Reprint from: www.GoldStocknews.com

Forth Quarter 2014 Edition, Page 16

 

1-Gold representation as a percentage of total assets held by large institutions and by various investment funds is still quite low and has been dropping, yet on the other side are the world’s central banks that have been consistent buyers of the bullion. As you are aware, it is not easy to purchase gold bullion in large volume without moving the price up, having it delivered and stored safely. You may want to ask the Germans about the storage! The bottom line is that we expect to see more non-central bank institutions investing in gold mining stocks in order to participate in a potential bull market in gold. That method will be their proxy for gold investments. As you know, buying gold bullion in size without moving the price up can be very difficult.

2- Understand well that the central bankers such as the Chinese are presently trying to accumulate as much gold bullion as possible at prices as low as possible. Price weakness in the price of gold affords them the opportunity to accumulate gold at what they consider to be undervalued price levels. Unlike mining analysts and mining companies who lament low gold prices, the central bankers consider price weakness as opportunities to buy when bullion is “on sale.”

3-Still required? Yes required! For a strong bull market in gold and gold mining stocks, our historical analysis (and the analysis of others as well) suggests that at the same time, we would need to see a bear market in the large industrial stock market such as the Dow Jones Industrials and the S&P 500. With near zero interest rates it is very difficult to see a bear market in the industrial stocks for now.

4-The large buyers of gold bullion who are the central banks are not emotional but extremely well informed and attempt to time their bullion purchases using fundamental supply and demand analysis. They also use technical and cyclical analysis. Too often, the investing public, traders and some hedge funds can be far too emotional and engage in chasing and pushing the gold stocks up. Patient accumulation is a key ingredient to successful investing in mining stocks.

5-Technical Analysis! At Canadianmineanalysis.com, we like to see the gold price move up in a slow solid pattern, not “spike” type moves which usually indicates emotional buying. Slow prudent buying is the key. The angle of price ascent depicted on the chart is so important. Last March 18, 2014 on Canadianmineanalysis.com, I did not like the move from $1200 to the $1375 level. This is exactly what I wrote: “Examine a gold chart, you will find that when gold bullion has a move up of about $200 or more within a short span of three months or less, it will usually come back minimally in the amount of 30% to 50% of its upmove.” It certainly came back and more so didn’t it?

6-Is the price of gold manipulated? We sure think so. It is difficult for the world’s bond markets to maintain interest rates at near 1% to 3% if the gold market is in a bull phase. And keep in mind that large brokerage houses DO NOT want a bull market in gold as it brings with it a bear market or at best a very lethargic market in industrial stocks. A bear market in large industrial stocks has a severely negative impact on brokerage house profitability. There is a low level of profitability for the brokerage houses in the mining sector stocks.

7-Last summer of 2013, I suggested that gold bullion was making a bottom since it was selling under the cost of production for many gold mining companies; that has an enormous impact on the supply of gold. Remember that we are in a supply and demand business! That “cost of production” is a very important ingredient in a bottom. I saw that an analyst recently forecast gold is heading to $660. Maybe, but I have always looked at the cost of production. I doubt that gold would sell at about half the cost of production. Rest assured that the Chinese and Indians would take advantage of the low prices.

8-In keeping with their tradition of often offering pitifully poor investment advice, the major American brokerage houses will continue to impart the worst advice possible for the gold and gold mining stocks. They have a superb track record for doing just that. That will never change.

9- Are Gold stocks cheap? In our opinion, many of them are right now. True to form, many of the brokerage house recommendations will come after most of their “picks” have already had moves up on average of over 40%.

10- Canadian Mine Analysis.com will soon release a short booklet on gold mining which will explain the basics of gold mining exploration and production for investors. It will try to convey informative facts on the fundamentals involved in mining. It will give investors a solid overview of gold mining.

Thank you,
K.C. Grainger and Bob Pellerin
www.Canadianmineanalysis.com