I have much to say this week. Let me start with some comments that have nothing directly to do with the market.
I spent most of the week in Chicago, Illinois on my first trip to the Windy City. My wife and I entered the U.S. by car at the Windsor-Detroit border. This past summer we crossed the border, by car, from Ontario into Buffalo, New York, and also in Maine. Both of those experiences were quite pleasant. The border officers asked us where we were going, the purpose of our visit, and whether or not we were carrying alcohol or tobacco, and then they wished us a pleasant trip. Apparently they were happy that we Canadians were entering the U.S. to spend our money.
Apparently the Detroit border guards have a different objective. They don’t want to welcome us; they want to discourage us from entering the USA.
We waited our turn in line as one border guard walked over the booth and chatted, over a coffee, with the other border guard for about 10 minutes. They didn’t seem to care that there was a long line of people waiting. I guess it’s nice to work for the government and not have to worry about “customer service”.
When our turn finally came, the not particularly happy border guard asked for our passports, and the usual questions. Then he wanted to see the confirmation for the hotel we would be staying at in Chicago. After a few minutes he told us we were “free to go” and off we went.
Here’s my advice for the U.S. government: Your border guards should protect the security of your country, but would it really hurt them to act as ambassadors for your country as well? Would it hurt to treat Canadians entering your country as innocent until proven guilty, instead of the other way around? Apparently the border guards in Detroit have behaved this way forever; they weren’t targeting me, or Canadians in general. They target everyone. No doubt returning Americans get the same shabby treatment.
Here’s my point: The U.S. is obviously in a recession. The American dollar continues it’s descent to it’s intrinsic value, which is probably zero. You need all the friends you can get, and being nice to people as they enter your country would be a good start.
For the record, I was quite impressed with Chicago. The architecture is quite amazing in the middle of the city. The streets are clean, everyone is friendly, and my wife loved the shopping. Every store has lots of friendly clerks, all eager to make the sale. Perhaps they could give lessons on friendliness to the border guards.
Alas, there was a storm coming, so we left Chicago a day early to beat the Thursday night storm.
The Markets
Enough of my rant; let’s talk about the markets. As a result of my travels I was not paying close attention to the markets this week, and apparently it’s just as well. The Buy High Sell High Forum members had a long discussion entitled “How Much More Can You Take?” That pretty much sums up everyone’s feelings on the week.
Gold
On March 1 I showed a chart of gold and said that it was looking overbought, and then I wrote “I would therefore not be at all surprised to see significant resistance at the $1,000 level, and it would not surprise me to see gold pull back to the 50 day moving average around $900, like it did around Christmas 2007.”
Well, apparently I was correct. On Wednesday gold fell almost 6% in one day to close at $944.24, and by the close of the day on Thursday gold was at $920, a further 2.68% drop on the day. So, am I happy that I got it right?
Nope. On Tuesday I put in my stink bids, and they all got filled, and the market kept falling. Apparently I should have put my stink bids in lower on AEM.TO – Agnico-Eagle Mines Ltd., K.TO – Kinross Gold Corp. and G.TO – Goldcorp Inc., all of which I now own.
To read the discussion on the Forum, and to watch the talking heads on CNBC, you would think gold’s time is over, and it’s time to start bailing. I disagree. Take a look at the chart.
This is a one year chart of gold. I have drawn a vertical purple line from the lows on August 16, 2007. I have also drawn a purple horizontal line starting at the current RSI level of 38.20. As you can see, a Relative Strength Index of 38 is not that unusual; that’s about where it was back in August at the start of this rally.
The uptrend line drawn from the lows in August held in December, and has not been breached as of today. Gold would need to fall below the $900 level for serious concerns to arise. Therefore, I choose not to be worried.
Yes, gold is now below it’s 50 Day Moving Average, just like it was last summer. The RSI typically doesn’t fall much below these levels, so do we really need to panic?
I don’t think so. My theory is this: We are in a classic liquidity squeeze. The Big Boys have been buying gold all the way up. When the market tanked earlier this week, the Big Boys sold their gold to cover their margin calls. That hammered the price of gold.
But, back on March 1 I said $900 wasn’t out of the question. All that appears to have happened is that the market’s normal consolidations, which generally transpire over a period of weeks and months, happened in three days.
Surprise, surprise. We are in a period of volatility. Get used to it. I hereby predict that there will be a day in the next month where gold is up 6% in one day. And then we will see other days where gold is down big. That’s the new reality. That’s just the way it is. We need to use the big up days to take profits, and the big down days to fill our stink bids.
Of course the price of gold is meaningless to me personally; I buy gold stocks, not physical gold (although the experts say you should also own some physical gold; perhaps I’ll contemplate that in a future posting). We know that the increase in the gold price over the past few months has not translated into a similar increase in the price of gold shares.
(Why? I don’t know for sure, but presumably it has something to do with the fact that the hedge funds and other “Big Boys” have been speculating on physical gold, driving the price up. Also, mine production has been decreasing for many years as the price of gold fell, so it’s impossible for new production to come on stream as quickly as the price of gold increases, which holds back the price of the underlying shares).
