THE VALUE VIEW GOLD REPORT

Transcription

1 THE VALUE VIEW GOLD REPORT Since end of June $Gold has been strong competition for U.S. equities. For last seven weeks $Gold has been outperforming the speculative element of U.S. stock market, the NASDAQ Composite. That the market sector dominated by internet/technology fantasies has failed to beat Gold is not something much talked about in the investment media. We are using NASDAQ Composite Index because it is dominated by the favorites, APPL, AMZN, et al. Plotted in bottom graph is ratio of price of $Gold to NASDAQ Composite Index for about the past year. When ratio is rising, $Gold is performing better than NASDAQ Composite Index. When that ratio is falling is falling, NASDAQ is performing better than $Gold. In early part of graph the plot has a zig zag type pattern, but essentially moved sideways. Performance of Gold and NASDAQ were similar. At end of March the internet/technology mania exploded as Street rushed to bid some companies to over a trillion dollar market capitalization. Investors were to become rich by doing no more than owning APPL, AMZN, etc. In September that fantasy ended, as highlighted by plot breaking through that Disciplined Analysis of GOLD Purchase Timing for Profits Volume 2018, No. 11 November 2018 GOLD VS. STOCKS 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 trend line drawn into chart. Since then $Gold has performed better than the NASDAQ Composite Index. Helping Gold was $1 billion of inflows into Gold ETFs in October. Bold blue arrow in that chart points to last time ratio had same value as it does currently. That occurred at end of June. Since then $Gold and NASDAQ have essentially performed the same. That reality is not something we hear noted by many hucksters in business media. Why has performance shifted to Gold over fantasy stocks? A big reason for this shift is that U.S. stock market had become grossly over valued relative to Gold, as we note on page 4. Some speculators think that one can pay any price for wonderful stocks. Well, since end of June investors have seen ~$1.9 trillion of market value disappear using that strategy. FEDERAL RESERVE is large part of reason for this performance shift. As can be observed in top chart, Fed Res has liquidated $300 billion of bonds. Withdrawal of $300 billion from U.S. financial systems means less liquidity to support stock market speculation, BUT, has little, or no, affect on Gold. Charts on this page use monthly average price of $Gold. As can be observed in chart immediately above, $Gold continues to build on early October buy signal. Investors buying a billion dollars of Gold ETFs certainly helped. I III II Page -2-

3 $1.24 TRILLION in little more than ten months. That is amount U.S. government has borrowed in new money since the beginning of Change in control in U.S. House of Representatives will not usher in an era of austerity. Both parties like to spend borrowed money. At end of 2017 U.S. debt as a percentage of GDP was at a record 105%, and likely headed higher. FEDERAL RESERVE is NOT funding the U.S. government s borrowing needs. During Greenspan/Bernanke era the Federal Reserve essentially financed U.S. government debt spending. As we have been observing, Federal Reserve is now liquidating bonds, not buying new ones. $1.5 TRILLION has been drained from U.S. financial system in past year, and will be again in next year. U.S. government debt up $1.24 trillion while Federal Reserve liquidated ~$0.3 trillion of bonds. Financing for that must come from somewhere. CHART INTERLUDE: FOMC made its last policy statement on 8 Nov, a week ago today. FOMC indicated it would likely raise U.S. interest rates in December, and in That gave the teenage traders the signal to play in foreign currency markets and Gold. That set of events is normal for FOMC m e e t i n g s. A s a consequence, short-term oscillator, middle chart, gave a buy signal on Tuesday. In bottom chart, intermediate oscillator was trying for a buy signal for Monday. But, afternoon rally on Wednesday removed that possibility. Odds are growing of Gold moving materially higher. Back to Topic: Foreign money is not funding these U.S. financial demands. Until last year, foreign investors Page -3-

4 were increasing their ownership of U.S. debt. Their ownership of U.S. debt is down about a hundred billion from end of June last year. Given chilly relationship between U.S. and China, unlikely China will be funding U.S. government. The U.S. must now largely fund these financial needs internally, and stock market is one likely source. So, competition for money is between U.S. stock market and U.S. government. Do not know of any time when that battle was won by stock market. For that reason, returns on U.S. stock market have been declining. NASDAQ was once up double digits from a year ago. Now it is up in single digits. Continued on Next Page. Relative Valuation: Gold is cheap. U.S. stocks are expensive. Analysis of $Gold / S&P 500 Ratio Data: Years Current Ratio 0.44 Probability Gold Higher = 79% Average Ratio 1.13 Standard Deviation 0.85 If S&P 500 = 2,717 Gold should be: $3, % If $Gold = $1,211 S&P 500 should be: 1,072-61% Extreme under valuation of Gold relative to S&P 500 continues at a level that screams for Gold. Page -4-

