Bill’s Current Thinking: February 10, 2017
  • February 10, 2017 09:58 am
  • by Bill Cara

Re the reference to my yesterday’s blog and Goldminers: Yesterday I wanted to focus people on the oil and gas stocks because that industry is huge in terms of global market cap. Moreover, I believe the rising oil price, which has much to do with the recent price support agreement of OPEC and non-OPEC producing countries, is an economic price driver that bears watching closely.

On the other hand, just the increase in market cap of Apple (AAPL), which I referred to as being some $130 billion in the past 90 days, is itself about as large as the market cap of all goldminer stocks. As one of my former associates wrote me last evening about where he sees capital flowing: “The gold market is probably too small for major institutional money to invest large sums of money”. He’s right; gold is not a big market.

A strong uptrend in the price of goldminers is, as I have written frequently over the years, a cover story to distract the public and make them think that a long-run bull market remains intact for broad equities when in fact it could be on the way south. As a warning, I would say things like: “At the end of the party, the goldminers are last ones off the dance floor”.

So yesterday I was referencing oilers and signs of potential trouble for broad capital market prices. Regarding the goldminers, I don’t see that final hype-filled blow-off top in the making. So even as prices have recently surged for some of the goldminers, especially the smallish heavily promoted ones, I think that phenomenon has more to do with the anxiety of some investors with the noise that is coming from the White House, including the media coverage of Trump advisor Steve Bannon – you know, all that stuff about apocalypse and war etc. That maybe is the reason that gold prices have lifted a bit in recent weeks, but not enough to skyrocket prices ahead of a total collapse.

If, as and when the broad capital market is pushed higher, I believe the fundamental driver will be the oil price, and should that happen, which I think is likely a 60% case, then there will be a flood of media stories that the economy is strengthening, that Trump really is transforming the US economy, yada yada. Those storylines do not bode well for gold prices.

So, I think that, while goldminers are in a major long-term bull trend, with the next up-wave to likely equal or exceed price levels reached in 2016, I am awaiting some interim softness that will present the next buying opportunity to take a 30% position to maybe 80%. Soon, but just not yet.

However, the major point is that should the oil market not pick up the slack when today’s high flyers cool down but in fact continue to disappoint, then we would be facing the likelihood of the start of a new major bear cycle. Today seems like there is somewhat of a push higher in those oilers.

What makes the capital markets so interesting every day is that decisions must be made amid uncertainty. Nobody has all the right answers all the time. The best we can do is try to understand the major price drivers and look for indications of change. Over the years, I have found that goldminers are seldom great indicators of market cycle tops or bottoms. Yes, there have been cases, but really not many.

In closing I want to say that the development of my database system is rapidly coming to a point where I’ll be able to write more effective blogs and produce premium subscriber reports. We are now in the output design phase and have a few of you sending me links or photo examples of presentations you find most helpful of all the investment material you receive. I would be more than pleased to receive anything you find helpful. Please send it to billcara@billcara.com. Thank you in advance.

All the best,

/Bill


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