THE VALUE VIEW GOLD REPORT

Transcription

1 THE VALUE VIEW GOLD REPORT AND an end to a grand technology fantasy seem to be at hand. Such a development suggests that markets may be offering up new opportunities for investors. Might we humbly suggest that Gold does appear to be one of those opportunities. The heart of the great U.S. equity bull market has been the NASDAQ Composite, which is composed of all those wonderful technology and internet fantasies. Many of those dreams have crashed, and positive returns are fading rapidly. As we write, AAPL s one year return is negative and GOOG s is barely positive. Plotted in chart to right is ratio of weekly closing cash price of $Gold to NASDAQ Composite Index, for the past six months. If up or rising, $Gold is performing better than NASDAQ Composite. As is readily apparent to the casual observer, current ratio is up from six months ago. $Gold has performed better over that period than technology fantasies. Disciplined Analysis of GOLD Purchase Timing for Profits Volume 2018, No. 12 December 2018 END OF A STOCK MANIA Ratio has been rising since September. $Gold went up and NASDAQ stocks slumped under heavy selling. Over that period of time $Gold has substantially outperformed NASDAQ Composite. Ned W. Schmidt,CFA Publisher Schmidt Management Company 2018is our 31 st Year Beach Boulevard Unit 812 Jacksonville FL Phone: ned@valueviewgoldreport.com OUR WEB SITE FOR SUBSCRIBING IS This written effort is simply an attempt to report on global financial matters, and the foolishness of policymakers around the world. Wise people should not believe everything we write. Investing should only be done after research and study.

2 A minor issue is the time frame to consider. Is six months sufficiently long to make a reasonable conclusion? We think it is. If you want a longer time frame consider chart top of first page. That chart shows Gold performing better than the S&P 500, with dividends included, for 20 years. Why has this change in performance, with Gold doing better than U.S. equities, occurred? A big part of that answer is the Federal Reserve. CHART Interlude: Bottom two charts use monthly average $Gold price. In middle chart the October buy signal continues to be successful. Gold is up $80+ from August low. And, clearly that $1,350 level is the important target. Now, back on topic. FEDERAL RESERVE over past couple of decades, and especially due to 2008 financial crisis, aggressively supplied funds to U.S. financial system. Last year Fed Res decided time had arrived to begin withdrawing that liquidity before adverse consequences developed. As top chart portrays, since September 2017 Federal Reserve has withdrawn ~$350 billion from U.S. financial system. Over past year it has withdrawn ~$328 billion by allowing bonds to mature. I III II Page -2-

3 Stock market is one place that excess liquidity is drawn to, as well as other savings schemes. Bull market in U.S. equities of past decade was due to that excess liquidity created by Fed Res. Now, with Fed Res withdrawing liquidity the stock market is one depository that liquidity is being withdrawn from. In short, less money is available to support stock market speculation. CHART Interlude: In both bottom charts the strong rally off of $1,200 created an over bought condition. On Wednesday, 19 December, FOMC is expected to raise U.S. interest rates. For that reason, teenage traders were playing in foreign currency markets this past week, especially on Friday. That action pushed Gold down and is working to unwind over bought condition. Now back to topic. $1.26 TRILLION is size of U.S. government deficit over past year. Nothing seems to indicate that U.S. Congress is going to slow government spending. More likely U.S. deficit will be increased. Taken together, Federal Reserve and U.S. government have through bond liquidations and selling of bonds withdrawn ~$1.59 trillion from investors. That withdrawal of funds did not and does not include any selling of Gold. That reality is what has caused Gold to perform better than U.S. stock market about which we talked on first page. In top chart solid red line is ratio of $Gold price to total U.S. debt, measured in trillions, using left axis. Black line is price of $Gold, using right axis. Normally we would use a longer time frame for such data, but we are more interested in current behavior patterns. Page -3-

4 At beginning of year that ratio hit a high of near 0.66 while September low was approaching That low was apparently too low, and Gold turned up. Using the average month end closing ratio for that time period suggests price of Gold should be about $1,300. Relative Valuation: Gold is cheap. U.S. stocks are expensive. Analysis of $Gold / S&P 500 Ratio Data: Years Current Ratio 0.48 Probability Gold Higher = 78% Average Ratio 1.13 Standard Deviation 0.85 If S&P 500 = 2,603 Gold should be: $2, % If $Gold = $1,238 S&P 500 should be: 1,096-58% Extreme under valuation of Gold relative to S&P 500 continues at a level that screams for Gold. Gold is a strong defense against the acts of politicians. As top two charts below show, investors in UK and EU have learned how well Gold works when their political system is not working. EU investors should own Gold. Page -4-

5 VALUATION US$ GOLD RENMINBI CNY/$ $/CNY US$ SILVER Target Price $2, % $ % $ % Fair Value $1,003-19% $ % Current Price $1, / $ $14.55 Short-Term Oscillator 67% 77% Signal Oscillator 71% 71% Probability of BULL trend 89% 70% 28% Bear Market $1, Dec 15 $ Nov 2018 $ Dec 15 % Change From Low + 18% + 10% + 7% Days Since Low 1,097 1,100 Market Low Test $1, Dec 2016 $ Nov 2018 % Change Low Test 10% + 7% 200 Day Moving Average Current - Value $1,264 -$26 $ $1.28 U.S. TRADE BALANCE - GOODS Chart to right is of U.S. balance of trade in goods. Services are not included. Note that all values are negative, and that in October trade balance fell to a new negative low for this cycle. To some extent the current reading is somewhat more positive than probably is the fundamental case. U.S. net imports of oil have fallen from ~4.6 million barrels per day to roughly 1.9 million bpd. All that wonderful shale oil production has been a positive. But, shale oil production has a high rate of decline. Must be produced by continuous exploration which may not occur with low oil prices. Page -5-

