XAU Capping

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#1 Wed, Jul 27, 2011 - 6:34pm
Tom L
Joined: Jun 15, 2011

XAU Capping

See this chart of the XAU to Gold Ratio Here:


The XAU is at a crossroads this week. The EE has pushed the valuations of the miners to a level not seen since early in 2009. Today's smackdown was particularly obnoxious given the sell off in oil. I know that the miners just got caught in the 'sell everything' downdraft of a 1.6% decline in the broad markets, but when Gold is sold back to it's previous close but the miners are whacked for more than 2%, something is rotten.

XOI to Gold chart:

WTIC to Gold Chart:

So, cost of production for the miners is at a 3 year low as the gold/oil ratio is bouncing along that major bottom on the chart but the miners can't seem to outperform relative to the underlying commodity? We all think we know there is suppression of the mining stocks, but this is absurd.

Looking at the XAU/Gold ratio chart above I do think we are reaching the crisis point for this situation. Either the miners are telling us something about the PoG or the massive suppression scheme is due to fail real soon now. Earnings season is nearly upon us and if players like HL, AUY, NEM, ABX, GG, SLW, etc. do not blow out their earnings it could get real ugly around here real quick.

Mostly, I'm just completely pissed off after watching the price action today where it was obvious the raid was coming at around 9:35am and the XAU getting sold across the board at 220.55 like I was watching a star chart or some such nonsense. But, looking at my chart above it's obvious the algos had this programmed in. By the looks of it, though, it seems like they'll have to shit or go blind next week. 


Edited by: Tom L on Nov 8, 2014 - 5:20am
Fri, Jul 29, 2011 - 2:10pm
Sebastopol, CA
Joined: Jun 14, 2011

Ratio Trade

Dan Norcini refers to a ratio trade where the hedge funds are long gold and silver and short the PM stocks. I have no idea how this works but the PM shares have really poor performance in general over the past 12 months.

Fri, Jul 29, 2011 - 4:43pm
Joined: Jul 28, 2011

Ratio Trade Doesn't Exist!

If you follow the short term charts (Intra day action) of HUI and XAU as has been suggested here by others, you would see that there's is a very nasty algorithm which controls and manipulates the mining shares. It is very clear (from watching the action) that this manipulation is not just profit-motivated but first and foremost is intended to mute investor-sentiment towards this sector (perhaps even to insure that the freedom-loving gold-bugs do not prosper). It is very important to develop independent thinking and not just to rely on what some "guru" says.

Fri, Jul 29, 2011 - 7:32pm
Tom L
Joined: Jun 15, 2011

Trader Dan

Roger, I agree with you about the algorithm that keeps the miners in check. I also believe that that is what Dan Norcini is referring to in his short-handed way by calling it the 'ratio trade.' It is a trade. They come in at set points on the metals as well as the mining indices to cap their movements higher. This creates the ratio, regardless of the timing particulars.

Moreover, we still haven't seen anyone put up earnings numbers that are blow-outs relative to the consensus of the analysts covering them. GG hit their target, as did EGO. But, that said, EGO also announced a dividend and they beat that stock unmercifully today. It was sad.

They will lean on the miners for as long as they are capable. It may take until the end of August for the fund money to truly overwhelm these people. I'm betting across the whole time spectrum until January at this point


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Wed, Aug 3, 2011 - 8:55pm
Austin, TX
Joined: Jun 14, 2011

The miners started breaking

The miners started breaking out in the second week of July and when they reached a critical point, the Ratio Trade kicked in hard. There are a number of miners that have formed cup and handles and are now being actively suppressed from breaking up. CDE is a perfect example, it has traded up through 29 two days in a row only to end up down or up only a few cents after being up over $1. The breakout point for the handle in the CDE chart is around $29.50 and today it traded over that point in the morning and then the selling kicked in hard at the same time silver was rising almost $1. It makes no sense and I don't see how someone makes money with this kind of trade. To me it's just a way to keep people from buying the miners on technicals because they fail to work in the correct way.

GG is another great example. It was trading at 53 and announced a doubling of it's EPS and a 62% increase in revenues, the result was a 15% drop to near the 200DMA of it's stock price. Now buying that dip was a good deal but buying just before the earnings announcement was a disaster. I don't know when this situation will right itself but I have sold out of a couple of profitable positions that I do have in the miners to look for better entry points if the stocks fall some more. It seems lately that buying them on the upswing is a losing deal and you can only buy them when they are totally washed out. That was really successful for GSS but now that stock has just been trashed after trading up near it's resistance at $3.17. Clearly there are aggressive shorts on all these stocks and it's not funds, it's malevolent and infuriating.

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