PM Stocks – Has This Been A Bear Market Rally
Doc joins me for a discussion on the action of the precision metals stocks over the past few months. Considering the weak bounce in the stocks we we look ahead to what we can expect in the next few months.
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Pardu, I could be wrong on Corvus. It looks right now that 1 may not happen. It may have a little more room to run higher but then should trade (gently) sideways to down. I don’t think there is a lot of risk to GDX. As I’ve said in the past, I don’t see a massive move down for GDX or GDXJ. GDX at worse may challenge 20. At this point there is not a big threat. If I see things change, I’ll certainly warn folks on Cory’s interviews. This year will be the final year (IMO) to get low prices for many of these PM stocks. It looks like we’re getting that rebound I mentioned for March but it won’t go anywhere significant and we should in the near future see more downward pressure on the PMs. The move down like the stocks should not be significant and late May should see another great buying opportunity.
Doc, you said last week that ABX looked terrible, but the chairman just bought $3 million of ABX in the open market, and 3 or 4 other insiders bought a lot too. Are you going to sell your Rye Patch or take Alio shares? Don Durrett thinks the stock could rise 15 fold if gold goes to $2500 and production rises to 250000 oz/year.
BB; I recently have been purchasing Alio before the Rye Patch news. I don’t own Rye Patch but will keep my ALO shares and might add as it bottoms out.
BB, interesting news on ABX. On the monthly chart, ABX is right on its’ lower BB that is gently sloping down. This stock doesn’t look like it will fall out of bed and there may be a little more downside over the next 2 months. Not investment advice but purchasing at these levels shouldn’t put one at risk for a massive move down but instead in a comfortable bottoming process. I hope that helps.
Thanks, Doc. I was thinking of selling ABX after hearing what you said, but now I’ll keep it.
Not going to buy more as there are other things I’m looking at.
Did you own HL or Klondex? What do you think of the HL offer? I own both at a loss.
Get well. Happy spring, tra la!
BB, I own both and will be purchasing more of HL in the future. I bought Klondex at a reasonable price and don’t have a huge loss considering the number of shares I own. I own HL and purchased them higher but not at their top—I realized both of these stocks would be hit after their run up but kept both and sold others that had good runs.
I pulled profits on my Klondex position for the quick swing-trade win on the position I started on the 13th, to rotate into other more beat up stocks. I have no interest personally in holding a Hecla position, and their larger debt position is a big overhang in their company that will need to be dealt with over the next few years. I hold other Silver and Gold producers that I like much more, but still it’s a win for Hecla to have scooped up KLDX / KDX on the cheap and at least these assets will survive to fight another day.
The 59% premium was nice and reasonable for a takeover, but it didn’t do much for most longer term shareholders in Klondex, and still took away the future percentage gains Klondex may have had outside of HL. It is always a shame to see more highly levered companies taken out at low points in the market (like what happened to Claude, Lakeshore Gold, and recently with Richmont, etc…) The smaller Jr producers and smaller Mid-tiers will typically outperform the larger juggernauts that swallow them up. Hecla has better leverage than Tahoe Resources or Fresnillo though, but really has become a Gold company more so than a Silver company.
This takeover provided an escape hatch for many underwater KLDX / KDX investors, but many were not made whole by getting taken out near the bottom of this 18 month consolidation in the miners. My personal timing worked out well in this instance after only having positioned back into the stock for about a week before the takeover, but I only had 1 tranche in place, and planned on getting a 2nd & 3rd in place before a takeover happened, and was hoping Klondex would run some on its own before getting nabbed.
One last reflection was that I was preparing for Hecla to acquire Dolly Varden, so now that takeover may take longer than expected (unless another suitor grabs them first). That is kinda a bummer, because I wan’t a takeover exit on DV and already have a nice profit in it, and was hoping KLDX was going to be a multi-bagger before getting taken out later in the cycle. Oh well I squeezed out a 56.6% return in about a week so a profit is a profit and moving onward and upward.
In order to understand just how bad Hecla Mining (HL) financials are…
3/19/18 – Inca Kola News
““We structured the deal to use our excess cash balance so our shareholders can benefit from the approximately 162,000 gold equivalent ounces a year of production while minimizing dilution.”
“As at year end 2017 HL had $186m in cash so yes, it does have the “liquidity” to shell out $157m to KDX shareholders. However, look a bit further down and….oh, what’s that? $502m in debt? Hmmm, and here’s the payback schedule on that Senior Secured (aka at the front of the queue) obligation:”
2018: $34.8m
2019: $34.8m
2020: $34.8m
2021: 518.107m
“In other words, if HL can conjure up six hundred and twenty million dollars in the next three years, all will be well. That thought brings us to Exhibit B of this post, the net profits at HL over the last ten years….”
“Do the math (and notice how generous your humble scribe is by going for the ten year period and not just the last five years) and you’ll see that HL has generated the sum total of $168.118m in the last ten years. TEN YEARS! What’s more, $151m of that came in just one year. So folks, what do you think the chances are that Hecla makes enough to pay down that debt organically by 2021? Yeah, me too.”
