THE VALUE VIEW GOLD REPORT

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Morgan Nelson
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THE VALUE VIEW GOLD REPORT Gold s start to 2018 has been golden. Over past four weeks Gold and oil have outperformed S&P 500 and NASDAQ Composite Index.

1 THE VALUE VIEW GOLD REPORT Gold s start to 2018 has been golden. Over past four weeks Gold and oil have outperformed S&P 500 and NASDAQ Composite Index. Funds are starting to be interested in commodities. Friday s action set Gold up for last intermediate challenge. An intra day high of ~$1,361 is going draw more investor money! PRIOR performance does not predict future performance. Or, nothing lasts forever. Whenever performance numbers are offered up in a sales pitch for an investment, in the footnotes will be found that warning. But, seems like most ignore these warnings has thus far shown that rather than heeding that warning, fixating on some winners of last year does still continue. Fantasies are so much more fun than reality. But, some signs of change are developing. As noted above, over last four weeks WTI oil (+9%) and Gold (+6%) have outperformed S&P 500 (+4%) and NASDAQ Composite (+5%). All of that occurred as investors rushed into stock markets on first trading day of year. And, remember the favorite of last year, bitcoins, the ultimate fantasy. Is down `25% from high will not be exactly like Disciplined Analysis of GOLD Purchase Timing for Profits Volume 2018, No. 1 January : A GOLDEN START 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 Unwinding Fed Res bond portfolio is intended to reduce the size of U.S. bank reserves. (See chart bottom of previous page.)when Fed Res bought bonds during QE it did so by crediting the selling bank s account at Fed Res. As shown in that chart, red bars using left axis, U.S. bank reserves were about $2.2 trillion at end of year. Fear is banks will lend out that massive pile of bank reserves. Spike upward by last bar is due to financial machinations that occur around year end. When Fed Res allows bonds to mature without reinvesting the proceeds, funds flow from those banks accounts back to Fed Res. Black line in same chart is for S&P 500, using right axis. Over time trend for bank liquidity and stock market should move somewhat together. Current divergence between bank liquidity and S&P 500 is worrisome, but not yet imminent risk. U.S. Debt Binge set to accelerate, just not sure which day. Top chart bars are total U.S. government debt versus price of Gold. U.S. Congress needs to take action on U.S. spending and debt by 19 January. Actual critical date is around 20 th of February when U.S. Treasury would stop paying. Chart Interlude: In middle chart latest plot moved above last high, and that is good. That move should suggest Gold will now assault last monthly average high in chart of roughly $1,350. I III In past week a news item going around was that China would slow or stop buying U.S. debt, causing much worry. Chinese official later denied that report. Sounds like China reminding U.S. that it is U.S. s major bank, II Page -2-

so quit talking about trade. Chart on dollar on page 8. Dollar continues to generally weaken, and may approach low of last Fall. Dollar s problem is helping Gold.

3 so quit talking about trade. Chart on dollar on page 8. Dollar continues to generally weaken, and may approach low of last Fall. Dollar s problem is helping Gold. Until last Fall traders assumed that U.S. interest rates would rise, and rates in other countries would not. That view encouraged selling of currencies against the dollar. However, that view is losing support as other central banks have taken action to or are talking about moving toward less monetary ease. Day of mindless, easy monetary policies is slowly slipping into history. 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 = 2,786 $Gold should be: $3, % If $Gold = $1,337 S&P 500 should be: 1,184-58% Extreme under valuation of Gold relative to S&P 500 continues to be a force moving price of Gold higher. Markets do react to strong divergence from normalcy. Another strong force is that markets like Gold do react to perceptions of risk. Whether or not individuals want to acknowledge growing risk in U.S. equity mania, markets do anticipate the future. Gold is anticipating an end of some kind to the equity mania. As we write, dividend yield on S&P 500 is 1.7% while 2 year U.S. Treasury yields 2.0%, suggesting an extreme in over valuation for equities. Page -3-

The obvious does not go unnoticed for very long. Charts on previous page and below are not secrets.

Last Friday Gold closed at $1,337, after a strong late afternoon move upward. Intra day high on that day was $1,340.

At the same time the $1,350 level sticks out in the chart like an elephant amidst a flock of chickens. No one can miss it.

4 The obvious does not go unnoticed for very long. Charts on previous page and below are not secrets. Market observors are fully aware of those pictures, and what they could mean for the price of Gold. Last Friday Gold closed at $1,337, after a strong late afternoon move upward. Intra day high on that day was $1,340. Previous high was in September. Intra day high at that time was $1,358. At the same time the $1,350 level sticks out in the chart like an elephant amidst a flock of chickens. No one can miss it. A move through that those prices will stir the animal spirits of traders around the world. In Canadian $Gold chart, top right, notice the break out above CN$1,650, and similar formations developing in other charts. Traders around the world are observing these changes, and will react positively to the moves. Again, what will keep Gold from going up. Page -4-

