Maybe a good thing.
I see Goldman Sachs lowered there interest rate forecast today. Higher rates has been key to their commodity specialist Currie's bearish call on gold. Lets see if this change has him revise his gold forecast.
It certainly should. If oil stays down, diesel will follow and so will one of the miners' biggest costs. If gold price only stays flat, miner margins will rise.
I've been struggling with the idea of selling some miners on a bounce but have never been very good at market timing so have resisted the urge. The more I think about it the more it makes sense to me to own gold miners with mines outside the US. There's a lot of talk these days about how bad the price chart of gold looks from a technical perspective, but if you look at the charts in most currencies not pegged to the US dollar its actually not that bad. Gold has not revisited December lows and has been trending higher in Euro & Yen. With oil and diesel prices plunging, costs in USD for a mine in Europe, West Africa or even Canada for example should drop significantly. Barring an absolutely collapse of gold price, these miners should do ok. I doubt much of that is currently priced in
I'm seeing this word used liberally to describe last week's market declines. If that was a bloodbath pundits have a very short memory. The S&P dropped roughly 3% over the 5 days! Hardly a bloodbath and hardly cause to declare the market oversold and due for a bounce.
It is especially disconcerting to see it drop more than the market averages, after it mostly went down while stock market went up for past 2-3 years. GDX seems to get particularly volatile when gold is near costs of production, as mines with costs above the price of gold are essentially worth $0. There also seems to be a general consensus that gold is heading lower sooner or later, so short-term rallies in gold price may not be reflected in GDX.
My own take is that the consensus is more often wrong and we may be at or near the bottom for gold equities. Mining costs are coming down and recent drop in oil should help. If gold can only stabilize that will be enough for GDX to go up. Also early stage of market correction is likely to see people moving to cash before looking for alternatives like gold.
The Fed may not be adding more assets, but those trillions already added haven't been taken out. To the extent that gold acts as a competing currency, it should not revisit those 2007 levels until the fed unloads their assets and soaks up the excess cash/credit created. If they did that now it would kill economy and stock market. The best they can hope to do is gradually reduce it over many years if not decades. This will act like an overhang on economy and stock market for years, the same way a large shareholder who wants out of their position in a company suppresses stock price until they have unloaded all their shares.
I've maintained for a long time now that the bane of gold miners has been costs increasing at a greater rate than general inflation (which also partly drives gold prices). Going forward I think we see mining costs either go down substantially or at least increase less than inflation. This should ultimately boost the miners' bottom line.
...And yet gold stocks went down while markets were going up for most of the past 2 years. So I guess a stock is not always a stock.
To set the record straight, gold was closer to $800 before the first round of QE.
GDX dipped briefly to $20 but was mostly higher before QE.
Gold is up lately but I'm seeing very few of the usual bullish articles and blog postings touting golds come back. In fact most pundits agree lower lows are inevitable. It may still happen but that trade seems crowded at the moment. The miners totally don't believe the gold rally and are off more than the market averages.
The way I see it, the money flowing out of stocks will at first go to cash but eventually some will find its way into gold. In addition central bank efforts to fight deflation should support gold. At the very least miners' costs will go down more than gold.
I agree with everything you said, just not sure how much gold is still in the hands of investors ready to bail on another move lower.
GDX still down even as gold bounces. We might still see lower lows in gold but the lack of enthusiasm from gold bulls is a little encouraging from a contrarian point of view. Bear markets end with doubt in the early recovery, something we haven't seen in previous gold bear market rallies.
Interesting comment along the same lines from Ray Dalio today:
"...Dalio also cited the importance of inflation as a guidepost for monetary policy. A number of top Fed officials are watching inflation before embarking on a gradual course of rate increases.
'If I was running monetary policy, I would wait to see for the whites of the eyes of inflation,' he said."
That's been my contention for some time now. If rates rise only with inflation then real rates will not go up. Higher real rates is the main premise behind GS Jeffrey Currie's call for lower gold.
The drop in oil prices as well as lower operating costs at non-US mines (in terms of US$$) should partially mitigate lower gold price effect on miners' earnings.
Mines outside the US should hold up better than US mines, all else being equal.
It is truly bizarre. In the greatest bastion of capitalism in the world, markets dissect in great detail every word from the central planner FED.
The gold price's relationship to inflation is all over the map on any period less than 20 years. Dalio's premise is that gold is a currency and currencies go down vs other currencies when you print more of them. In a deleveraging governments create more currency in order to ease the debt reduction process. This causes their currency to go down against gold. Of course as we've seen these things changes do not happen in a smooth, straight line (trying to keep a straight face).