“Thank you for the Monday merriment, Phillips S. Baker.” – Otto
http://incakolanews.blogspot.com/2018/03/in-order-to-understand-just-how-bad.html
Libor rates going up………..
https://www.zerohedge.com/news/2018-03-21/morgan-stanley-soaring-libor-story-year-not-fed
Who is the puppet……..
Californians leaving the state, but, everyone already knows that………
https://www.zerohedge.com/news/2018-03-20/californians-flee-state-droves-over-taxation-and-housing-costs
Do not worry about the middle class leaving the state………You have DACA, they will fill the void……
“We’ve been saying it for over a month: the most important, if widely underappreciated, factor for risk assets has been the surge in Libor”
I’ve been musing over the extreme move in Libor rates for well over a year, wondering when it will matter:
The extent of my understanding of Libor is pretty much what the name says–the interest rates banks offer each other. So this rising rate would indicate to me a growing climate of distrust, or tightness of $…
Pretty weak, I know. Can anyone offer more insight on the significance of this move?
I’m hearing the US is making its demands softer in the NAFTA negotiations, because of fear of trade wars.
That should be not so good for gold? Better for copper?
Doc has consistently been one of the few people (perhaps the only person) tempering expectations since the onset of the purported new bull in the metals, especially in terms of timeframes. He clearly understands the implications of longer term charts and indicators unlike many others.
GDX is being sold/shorted on any touch of the 20 dma. In the last two months it has managed exactly 1 close over the 20 dma.
The miners are clearly signaling more weakness ahead. I’l believe the miners are done with their move down when they can get 3 or more closes above the 20 dma. Until then, this is all noise.
GDX putting in a lovely shooting star now. Down she goes.
Someone is selling the absolute snot out of it. That’s been clear since late January, which produced some huge red candles and a very steep descent the likes of which we haven’t seen since The Bear.
Let’s see how GDX closes. Gold’s action today is making cyclists question their counts.
The metals have been done for a long time and there is no reason to think they will recover any time soon.
True, especially on or after FOMC days. But a $23 move up is hard to ignore. What’s more, no one (including me) is expecting a rally here–ok, Matthew and maybe GH excepted—much less the beginning of the next leg higher in the bull (ok this one is much more sketchy but it would fit with previous bull market consolidations).
> On March 14, 2018 at 7:29 pm,
Excelsior says:
“I am prepared for a short-duration rally after the March rate hike by the Fed. A nice tradable rally, which should give the miners a little nudge higher.”
On March 20, 2018 at 8:41 am,
GH says:
“Call me crazy, but I like the looks of GDXJ right now.
Cheers, Excelsior
Cheers GH!
GDX had a strong close. More upside on the way.
I’ll certainly take today’s action. I’ll admit it would be extremely tempting to get in if you didn’t have a position. I previously noted the coming together of the 200 and 600 dma in the mining indexes. The HUI’s actually crossed negatively already, but $XAU and GDX’s are still coming together. In previous consolidations in bull markets we saw similar action and typically what you saw was a very swift extremely powerful move up that turns the 200 dma from flat (and heading towards the 600 dma) to up, just before those MAs were about to cross. I am very cautiously optimistic here.
Today’s action in miners might just be that to fleece longs. Metals were oversold and sentiment was very bearish. This just provides an opportunity for dump shares and take the sector down? Time will tell.. btw I sold all my miners with a nice profit.
Who knows, but today is better than being down 10%, so I’ll take it. I am holding through everything (to everyone’s annoyance), but I will concede that the mining indexes could certainly put in a very very powerful rally that would start the next leg up in this apparent bull. There’s the MA observation I made. There is also the fact that I was saying since a year ago that March ’18 would be likely represent a nadir in price for the silver miners (based off of the monthly Ichimoku cloud).
Then again, this could just be…
Typically Bob Moriarty informs on website when DSI for metals get oversold – didn’t see his memo this time around? You maybe correct and this may be beginning of the trend change but again this is highly manipulative sector. I’m I took my profit home.. tomorrow another day, another play..
I’m happy*
This might be a repost, but another positive factor at least for the near term…
Interesting little fact that should give metal bulls a little bit of solace: since 1984, which is the farthest stockcharts.com goes back for the $XAU, only two other times in history have the weekly bollinger bands (50,2 and 100,2–i.e., over 50 week and 100 week periods) been this narrow–1989 and 2007. In both prior instances we got a very large move higher over the ensuing 6 months (from 90 to 120 in ’89 and and from 140 to 205 in ’07).
Of course after the move up into 2007, we know what happened next. And the move up in 1989, while large, still didn’t take out the 1987 peak, and after petering out in 1990 was followed by an even larger decline over the next 2 years.
Potential breakout to the upside from a two-year wedge for the GDXJ:$GOLD ratio:
That chart is gdxj:$SPX. In either case, would like to see an explosion (ha) through the 200 dma.
Oops, right you are. Typo on my part.
Thx to King Dollar, Bubba in trubba…
Yep, King Dollar is below 90 again at 89.70 and hasn’t been a beacon of strength for over a year now. I’m still expecting a slide further down in the 80’s maybe to 84 later in the year.
(BTO) B2Gold sets record straight as Mali mulls mining code amendments
22nd March 2018 – Henry Lazenby
Doc, do you still see Corvus Gold (CORVF) going lower to just over $1.00 and that being a good buying opportunity? What is your outlook still on GDX?