Wednesday, December 4, 2013

What happened to the Gold sector?

Market Talk:

Well, over the past few days we see the overall market drifting some off the recent all time highs with the Dow now at 15,941. Anxiety on the Federal reserve tapering the money supply is typically blamed for sell offs, but sometimes it's just plain old profit taking by the market machine. In general, the market seems over extended in some sectors and perhaps bubbles in others.

 Meanwhile, there is a sector that has underperformed and it is the Gold and related Gold mining stocks. I used to follow the Gold sector pretty closely until something happened where I was forced to make a decision about a stock I owned (TGB) versus the environmental concerns as raised by the First Nation natives in Canada. After review of the issues I was forced to objectively decide that the natives concerns had merit, so I had to side with the Natives and let go of the stock,  taking their concerns on my blog.  Since then, my interest in the Gold mining sector has waned some. It turned out to be a beneficial trading move because the Canadian government also took the environmental position and delayed the planned mine.

But I can't help but notice a recent "edge condition" in the gold sector.

Stock Talk:

I will call an edge condition a situation where a stock or an entire sector seems to breakdown in share price support based on certain factors pertinent to that stock or sector.

Just a few years ago, Gold could not breakout past the glass ceiling of $1000 an Ounce. Now that it has approached the $2000 level and has since been trending "lower" into the 1240 range sentiment towards gold is also waning.   With Gold being harder to find and costs of new gold going higher, there is concern that the gold miners will not be able to sustain earnings growth.

One stock I kind of watch from time to time is Yamana Gold (AUY). This company has several mines spread out in various places like South America. AUY claims a low cost of mining compared to other companies and pays a dividend and has consistently produced positive earnings.

AUY has trended lower into the 8's range. Back when Gold was higher it was typical for AUY to trade in the 13 to $15 range. Now it's in the 8's. Will Gold find its luster again and breakout from these recent lower sentiment and lower pricing?

With Gold still being viewed as a alternative to currency, there will likely be a time ahead where Gold goes a lot higher. But when is hard to say. The Gold stocks are in an edge condition. They could go either way in the near term.

I still watch the Gold mining stocks from time to time from the sidelines. Over the near term, it seems like what seems to be good buys may not be as they could go lower if gold pricing breaks down lower. Some would say don't jump under a falling knife - whereas others may say buy, buy, buy. I can't say for sure but I am not jumping to any conclusions either way as far a prediction.

All that said - Yamana in the 8's seems a little low and it may bounce, or not. Then again as we've seen - "something always happens."

ALL in my humble opinion, scroll down and read more..

This site does NOT make Buy / Sell recommendations.