THE VALUE VIEW GOLD REPORT

Transcription

1 THE VALUE VIEW GOLD REPORT Markets sectors compete for investor money. No, they do not do television ads, but social and economic environment influences what investors do with their money. In 1999 dot.com stocks won the public relations battle, sucking thousands of investors in. In middle of last decade, real estate finance took over. Now winners are a handful of technology & internet stocks. At same time competition between various markets, Gold, stocks, bonds, and real estate, for investor money exists. For last few years, stock markets have been winning that competition. But, all bull runs end, and we should never forget that. Recently, Sue Chang, marketwatch.com, wrote Behold the scariest chart for the stock market. Chart to right is from that article. Chart Source: Scariest Chart Four ratios are used to value stocks. Price-to- Sales, Price-to-Earnings, Price-to-Cash Flow, and Price-to-Dividends. Price-to-Sales, is most reliable as the accountants can be creative with the others. A high value for each ratio suggests a dangerous, over valued stock or market. Disciplined Analysis of GOLD Purchase Timing for Profits Volume 2018, No. 8 August 2018 COMPETING FOR MONEY As can be observed in chart, current value for Price-to-Sales ratio for U.S. equity market is at an extreme high, only matched in past near three decades by value 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 associated with stock market crash of Ratio did not rise to a high during real estate bubble as most of speculation was in mortgage debt and other such garbage. Now that ratio is screaming for investors to get out of U.S. stocks, and put your money somewhere else, almost anywhere else. With U.S. interest rates rising, bonds will only lose money, and likely for a decade. That leaves only two choices, CDs or Gold. Gold is definitely a choice for portfolios. Other wise, cacoethes is going to reek havoc with the wealth of those remaining in U.S. equity market. FEDERAL RESERVE continues to liquidate its bond portfolio, withdrawing funds from U.S. financial system. As bars in top chart show, nearly $200 billion of bonds have been liquidated by Fed Res. That withdrawal of funds has capped the U.S. stock market. Buying by large funds has supported the Fantasy Tech/Internet Favorites which have kept popular stock indices at high level, while most U.S. stocks have done nothing since January. Charts on this page use monthly average price of $Gold. Since 2014 this measure sold off twice and gave a stochastic buy signal as highlighted by arrows. It is now preparing to give a third buy signal. VIEW GOLD REPORT Aug ust 2018 I III II Page -2-

3 Relative Valuation: Gold is cheap. U.S. stocks are expensive. Analysis of $Gold / S&P 500 Ratio Data: Years Current Ratio 0.42 Probability Gold Higher = 80% Average Ratio 1.13 Standard Deviation 0.85 If S&P 500 = 2,840.Gold should be: $3, % If $Gold = $1,194 S&P 500 should be: 1,058-63% Extreme under valuation of Gold relative to S&P 500 continues to shout out that Gold is the bargain and U.S. equities are still over valued. Table below shows that investors have not made money in most stocks in almost seven months. US STOCK MARKET - DAYS SINCE HIGHS INDEX DJIA S&P 500 NASDAQ High 26 Jan Jan Jul 18 Days Since THE TURKEY ATE US THIS TIME: A turkey dinner is a long tradition at Thanksgiving in the U.S., and millions are eaten each year. This year the turkey ate us. Turkey has been a growing worry given its radical leadership. But, few were expecting the currency crisis that would develop. Sanctions by U.S. may have exacerbated the situation, but that confrontation was inevitable. Only the timing was in doubt. Crash of Turkish lira set off a dramatic sell Page -3-

4 off of currencies around the world, made worse by coming on Monday, and with the background of the China/U.S. trade dispute. Remember though, this action is emotion driven selling of currencies, which is usually reversed. Selling currencies around the world has become a popular trade, with traders convinced that no end for the dollar rally is likely. The dollar is now being treated as Facebook was before it too crashed. Traders trade till the trades don t work, and then it is the little traders that get hurt. Page -4-

