Do Gold Mining Stock Prices Follow Cycles?

21
Sat, Jun 24, 2017 - 10:15pm

Usually when I write in this blog, I try to look at some aspect of the gold market, or silver market, in which I have expertise, and at the same time that thing, or fact or theory is not well known or talked about among the readers of the blog. In short I attempt to bring something fresh to the table of discourse on the subject of gold investing.

This week I considered mining stocks. There are many other people who talk or write about mining stocks, so I appreciate that adding information on this is entering a crowded space. One way to freshen things up is to bring some market history into the conversation. History has a tendency to repeat from time to time, and somehow surprise everybody when it does so. But not all that many mining companies have a long history what with the limited lifespan of their mines, takeovers, mergers and so on.

Newmont Mining is an exception though. It was founded in 1921 (wikipedia says 1916 but I take Newmont's own date of 1921 ) by William Boyce Thompson and consequently, this year Newmont is 96 years old. My first encounter with this stock came about 1989 when Corporate Raider billionaire Jimmy Goldsmith - using a stake generated from swopping ownership of Cavenham Forest (the 5th largest timber corporation in the US) tried to take Newmont over and break it up for resale as parts. Newmont resisted and survived these attacks. It also fended off unwanted advances from Consolidated Goldfields, Hanson Industries and T Boone Pickens about that time.

Newmont is big. I thinks it's the second biggest gold producer, after Barrick Gold Corp, and it's the only gold mining company included in the S&P 500 Index. Last quarter Q1 2017 it produced 1.23 million ounces of gold.

The above attempts to take ownership of Newmont took place during the nineteen year long 1980's gold bear market following the gold price high during 1980. Newmont is a stock that billionaires have historically become attracted to when it was down after a general gold bullion market decline.

This long history and large capitalization means there is liquidity in the stock of Newmont. Liquidity is something I look for when beginning to analyze a financial asset. Liquidity is one of the glues that hold cycles together, and cycles is one thing I look for.

Are there cycles in the price of Newmont? Let's see what I can find.

Here is Newmont relative to the HUI Index:

That's three and a half years of outperformance there. This is one to watch.

So what if any cycles did I find? I decided to look for larger swings first. So I chose a monthly timeframe.

This is using a double logarithmic plot. And it looks cyclical, doesn't it?

If you count along either the highs or lows in the above chart it becomes apparent that, for the last thirty years or thereabouts, Newmont has made highs to highs and lows to lows from seven to nine years apart.

So I ran an algorithm to test for such cycles. In monthly 7 to 9 years would be 84 to 108 months. The results were disappointing. There are not many repetitions of such long cycles, I have data since 1983, and as a result the cycles had not built up a strong track record. Also the length keeps changing from 7 to 8 sometimes to 9 and so on. So reliability is a problem.

So to get around this I looked for smaller nested sub cycles that might add up build into to a 7-9 year "parent" wave and this is what I found:

Length of Hypothetical cycles in months:

5.64, 6.79, 12.52, 17.79, 68,98, 72.60

Here is what these look like (synthetic cycle composite in green):

It is an intriguing fit, isn't it?

I added the dates of the forecasted turns in black. But I do not expect that forecast to work.

If you look, you can see that during the period since 2011, the price of Newmont has already been departing from the forecast made by these cycles, and not only that, but the difference between the forecast and reality is increasing. So i wouldn't trust it.

The reason I show it here is that there could still be a use for this faulty analysis. If I stand back and take the broadest result, and avoid taking the details I can say this:

Since 1993, Newmont has made a low every 7 to 9 years on average, this period varies each time, and is a tendency that may already be gone completely or it may just be changing again.

What can this do? The last low was October 2008 so if I add 7 to 9 years onto October 2008 I get late 2015 to late 2017.

So look at this chart of Newmont:

So I am, based on these cycles, looking for a low between 2015 and 2017. The low at end of 2015-early 2016 fits this nicely.

But what about the errors so visible in that "idealized cycle" chart? My thinking on this is that I don't trust that chart! But regardless of that it did do one thing. It made me go looking for a possible 7 to 9 year variable pattern. And that is enough. You see, there is a nine and a quarter year cycle in the bond market. So if the central banks have a 37 year cycle in their minds, and their published research papers show that they have, then 9.25 is a quarter of that, a nested sub cycle of a 37 year cycle in interest rates. So this is a second, external reason why there might be a nine year swing up and back again in gold. The price of gold, and the inflation adjusted rate of interest on bonds are closely correlated. And the price of gold should have correlations with the price of a big producer like Newmont.

This gives me a great interest in trying to identify the next low in the price of Newmont. Because the 2016 low may be the low. But if it wasn't, then the next low will be it. So buying the later of such a set of lows would be safer than buying the earlier low if you see what I mean. In theory!

In which case a downtrend line can be put over the recent highs in Newmont, and if price breaks it that is one thing. I don't buy things after they go up, rather after they go down! But if price should decline under such a trendline to a lower level, say between now and 12-18 months from now - then a break to the upside of that downtrend might be a good entry for what would follow. Of course there would also have to be other signals and triggers to buy, and levels to set stops off to limit risk, but that's always the case.

It's all a scenario. A construct, or an idea. But it interests me for obvious reasons.

Like all stock market ideas, only time will tell if it has any value or not. It stimulates the brain synapses to wonder about these kind of possibilities. Exercises the old gray matter. And without exercise we lose our abilities. So debating these scenarios should be a good thing in itself, whichever decision we eventually come to about them.

Best regards,

Argentus Maximus

.

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmAndPrice. The author advises that he trades and holds market positions in accordance with his own opinions.

About the Author

  21 Comments

RickshawETF
Jun 24, 2017 - 10:21pm

First!

Gold, baby, gold I tells 'ya!

