Wednesday was a bad day on the markets – but gold mining stocks stood their ground...
THE MARKETS seem pretty determined to have a bad time about now. That's an over-reaction to all the fear feeding on worry feeding on dread coming out of Europe – heaped on top of the "Debt Valley" talk in the US, writes Gene Arensberg, founder of GotGoldReport.
Metaphor mixing, the credit default swap sharks have European banks in their gun sights and capital is flooding out of that continent and into anywhere it can find a place to hide temporarily. Some of that fearful funding is finding its way into gold.
Gold, monthly, since 2001.
Choices of where to hide are limited and dwindling, but with Fed Chairman, Dr. Bernanke, pretty much forcing capital to seek somewhere besides bank balance sheets to "live" (if they want any yield at all), dividend paying equities in the US ought to see quite a bid once people feel able to come up for air again out of the Panic Pool.
With so much angst and worry out there, one might expect the "Little Guys" (our pet name for the smaller, less liquid and more speculative miners and explorers) to really get clobbered. Judging by our mail over the past 72 hours and looking down through the many charts we track, it's clear that some issues are indeed getting clocked, but some just aren't. Some are hanging tough and even advancing in this maelstrom.
We can point to issues that have gotten thrown out like so much garbage by very fearful people, a very few of whom we have heard from today and yesterday. These are good folks, but we know things are bad when we hear from them, because we never hear from them unless there is big trouble afoot.
So, it is with some trepidation that we turn to our charts for warnings, guidance and inspiration. Here at Got Gold Report we track more than 60 individual companies on charts, and, when we add in all the indexes, commodities and ratios, the number exceeds 120 different individual 'indicators' we can consult at a moment's notice.
How often do we get a bona-fide panic sell-down to work with? How often do we get the chance for a sure-enough liquidity vacuum to game? (A liquidity vacuum or LV occurs when a panic seller unloads a large number of shares into a weak or inadequate bid, temporarily sending an issue hurtling much, much lower. Sometimes that triggers a follow-on response from other panicky sellers. However, typically an LV reverses course and recovers within a day or two and sometimes in minutes.)
Looking at our charts, with the Dow off more than 500 points again Wednesday, and with televised financial media in a negative feeding frenzy over European 'this' or 'that,' we turn to the Market Vectors Junior Gold Miner Index, or GDXJ for a look-see. Surprise, the index finished up 4.3% on Wednesday.
GDXJ, 1-year, daily.
How about that? The junior miner index is showing a little bit of a bid in a decidedly lousy market. Sure, gold breaching the $1,800 level might have a little something to do with it.
Okay, so what about the Little Guy's larger cousins, such as the Newmonts and the Barricks of the world? How did they do on such a nervous, fearful day? We can check by looking at the Gold Bugs Index or HUI.
HUI, 1-year, daily.
Hey, how about that? The HUI finished the day up 3.1%.
Whatever happens just ahead, we have to be encouraged when the smaller miners are not plunging in a vertical free fall when they certainly could be if investors thought the end of the world as we know it was near.
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