doldrums. They tend to drift sideways to lower for much of the summer. The summers are, without any doubt, the weakest time of the year for the gold stocks seasonally. Every year in May I warn our subscribers about these dangerous PM summer doldrums. They not only result in real trading losses and even bigger opportunity costs, they can really devastate traders’ psychology and confidence.

The second big seasonal rally of the year erupts out of exceptionally-oversold HUI lows in late July. It tends to run 15.1% higher on average between late July and late September. Of course right now, in mid-August, we are early on in this HUI seasonal rally. This is very encouraging and ought to excite PM-stock traders bummed out from weathering the summer doldrums. PM stocks almost always rally big heading into autumn, and statistically this seasonal rally is probably already underway.

If you follow our research work at Zeal, you are probably scratching your head at this point. I imagine you thinking, “But Adam, you often write about a mid-August seasonal low. Doesn’t this late-July HUI seasonals data contradict this?” Yes, it certainly does. But this apparent contradiction highlights the supreme importance of broad and well-rounded research. Indicators must be considered in concert, not isolation, to optimize trade timing.

Remember that gold stocks (and silver as well) are ultimately driven by the fortunes of the gold price. If gold is weak, the entire gold complex has a tough time rallying. And gold seasonals bottom in mid-August. Of course silver seasonals dutifully follow gold, bottoming between mid-August and mid-September. And just last week, my business partner Scott Wright published some landmark research on junior seasonals. Junior gold stocks are hyper-sensitive to gold sentiment. And when do they bottom? You guessed it, mid-August!

So if you want to buy PM stocks in late July due to these HUI bull seasonals, your odds for success are high. And indeed this year, the HUI’s 432 low on July 27th may indeed prove to be summer 2010’s closing low. But I’ve seen plenty of really ugly HUI selloffs into mid-August, like 2007’s sharp 13.6% loss over 6 trading days ending August 16th. So personally, I feel more comfortable waiting for the probable mid-August gold lows before adding new long positions. Gold is gold stocks’ primary driver.

The HUI tends to see another seasonal pullback in October. Provocatively, the wicked-sharp plunge in October 2008’s stock panic stretched this seasonal tendency considerably. Prior to that anomaly, the HUI tended to bounce in the middle of its seasonal uptrend in mid-October, not near support as this latest seasonal chart shows. Since that panic was such an exceedingly-rare event, I certainly wouldn’t hold out for a seasonal support approach in Octobers in general. But an early-October pullback is still highly probable.

The third big seasonal rally launching out of October’s low actually lasts until late February of the following year. All together it accounts for a 17.6% average HUI rally over this past decade, which makes it the seasonally-strongest time of the year for gold stocks. So as long as gold’s fundamentals remain bullish, and neither gold nor the gold stocks have just rapidly spiked to very-overbought levels, it is prudent to be heavily long gold stocks in the winter. Throw in autumn and spring as well, for the other two big seasonal rallies.

So boiled down, these HUI seasonals are really pretty simple. Expect weakness in summer since there is nothing then to drive gold investment-demand spikes. If you are an investor, just gird yourself psychologically for this weakness and don’t get caught up in it or worry about it. If you are a speculator, you can sell long positions between late May and early June and then redeploy between late July and mid-August. And then stay long and deployed for the rest of the other three seasons.

This simple truth is so powerful and really highlights the value of expert market research for all traders. Every year without fail, I receive tons of e-mails from discouraged PM-stock investors and speculators in this late-summer timeframe. They are frustrated, discouraged, and have either given up on PM stocks or are considering capitulation. Yet if you study the markets, or spend a little time and money learning from those who do, there is nothing to fear in the summer. Don’t expect too much, and you won’t be let down.

This next chart takes an alternative view of HUI seasonals, this time dissected monthly. Every calendar month of this gold-stock bull is individually indexed, and then each month is averaged with the same months across all other calendar years. In addition, as in the first chart above, standard deviations are rendered in yellow. The smaller inset charts show the full range of these standard deviations.

Standard deviations, of course, are measures of dispersion. When you are running averages for market-analysis work, the tighter the underlying data the higher the probability your average is meaningful. The narrower the yellow bands (closer to the core blue average), the less dispersed the underlying data is. The sequences 4, 5, 6 and 0, 2, 13 both average 5, but obviously the tighter first one is more likely meaningful.


In calendar-month terms, November, May, and September are the best months for the HUI on average. We are talking gains of 9.2%, 7.7%, and 4.6% respectively. The worst months of the year for gold stocks on average are October and July. This is skewed by the panic October and November of 2008, however. While these two months were still weak and strong pre-panic, they weren’t as extreme as they look above.

The 2008 panic and its 2009 aftermath had a much more-pronounced impact on the smaller monthly seasonal datasets than it did on the annual ones. It flattened January, March, and August while extending October and November. If you want to see the panic changes with your own eyes, compare this chart to the last one I built before the panic with data current to February 2008.

These monthly seasonal tendencies reinforce the annual analysis. Summers, especially June and July, tend to be weak during the PM summer doldrums. August looks strong above in monthly terms, but realize most of these gains merely offset July’s big losses. The result is the flat late summer seen above on the annual chart. But once summer passes, gold stocks tend to rally on balance in most months except October. While they can drift lower other times, these non-summer pullbacks tend to be trivial.

So once again the core thesis of the HUI bull seasonals emerges. Write off summer, but make sure you are deployed in high-potential gold and silver stocks for the autumn, winter, and spring gold rallies. Thanks to summer’s dampening effect on sentiment among naive PM-stock traders, this time of year almost always sees nice bargains in PM stocks. August is the perfect time to stock up and prepare for the highly-probable large autumn gold rally.

Gold tends to rally sharply in autumn because of big Asian buying. After harvest, farmers can invest in gold once they know how big their profits are. And gold demand in India in particular, the world’s largest consumer, rockets higher during autumn’s festival season. If you have any Indian friends, ask them about Indian wedding season. It is fascinating and often drives big gold rallies which PM stocks leverage.

Which stocks to buy? We can help you with that. At Zeal we deeply research entire PM-stock sub-sectors (gold producers, silver stocks, advanced-stage junior golds, early-stage junior golds) to uncover what we believe are the best stocks fundamentally. We publish comprehensive profiles of our dozen favorite stocks (out of initial universes often in the hundreds) in our popular Zeal Reports. You can enjoy the benefits of hundreds of hours of our expert research for a mere pittance. Buy a PM-stock report today and take advantage of the late-summer bargains!

We also publish acclaimed monthly and weekly newsletters that are invaluable to investors and speculators. All of our research and wisdom flows into these products, helping traders better understand what is going on in the markets, why, and how it can be profitably traded. There is no need to ever be anxious about the financial markets! The more you understand, the less you will worry and the better you will do. Subscribe today and take charge of building your personal fortune!

The bottom line is precious-metals stocks have exhibited very definite seasonal tendencies over the course of their secular bull. This is largely the result of gold demand spikes driven by income-cycle and cultural factors that are tied to the calendar year. While PM-stock seasonals are often secondary drivers that can be temporarily overridden by short-term technical and sentimental extremes, prudent traders still pay close attention to these headwinds and tailwinds.

HUI bull seasonals show investors and speculators when they have the best odds of buying low and selling high. They reveal that summer tends to be a poor time of the year for PM stocks, but the rallies in autumn, winter, and spring far more than make up for these summer doldrums. They also show that our current mid-August timeframe is one of the best times of the year to add new long positions.

Adam Hamilton, CPA August 13, 2010 Subscribe
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