Just got back from my first fellow Turdite social -- highly recommended! It's so nice to carry on a conversation with one of the "enlightened". When two people start out on equal footing (and awareness), it's all gravy . . .

I just settled back with my "perfect Negroni" and up pops this new treatise! Time to read,

Jun 24, 2017 - 11:17pm

Thank you Argentus

Much food for thought!

Jun 24, 2017 - 11:37pm

Great work, Argentus- thank you!

My first question would be, what does that great Newmont chart look like overlain by your best current bond chart, same scale... to see if those differences (where NEM is early now, compared to the plotted path) are explained away by the bond market, or if another low is more probable. Would that relationship being some clarity, in terms of whether a new low is coming or it's off to the races?

Anyway, great work, as usual!

RNP subscribers get this stuff all the time, very valuable learning experience and great tools. Well worth my subscription ;-)

Jun 25, 2017 - 7:19am

GLD against TLT

It's probably a good idea to consider bullion:bonds first. And after that then dive deeper to look at NEM:bonds.

Weekly:

and below, daily:

In general terms the 50 and 200 week, and the 50 and 200 day red and blue moving averages might be considered as three separate declining trendlines (200day = 50 week approx so those two count as one).

The weekly shows that GLD has been building a rising base against TLT for 18 months already. The daily shows a sharp decline towards a retest of the low in the GLD:TLT ratio, and a prospective/potential new low, or failure to make one.

Jun 25, 2017 - 7:28am

NEM against TLT

Weekly:

and daily:

Unlike the above bullion, NEM against TLT is holding at support thus far. This indicates it's superior strength compared to bullion when measured against the fiat based bond market alternative. This of course hints of advance warnings of inflation being spoken about in certain corridors.

Jun 25, 2017 - 8:13am

Price overlay

Not easily seen in the charts above:

Usually they are correlated.

From Feb 2015 to Aug 2015 that changed to an anti correlation. After that they correlated again.

And recently during June 2017 they might have decorrelated again. That's what triggered my interest. There is a reallocation of assets going on.

The flow is into bonds. I want to see the end of that move. The following counter move interests me.

Look:

I would be most interested in peoples' comments about the anti correlation periods, fundamental underlying cause(s), motivations to do that etc.

Safety Dan
Jun 25, 2017 - 8:30am

Great work as usual AM. Your

Great work as usual AM. Your thoughts have raised a question.. You stated Central Banks have a cycle, "So if the central banks have a 37 year cycle in their minds, and their published research papers show that they have, then 9.25 is a quarter of that, a nested sub cycle of a 37 year cycle in interest rate"

First question is which central banks have you evaluated?

What was the published research papers?

What about IMF and the SDR against Comex US gold bullion? Or even the TLT against the SDR priced in gold? Then against the various other central banks as you have pointed out. This might help establish a cycle for each bank and then help with more sub cycles. Plus Forex market analysis..

Every major Central Bank is maintaining a negative REAL (inflation-adjusted) interest rate. And yet the price of "gold" falls...

Maybe I'm wrong. But it would be fun disproving the thoughts.

Thank you again for your contributions here AM.

Jun 25, 2017 - 8:39am

BIS, BOE, Fed, IMFI

BIS, BOE, Fed, IMF

I constantly look at XAU priced in XDR

The papers? I would have them on file. It goes way back and it come back into discussion from time to time. I wouldn't remember which particular titles contain which particular comments with regard to this. Maybe a search engine might get you to the ones I have read. Limit the search to the various party's websites and plug in keywords until you get the archive hits. Start with BIS and IMF.

More subcycles as well as master cycles in those people's activity. I have listed them on TFMR various times. G-V (geopolitical-violence effect) which I developed, for example contains a lot of input factors ... the cycles of these guys are pretty much etched in stone. Dewey might also be a good source. Ray Tomes too.

A cycle for each bank? That was what Gann tried. He even went into lifecycle of institutions to find phases of behaviours. The Foundation for Study of cycles are deep into that. I won't call it unproductive - it does work - but I found more productive alternative approaches that take less time.

Testing for yourself? It's all been printed already and available. Try 2.25, 4.5, 9, 18, 36, 72, 144, and multiples x 10 of those for starting out, and branch out as you begin to see. It's not linear. Expert systems can't see it.

Safety Dan
Jun 25, 2017 - 8:55am

Thank you AM for your quick

Thank you AM for your quick and interesting response. Will do..

tyberious
Jun 25, 2017 - 4:51pm

Central Banks – An EXPLOSION

Central Banks – An EXPLOSION Heard ‘Round The World

Mitchell Feierstein, the author of Planet Ponzi and proprietor of PlanetPonzi.com kindly submitted this original article exclusively for SGT Report readers.

by Mitchell Feierstein, PlanetPonzi.com, via SGT Report:

Why global central bankers’ great monetary experiment is about to explode.

During the past ten years, we have witnessed unprecedented manipulation of stock, bond, and property prices by global central banks. The inflation of these grotesque asset bubbles will not end well as indicators in the USA point towards an economic recession.

For the past twelve years, Ben Bernanke and Janet Yellen have been piloting the US Federal Reserve Bank with the same hubris as Captain Edward John Smith when he cheerily departed Southampton at the helm of the RMS Titanic. The big difference: around 1,500 people died due to Captain Smith’s arrogance and incompetence; whereas, Bernanke and Yellen’s arrogance and incompetence regarding the “magicing-up” of trillions of dollars in global credit as a substitute for consumer growth will end in epic policy failure.

Read More

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

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10/9 2:00 ET September FOMC minutes
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10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
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10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
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Key Economic Events Week of 9/23

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Key Economic Events Week of 9/16

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9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
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9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
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9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
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8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
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8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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