5 Gold market is not a source of funds for U.S. government. No direct connection exists between Gold and funding of U.S. government. Therefore, of the four investment alternatives, bonds, stocks, Gold, and CDs, the last two, Gold and CDs, are best alternatives. Returns on those two should increasingly be better than stocks or bonds. VALUATION US$ GOLD RENMINBI CNY/$ $/CNY US$ SILVER Target Price $2, % $S % $ % Fair Value $1,002-17% $ % Current Price $1, / $ $14.15 Short-Term Oscillator 21% 15% Signal Oscillator 36% 25% Probability of BULL trend 89% 70% 24% Bear Market $1, Dec 15 $ Nov 2018 $ Dec 15 % Change From Low + 16% + 0% + 4% Days Since Low 1,064 1,067 Market Low Test $1, Dec 2016 $ Nov 2018 % Change Low Test 8% + 2% 200 Day Moving Average Current - Value $1,267 -$56 $ $1.82 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 September trade balance fell to a new negative low for the year. When U.S. is importing more goods than ti exports the difference is paid to foreign producers in dollars. All those dollars being given to foreign producers should cause the value of dollar to decline, making foreign goods more expensive to U.S. consumers. They should then buy less of those goods. Page -5-

6 But, two problems exist. First, U.S. does not produce the goods that those consumers want. Second, teenage traders in foreign currency futures have been pushing the value of the dollar up. That action pushes down the price of foreign goods. This trade situation is essentially a ticking bomb. How long will foreigners accept those dollars? As long as teenage traders artificially inflate the dollar s value, they likely will accept them. That is till they do not, and dollar sells off to correct this trade problem. SILVER is likely putting in place a double bottom which should provide a base for it to move higher. The last buy signal and the current touching of $14 are the legs of that double bottom. Both lows came in at essentially $14. That price should be considered a near a hard bottom for Silver. That all said, Silver is dependent on movement of price of Gold. Earlier we noted that Gold had recently performed better than the NASDAQ Composite Index, and as well as that index since June. That all came about after a long period of Gold under performing. What that all means is that relative strength of Gold is improving, and improving relative strength is often a precursor of an improving absolute price. Silver last touched $14 on 11 September, the first low of double low in chart. So, in essence Silver has had a zero return since then. As we write, NASDAQ Composite Index is down ~10% from 11 September. So, Silver over these near two months has outperformed the NASDAQ, something most observers will not admit. That improving relative strength could be a strong predictor of good absolute performance. GOLD STOCKS Near all of Gold mining companies have reported for third quarter. Reading those reports was not fun as what they pictured was an industry near to flat on its back. Page -6-

7 Production, in most cases, is withering. But, that flat on its back situation is likely a foundation that would allow the industry to show dramatic improvement when prices move higher. What seems to be developing is an end of the year selling of losers for whatever reason. That situation could lead to some very dramatic positive performance in the new year when Gold prices should be higher. GOLD STOCKS ISSUES HI Denotes New 52 Week High in Month CURRENT US$ PRICE % CHANGE ESTIMATE of VALUE % TO VALUE % GROWTH NOW / LAST* Kinross Gold (KGC) $ $ % - 3% / + 3% Yamana Gold (AUY) $ $ % + 0% / + 3% Goldcorp. (GG) $ $ % - 8% / - 2% Gold Fields (GFI) $ $ % + 0% / + 3% Agnico Eagle (AEM) $ $ % + 0% / + 2% Newmont (NEM) $ $ % - 5% / - 1% Barrick Gold(ABX) $ $ % - 7% / - 5% Randgold (GOLD) $ $ % + 0% / - 2% MEAN - 4% +25% - 3% / - 1% MEDIAN - 2% +26% - 1% / + 1% *Six month rate of change for trailing twelve month revenues. KINROSS GOLD (KGC) is portrayed in chart to left. Year end selling, for tax purposes or other reasons, seems to be pushing the stock into a major low from which it could move dramatically higher in the new year. Solid red line for revenue growth is moving sideways in slightly negative territory. That revenue action is what we are observing with many companies. But, higher Gold prices in 2019 could move this stock up to $4 or more. Web site is Page -7-

8 GOLD STOCK ETFs Top chart is for GDX, the ETF for producing Gold miners, and second chart is for GDXJ, the ETF for smaller mining companies. Both charts below seem to be saying that investors should take advantage of year end bargain prices. GDX has held above its September low, which is positive. Year end selling could push it to a low, but it would be deeply oversold at that time. GDXJ is already deeply over sold on year end selling as highlighted in chart. Year-to-Year % Change: GLD - 6% (- 6%) SLV -18% (-16%) GDX -18% (-17%) S&P % (+ 8%) NASDAQ + 7% (+14%) 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 November Next monthly issue: 15 December 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 = $1,211 on 14 Nov 2018 Number of Buy Signals 79 Correct Buy Signals 40 Percent Correct 51% Average Gain on Signals +39% Average Buy Price of Gold $1,080 Gain on Average Price +12% 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 = $18.93 on 14 Nov 2018 Number of Buy Signals 64 Correct Buy Signals 3 Percent Correct 5% Average Gain on Signals -38% Average Buy Price of GDX $34.33 Gain on Average Price -45% 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-