This recent article, reprinted on ZeroHedge, serves as a focal point.
Here’s 5 Reasons Why Gold Miners Have Massive Out performance in the Tank – By Bryce Coward, CFA in Economy, Knowledge Leaders https://www.knowledgeleaderscapital.com/2020/05/15/heres-5-reasons-why-gold-miners-have-massive-outperformance-in-the-tank/
This post departs form our usual news format and goes into as to why fundamental analysis is not only obsolete, but very distractive. From the perspective of individuals trying to make decisions on managing their retirement portfolio. Individuals are faced with looking up into a waterfall of what? .. nonsense?
They make 5 points as to why they like Gold Miners. So, they have the correct posture towards gold miners, which is Bullish, but really muddle the reasoning. They sum the reasons up with five points and associated charts. These points are not only irrelevant, they are very distractive to the price action of gold miners. So we’ll list their 5 points and vastly simplify them.
The article starts with a short mention of history of Colorado mining. Nice stuff, but not needed for DIY (do it yourself) retirement portfolio management (or any portfolio management). Boulder and Denver have long become detached from the original Colorado roots. Some of the small towns over on the western slope are struggling to maintain some thread of their heritage, instead of becoming a Wall Street petting zoo.
The 5 article points are:
- United States M2 & 65 Day Rate of Change The problem with this fundamental information, which is sketchy to begin with, is 1) that analysis is obsolete, but, more important, 2. totally unnecessary. No one cares.
- Gold Miners vs. Gold Essentially this is the ratio. Totally unnecessary. Again, no one cares.
- Gold Miners vs. the S&P 500 Index. The problem is the S&P 500 Index is Bearish. This is like comparing a Porsche vs. a BMW out on a track, and the BMW is broken.
- Gold Miners Price vs. EBITDA ratio WTF? No one cares.
- Gold Miners Current Ratio Repeat: WTF? No one cares.
These correlations (or non- correlations) do not cause the asset class to do something,
and are distractions from looking at the long term price performance of the asset class. The Fed M2 doesn’t make miners go up or down.
So instead, start with a benchmark of an absolute rate of return over a time segment. Eliminate extraneous noise, such as comparing gold miners to a bearish market (the S&P 500).
Here is Gold Miners Index (GDM) or the Gold Miners Index ETF (GDX) compared to a 20% annualized rate of return over a 200 day average. The GDM is trading 20.4% above the benchmark. The stats are printed in the upper left corner. The Indicator is the bottom panel. Obviously this is Bullish, with no obfuscation from obsolete info from the Fed website. (BTW the Fed is probably the worst forecasting entity in the history of the planet, using their own obsolete information, such as M2, etc).
And, the chart of Gold vs. 20 % annualized over 200 days average, Bullish:
And the chart of The S&P 500 index annualized over 200 days average, Bearish.
So all summed up in three charts. no need for The Fed and other extraneous and superfluous and obsolete information.
Why torture ourselves?