So, let’s look at the chart of a gold stock, G.TO – Goldcorp Inc.:
Drawing an uptrend line off of the August 16, 2007 and December, 2007 lows, we can clearly see that we are in a consolidation, but the uptrend line remains intact. We can also see that the RSI around the 40 level has been a great buy point since the August lows.
So, here’s my question, dear readers:
When you look at these charts of gold and Goldcorp, do they make you panic? Do you think the end is near? Or do you think that this looks like a normal, although very quick, consolidation?
I guess if everything keeps crashing this week we will know that this was the start of a bear market in gold. However, I suspect, based on these charts, that we are nearing the end of this consolidation.
Let’s not forget that gold is a store of value. Sure, gold is down. But this is the week that Bear Sterns, worth almost $170 on January 19, 2007, collapsed to be bought for $2 by JP Morgan this week. (Even more funny was Jim Cramer, one of the biggest mouths on TV, saying the week before that everything is fine, don’t take your money out of Bear Sterns. Of course he didn’t say it, he shouted it, as evidenced by this great clip from You Tube):
U.S. taxpayers, through the Fed, have guaranteed $30 billion to help JP Morgan bail out Bear Sterns. They are tossing money around to other big players as well. Eventually the roosters come home to roost. That’s very inflationary. It kills the currency. Both of which are great for gold.
Looking at the big picture, I’m quite happy where I sit with my gold holdings today, thank you very much. One bad week won’t scare me away.
Uranium
Back on March 8 I mentioned DML.TO – Denison Mines Corp., and I bragged that “a week ago I sold DML.TO – Denison Mines Corp. at $9.17; since I paid $6.93 a short time before, I was quite satisfied. It closed on Friday at $8.61, so I’m placing my stink bids at $8 this week, just slightly above the 50 day moving average.” That $8 stink bid expired, but I did get back in at at average cost of $7.56, so it looks like a good trade; selling at $9.17, and getting back in at $7.56.
Of course Denison closed at $7.24 this week, so I’m under water at the moment, but I’m at least satisfied that I took profits when I did. Did I buy back too soon? Obviously, yes.
We are now in the “retest the lows” phase of the market. Denison bottomed at $6.19 on February 7 and 8 of this year. $7.24 is still higher than $6.19, by a good margin, so unless the $6.19 level is violated, I’m satisfied to ride Denison again.
We have talked a lot about UUU.TO – Uranium One, Inc. recently (I started buying when Mr. Dines said to sell). I bought in at an average price of $4.67; it closed this week at $4.69, so we don’t know yet if this is a good play or not.
You can’t see it from this one month chart, but the low achieved on Thursday intra-day of $4.11 is also the low for the last two and a half years. A closing price of $4.69 indicates a very volatile day, since the high for the day was $4.75.
(Those of you who love candlesticks can decide whether or not Thursday is an “Engulfing pattern”, since Thursday’s action essentially “engulfed” the entire week’s action. Since this appeared at the end of the downtrend, you could make the argument that this is a bullish engulfing pattern, which is good news for the future. I’m not a candlestick expert, so I have no idea. You can learn more on the Stock Charts.com chart school).
Other charts are easier to read, like this one of FRG.TO – Fronteer Development Group Inc.:
Yikes. Back on February 9, 2008 I published a chart, with Fronteer at $7.89, and said that buying may be premature at these levels. Yeah, I guess so, with Fronteer now at $4.87. Unfortunately Fronteer Development Group owns 42.3% of AXU.TO – Aurora Energy Resources Inc., and the Nunatsiavut government (an Inuit government in Labrador) is considering a proposed three-year moratorium on uranium mining and milling on Labrador Inuit lands in coastal Labrador. The new rules have not yet become law, and they may not, but obviously this is not good news.
There is no point in buying at these levels until we see where the bottom is. Unfortunately I own some, so it’s too late to sell now, probably, although I will probably thin out my meager holdings next week. Fronteer still has gold holdings as well, so this is not a one trick pony, so I plan to hold most of my position.
Silver
I see silver trading in a not-surprising range as well.
SLW.TO – Silver Wheaton Corp. appears to be trading in an up channel. Obviously it’s approaching the lower end of the range, but that’s not a bad thing, entirely, provided the trend remains up.
Summary
I have now babbled long enough. Let me summarize:
First, the U.S. Border Guards in Detroit need to smile. Life isn’t that bad. Terrorists are unlikely to be driving into the U.S. from Canada. It’s much more likely that we are driving into the U.S. to spend money. If you treat everyone like terrorists, we won’t want to spend our money in your country. If you treat us like friends who share the longest un-defended border in the world, we will be friendly and spend lots of money. So smile and be nice.
Second, markets are volatile, and we just saw a volatile week to the down side. However, for the most part, the lows from earlier this year are holding, and uptrend lines are intact (mostly), so I’m not running for the exits just yet. As I recall April was a good month last year, and if there are no more huge liquidity shocks, it should be a good month this year.
Finally, if I was a big gold, silver or uranium company, I would use this opportunity to buy up resources at these depressed prices. Hold on to those juniors; there will be many mergers and acquisitions announced in the next few months.
Therefore, I will fasten my seat belt and hang on.
Happy Easter, Happy March Madness, and I look forward to reading your comments on the Buy High Sell Higher Forum.
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