6 SILVER continues in that darn $14-15 trading range. But good news is that is has had a bias recently to trade toward the higher portion of that trading range. Trades have taken place in $14.7 to $14.8+ range. That suggests somewhat of a positive bias to Silver. Middle chart is what gives us some encouragement. In that chart is plotted the ratio of price of $Silver to value of S&P 500 Index. If that ratio is higher or rising, Silver is performing better than U.S. stock market. As can be observed in chart, Silver has been performing better than U.S. stock market since September. Term applied to this chart is relative strength. Improving relative strength draws money like a dog to a dropped piece of bacon. GOLD STOCKS Gold stocks have done well since last we visited, on average up 12%. The September low has now held for three months, and that is good. Note also that the September low is well above the low shown earlier in the graph. With the beginning of a new year now only a few weeks away, selling pressure should abate. We do expect a good January for the Gold stocks. Page -6-

7 We have deleted data on ABX and GOLD due to pending merger. Once that is accomplished and company begins to report on a consolidated basis new data will appear in table. GOLD STOCKS ISSUES HI Denotes New 52 Week High in Month CURRENT US$ PRICE % CHANGE ESTIMATE of VALUE % TO VALUE % GROWTH NOW / LAST* Yamana Gold (AUY) $ $ % - 4% / + 0% Kinross Gold (KGC) $ $ % + 0% / - 3% Goldcorp. (GG) $ $ % - 7% / - 8% Gold Fields (GFI) $ $ % - 2% / + 0% Agnico Eagle (AEM) $ $ % - 3% / + 0% Newmont (NEM) $ $ % - 2% / - 1% Barrick Gold(ABX) $ Randgold (GOLD) $ MEAN +12% +15% - 3% / - 1% MEDIAN +13% +14% - 2% / - 1% *Six month rate of change for trailing twelve month revenues. BARRICK GOLD(ABX) and Randgold(GOLD) are expected to merge in beginning of new year. Chart to right is from one of ABX s presentations. Circled areas are where combined production and exploration are taking place. Only one worry is that in eastern Africa. Company and Tanzania have been in tax dispute. Combined company will likely become one of the preferred Gold stocks. Web site is Page -7-

8 GOLD STOCK ETFs Top chart is for GDX, ETF for producing Gold miners, and second chart is for GDXJ, ETF for smaller mining companies. GDX picture is encouraging. Latest low in November was well above the September low, fat arrow in chart. Then most recent trading went above last high, marked by Do Not Buy triangle. A January rally should develop out of that pattern. GDXJ, bottom chart, should trade up to the moving average shown in chart in January. Year-to-Year % Change: GLD - 2% (- 6%) SLV - 9% (-18%) GDX - 8% (-18%) S&P 500-1% (+ 6%) NASDAQ + 2% (+ 7%) Number in paren is value last month. Page -8-

9 APPROPRIATE ACTIONS: Investors should be holding their Gold. Gold should be bought on price weakness. Investors should be establishing investments in Chinese Renminbi deposit accounts. Be selective, seek value, and take care of the dog, NED Follow Publication schedule: Next Trading Thoughts: 30 December Next monthly issue: 15 January VALUE VIEW GOLD REPORT MAJOR BUYS SIGNALS ON $GOLD Based on buy signals from Intermediate oscillator. Starting Date of This Record 8 July 2002 Ending Date for This Record $Gold = $1,238 on 14 Dec 2018 Number of Buy Signals 79 Correct Buy Signals 44 Percent Correct 56% Average Gain on Signals +43% Average Buy Price of Gold $1,080 Gain on Average Price +15% The signals are from the published record. They do not represent actual trades. This record is not a prediction of future performance. Wish it was! VALUE VIEW GOLD REPORT MAJOR BUYS SIGNALS ON GDX, GOLD STOCK ETF Using Intermediate Oscillator Starting Date of This Record 21 February 2006 Ending Date for This Record GDX = $20.16 on 14 Dec 2018 Number of Buy Signals 64 Correct Buy Signals 6 Percent Correct 9% Average Gain on Signals -34% Average Buy Price of GDX $34.33 Gain on Average Price -41% The signals are from the published record. They do not represent actual trades. This record is not a prediction of future performance. Wish it was! Page -9-

10 Subscribe to THE VALUE VIEW GOLD REPORT. One(1) Year =US$199 Two(2) Years = US$348, SAVE $50 VALUE VIEW GOLD REPORT can be delivered each month by to you. Use our web site to subscribe: Or, use form below to order by credit card. To pay by check: Checks must be made out to Ned W. Schmidt, and sent to Beach Blvd., Unit 812, Jacksonville FL, 3222 Credit Card Billing Information. (All sales final, and no refunds.) NAME ADDRESS 1 ADDRESS 2 CITY/STATE or PROVINCE / COUNTRY/ MAIL CODE / CARD TYPE & NUMBER MC / VISA / AMEX SECURITY NUMBER Back of card. Front on AMEX. EXPIRE DATE PHONE NUMBER ADDRESS SIGNATURE Per one of U.S. founding fathers: A useless man is a disgrace. Two useless men is a law firm. Three or more is the U.S. Congress. Page -10-