Friday, October 26, 2012

The weekend and further updates

A note for readers, I will be traveling this weekend and updates will be limited, if any at all. In addition, you have probably heard that hurricane Sandy is bearing down on the New York and New Jersey region, essentially the world headquarters of TJIJ. Depending on any potential act of god, or the utilities for that matter, as words do not begin to describe how poor they have handled recent restoration needs, I may not be able to provide any updates for some period after Sandy passes.

Only time will tell. 

All that Glitters- Precious metal stocks still not a buy but getting there

Week-over-week, the price of gold declined by about 60 basis points while the money supply ticked up slightly, the later being a trend I expect to continue considering QE to eternity. All in, including my estimate for money supply, as these figures are reported with a 2-week lag, the precious metal stock timing models all improved. That said, the indicators remain mixed with the 6-month model above 0 and both the 1-year and 3-month models just slightly below the zero demarcation.

The following three graphs show the updated 1-year, 6-month, and 3-month timing models, respectively.
1-year model

6-month model

3-month model

Provided a gradual step up in the supply of money, the 1-year timing model is -0.2, the 6-month model is 0.4, and the 3-month model is -0.24. All improved since last week and from the month ago period. At these levels precious metal shares generally perform inline with the buy-and-hold average.

Since the October 4 high, gold- as measured by the Gold Spider ETF (ticker GLD)- has fallen 4.4%. The GDX- or the Market Vectors Gold Miner ETF- has fallen by 6.5% since hitting a near-term high of September 24. At these levels and provided neither has retraced any of the recent losses, I would not be surprised if one or both bounce at some point in the near future. I do not intend to play this, and think any potential bounce will come with higher risk of a downside move. I continue to wait for a better entry point into precious metal shares. I would reconsider this stance if money supply increase significantly, the price of gold or the gold stock indexes decline, some combination there of, or the Fed reserve increases their commitment to QE to eternity in December.