5 VALUATION US$ GOLD RENMINBI CNY/$ $/CNY US$ SILVER Target Price $2, % $S % $ % Fair Value $ $ % Current Price $1, / $ $15.10 Short-Term Oscillator 0% 4% Signal Oscillator 6% 16% Probability of BULL trend 91% 72% 24% Bear Market $1, Dec 15 $ Dec 2016 $ Dec 15 % Change From Low + 14% + 1% + 11% Days Since Low Market Low Test $1, Dec 2016 $ Aug 2018 % Change Low Test 6% + 1% 200 Day Moving Average Current - Value $1,290 -$96 $ $1.48 U.S. TOTAL DEBT VS. $GOLD: One of the assumptions of investors in general is that the U.S. dollar is a risk free currency to them. In reality, it depends on the situation. A risk to the U.S. dollar s value is the growing debt of the U.S. government. Only a small handful of people in U.S. government care about size and implications of growing U.S. government debt. Red line in chart is year-to-year percentage change in amount of U.S. debt. That percentage growth continues to rise, and that indicates a higher level of risk, especially when that debt amounts to $21.3 TRILLION. Latest data indicates U.S. government debt is now 7.5% higher than a year ago. The two lines in that chart, second being for $Gold, should be moving together. Divergence between those two lines suggests Gold is under priced in dollars relative to the financial risk of U.S. debt. Page -5-

6 WHY DOES COLLAPSE OF TURKISH lira, and other currencies, matter? Suppose you run a prosperous business in a successful developing nation. Business is so good another banker seems to call on you each week with a loan proposal. You agree to borrow $1million U.S. dollars which you convert to your currency at a rate of 100LC:1US$. You need to convert to pay your workers and local bills. You will need 100 million LC(Local Currency) to repay the loan, so you think. However, in a year or so your country elects a radical dictator. As a consequence, your currency depreciates to the point where the exchange rate is 200LC:1US$. You will now need 200 million LC to repay the loan, which because of economic conditions you will not have on date loan is due. You go bust. The bank has to write off the loan. Everyone loses. Turkey may have borrowed as much as hundred billion Euros from EU banks, which they may not now be able to repay. Remember, Turkey is just one example.. SILVER fell out of the large lateral pattern that had dominated the chart for some time. Recently, it moved into another lateral at a lower price level. Silver needs Gold to move higher. Traders that have been active in currencies should then be attracted to Silver. GOLD STOCKS Turkey crisis has taken a toll on Gold stocks this past month. The index is stretching the lower edge of the lateral pattern, but we think it is still intact. One of our readers sent in some research from one of her sources. Though we cannot reproduce it, the conclusion of her research source was shocking: China, Russia, India and Turkey demand for Gold has exceeded ALL Gold mine Page -6-

7 production since That means all other demand of other investors, jewelry, etc., must be satisfied by recycling. Low prices choke off recycled supply. Takes high prices to support recycling. 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) $ $ % - 8% / - 2% Randgold (GOLD) $ $ % - 2% / - 1% Kinross Gold (KGC) $ $ % + 3% / - 3% Goldcorp. (GG) $ $ % - 2% / - 1% Gold Fields (GFI) $ $ % + 0% / + 3% Agnico Eagle (AEM) $ $ % + 2% / + 1% Newmont (NEM) $ $ % - 1% / + 2% Yamana Gold (AUY) $ $ % + 3% / + 3% MEAN - 9% +17% - 1% / + 1% MEDIAN - 8% +16% - 1% / + 1% *Six month rate of change for trailing twelve month revenues. YAMANA GOLD (AUY) is portrayed in chart. LET us look at solid red line for revenue growth, which uses right axis. The pattern in that line should be supporting the price of stock more than it has been. Stock did bottom a year ago, but has not followed revenue growth higher like it should have. Company has had four quarters of growing revenues, though latest was weakest. Also interesting is that Gold production was up in latest earnings report. That is good given the comments above, and is rare among Gold mining companies. 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 have a similar pattern. After being pushed down out of lateral pattern that had existed they moved into a downward channel brought on by the currency mania. Turkey crisis has pushed both down into a deeply oversold condition. 200-day moving average for GDX is $ day moving average for GDXJ is $ Year-to-Year % Change: GLD - 7% (+ 2%) SLV -12% (+ 0%) GDX -13% (+ 2) S&P % (+14%) NASDAQ +24 (+25%) 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 August Next monthly issue: 15 September 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 = $1,185 on 15 Aug 2018 Number of Buy Signals 79 Correct Buy Signals 36 Percent Correct 46% Average Gain on Signals +36% Average Buy Price of Gold $1,080 Gain on Average Price +10% 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 = $19.77 on 14 Augy 2018 Number of Buy Signals 64 Correct Buy Signals 4 Percent Correct 6% Average Gain on Signals -35% 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-