5 VALUATION US$ GOLD RENMINBI CNY/$ $/CNY US$ SILVER Target Price $2, % $ % $ % Fair Value $983-22% $ % Current Price $1, / $ $17.20 Signal Oscillator 98% 86% Probability of BULL trend 92% 71% 91% Bear Market $1, Dec 15 $ Dec 2016 $ Dec 15 % Change From Low + 20% + 7% + 18% Days Since Low Market Low Test $1, Dec 2016 $ Dec 2017 % Change Low Test 19% +11% 200 Day Moving Average Current - Value $1,274 +$63 $ $0.40 Virtual Demand: Demand for metals is sum of physical demand and virtual demand. In charts below are shown net long positions in Gold and Silver futures of large speculators. In both large speculators are increasing the size of net longs. Rising markets tend to draw these players into them. We think they will keep buying. Page -5-

SILVER chart above is shortened to focus our attention on the move from December low. Intra day low at that low was ~$15.50. Intra day high in move thus far is $17.35.

Strong move of Silver off low and growing interest in commodities is going to draw money in from funds.

6 SILVER chart above is shortened to focus our attention on the move from December low. Intra day low at that low was ~$ Intra day high in move thus far is $ A move through that level would do two things. First, it would indicate that Silver is likely to go higher. Second, moving through that high would confirm the move in Gold. Strong move of Silver off low and growing interest in commodities is going to draw money in from funds. GOLD STOCKS As shown in bottom chart our index of Gold stocks on following page moved up this month a fairly strong 13%. Index is now approaching upper boundary of the trading range. Given strength in price of Gold we expect that index to break out to upside. Black line in middle chart is yearto-year percentage price change of Gold price, using right axis. Red bars are 6 month rate of change in trailing 12 month revenues of the Gold miners. Note that in early part of graph black Page -6-

7 line is declining. As Gold price gain declined, red bars declined. Revenue growth slowed as price gains faded. Now, that black line has been rising, and will likely continue to rise as price of Gold is stronger. That should lead to better earnings reports, perhaps with some earnings surprises. Stocks should benefit. GOLD STOCKS ISSUES HI Denotes New 52 Week High in Month CURRENT US$ PRICE % CHANGE ESTIMATE of VALUE % TO VALUE % GROWTH NOW / LAST* Barrick Gold(ABX) $ $ % - 3% / - 2% Goldcorp. (GG) $ $ % - 1% / + 1% Yamana Gold (AUY) $ $ 3.2-2% + 2% / - 1% Agnico Eagle (AEM) $ $45.2-4% - 1% / + 1% Kinross Gold (KGC) $ $ 4.0-4% - 2% / - 0% Newmont (NEM) $ $36.2-6% + 1% / - 1% Gold Fields (GFI) $ $ 3.9-7% - 1% / - 0% Randgold (GOLD) $ $ % + 5% / + 2% MEAN +13% - 1% + 0% / + 1% MEDIAN +7% - 3% - 1% / - 0% *Six month rate of change for trailing twelve month revenues. GOLD FIELDS (GFI) is portrayed in chart to right. As Gold s price stalled the solid red line of revenue growth declined. With stronger Gold prices, revenues should benefit, and that line should improve. Stocks generally do better with rising revenues. What caught our attention is that despite the price of Gold the stock has had somewhat of positive bias for some time. Friday s close for stock was $4.37 with 52- week high of $4.70. Would not take much effort given price action of Gold to move stock through that high. That would draw money into stock. Web site is Page -7-

GOLD STOCK ETFs Chart to right is for GDX, the ETF for producing Gold miners, and second chart is for GDXJ, the ETF for smaller mining companies. Picture in each graph is positive.

Move through $24 would set GDX up to move to $25. If Gold remains strong, see little reason why that price should not be surpassed. Then, nothing but blue sky.

8 GOLD STOCK ETFs Chart to right is for GDX, the ETF for producing Gold miners, and second chart is for GDXJ, the ETF for smaller mining companies. Picture in each graph is positive. Both ETFs are above their 200-day averages. That they are both having similar action is confirming a positive stance on both ETFs. GDX is at short-term resistance, though not very powerful, at $24. Move through $24 would set GDX up to move to $25. If Gold remains strong, see little reason why that price should not be surpassed. Then, nothing but blue sky. GDXJ has two prices levels to challenge, $36 and $38. Then, blue sky above. Our index of the dollar s value is in a bottom chart. That measure is now approaching low of last Fall. A move down through that low could further heat up the Gold market. We see no reason for dollar not to falter. Year-to-Year % Change: GLD +12% (+9%) SLV +2% (-6%) S.P % (+18%) NASDAQ +31 (+27%) 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 January Next monthly issue: 15 February 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 = $1,337 on 12 January 2018 Number of Buy Signals 73 Correct Buy Signals 60 Percent Correct 82% Average Gain on Signals +58% Average Buy Price of Gold $1,061 Gain on Average Price +26% 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 = $24.00 on 12 January 2018 Number of Buy Signals 60 Correct Buy Signals 17 Percent Correct 28% Average Gain on Signals -23% Average Buy Price of GDX $35.17 Gain on Average Price -32% 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-

THE VALUE VIEW GOLD REPORT

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