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Mining Stocks – Worst Day Ever (October 4, 2016)

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Last week, I wrote a post titled — The Market Always Surprises… ALWAYS!

Well, for the precious metal stocks, today was indeed a day full of SURPRISES! Wow, what a beatdown… A blood bath… Total massacre. Gold and silver mining stocks were pummeled left, right, and center… And once they were already down and out, the precious metals were kicked in the gut a few extra times for good measure.

If my recollection is correct, today’s smackdown was the worst trading session for gold and silver all year!

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Gold was down over -3%, while silver performed even worse, collapsing a ridiculous -5%.

And here I thought the European banks were in trouble…

From The Guardian.

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ING’s plans to shed 7,000 jobs and invest in its digital platforms to make annual savings of €900m by 2021 has drawn swift criticism of the Netherlands’ largest financial services company from unions.

The layoffs represent slightly less than 12% of ING’s 52,000 workforce, because nearly 1,000 are expected to come at suppliers rather than at the bank itself.

But they are the heaviest since 2009, when ING was forced to restructure and spin off its insurance activities after receiving a state bailout during the financial crisis.

Unions were highly critical. “I don’t think this was the intention of the [government] when it kept ING afloat with bailout money,” Ike Wiersinga of the Dutch union CNV said.

In Belgium, where the number of jobs lost will be highest, labour leader Herman Vanderhaegen called the decision a “horror show” and said workers would strike on Friday 7 October.

 

And of course, let’s not forget about Deutsche Bank!

From The Wall St. Journal Blog.

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On Monday, there was a spike in the price of insuring against a default in Deutsche Bank’s senior debt, which could only happen if it went bankrupt. More importantly, it’s now more expensive to buy this insurance for one year into the future than for five years, figures from FactSet show, measured by derivatives called credit-default swaps.

 

Meanwhile, the IMF was busy cutting growth forecasts this morning…

From MarketWatch.

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New weakness in North America, coming on top of concerns about China and Europe, is adding to a sense of “disquiet” about the global economic outlook, the International Monetary Fund said Tuesday.

In its latest report on the global economic outlook, the IMF’s trimmed its forecast for U.S. growth this year by 0.6% and next year by 0.3%, and noted that the Federal Reserve has so far judged a second interest rate increase as too risky.

 

So, in the face of all this noise, you would expect the price of “safe haven” investments, such as gold and silver to sell off… right?

Does that make sense to you?

Of course… not.

Conveniently enough, today’s “plunge into the abyss” just so happened to coincide during a week in which China is on holiday, and the Shanghai Gold Exchange is closed for business.

From Did The System Collapse Yet.

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The above link is a cool site that compares the “arbitrage” between the paper market (West) vs. the physical market (East)…

Silver has now entered into a state of “Caution” due to a $1.85/oz delta between the two markets.

 

Interesting…

 

Anyway, moving back over to the mining stocks…

 

A most common question I get asked is, “Now a good time to buy?

 

Obviously, I have no crystal ball, because if I did… I would have sold out of all my shares yesterday, ahead of today’s beatdown…

But my belief has always been this — As a buyer, it’s much more preferable to be loading up on days when the merchandise is being sold off at firesale prices… You get far better discounts when you’re purchasing into fear as opposed to greed.

Case in point… My own portfolio!

As of market closing on October 4, 2016.

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A sea of red… I’m down about -$80,000 this week alone… Yikes!

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Do I have Deutsche Bank to “thank” for this “behind-the-scenes mass liquidation” event?

 

There’s a fire raging and the price of fire insurance just became a whole lot more affordable!

 

Now I’m just being a conspiracy nut… Maybe (maybe not)…

From Express.

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Germany’s biggest bank has been accused of breaking the terms of bond sales by financial experts.

The trouble-hit bank is reportedly currently contemplating a merger with Germany’s other mega-bank, Commerzbank.

Clients who have invested in the exchange-traded commodity “Xetra-Gold” have said they are having problems with the bank, according to German analytic website Godmode-Trader.

Xetra-Gold is a bond on the Deutsche Börse commodities market, and Deutsche Bank is a designated sponsor. 

When purchasing the commodity in the virtual sphere, customers are told for every scrap of the precious metal they buy, the same amount of physical gold exists.

On the website, Xetra-Gold says its clients have the right for physical delivery of the gold when they please.

But customers have said they have asked for it – and have been denied by Deutsche Bank.

 

From Bloomberg.

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Deutsche Bank AG has reached settlements in lawsuits over allegations it manipulated gold and silver prices, lawyers for traders of the commodities said in court filings.

Attorneys for futures contract traders in two private lawsuits said in letters filed Wednesday and Thursday in Manhattan federal court that the bank has executed term sheets and is negotiating final details for the accords.

The German financial firm also agreed to help the plaintiffs pursue similar claims against other banks as part of the settlements, according to the letters. Vincent Briganti and Robert Eisler, attorneys for traders in the silver-fixing lawsuit, said Deutsche Bank will turn over instant messages and other communications to help further their case. Financial terms of the settlements weren’t disclosed.

“In addition to valuable monetary consideration to be paid into a settlement fund, the term sheet also provides for other valuable consideration such as provisions requiring Deutsche Bank’s cooperation in pursuing claims against the remaining defendants,” attorneys Daniel Brockett and Merrill Davidoff said in their letter Thursday in the gold-fixing lawsuit.

Silver and gold futures traders sued groups of banks in 2014 alleging they rigged prices for the precious metals and their derivatives. Silver traders brought claims against Deutsche Bank, HSBC Holdings Plc, Bank of Nova Scotia and UBS AG. Gold traders additionally sued Barclays Plc and Societe Generale SA.

The traders alleged the banks abused their positions of controlling daily silver and gold fixes to reap illegitimate profits from trading and hurting other investors in those markets who use the benchmark in billions of dollars of transactions, according to versions of the complaints filed in 2015. Of those banks, only Deutsche Bank has reached a settlement.

 

The paper game is a most heinous one…

From Investment Research Dynamics.

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Quite frankly, I don’t think I’ve seen anything quite this brutal since January 19

 

So, there you go…

 

Could things get worse? Absolutely they could

 

But if you’ve been on the sidelines waiting for a good opportunity to strike, well, all I can say is that today’s prices (both in the physical bullion and mining stocks) present a far more attractive buying opportunity than what we’ve seen in a long while…

 

With gold and silver mining stocks, I always like to say that my opinion on them is ever-changing, because the price movements are so fluid and dynamic… Last month, I mentioned that my preference was starting to shift towards early-stage exploration plays because I felt that the developers, mid-tiers, seniors, royalty and streaming companies, etc. were all priced at fair/over value…

 

Scratch that…

 

Right now, EVERYTHING is cheap(er) again! So yes, for me, all the options are back on the table…

 

No, I didn’t make any moves today, but I’m watching the sector attentively and have my shopping list ready!

 

I don’t quite feel like a kid in the candy store (January 19) yet, but things sure are getting interesting again, that’s for sure…

 

Happy Hunting!

{ 14 comments… add one }
  • Income SurferNo Gravatar October 4, 2016, 4:03 pm

    I also saw the blood bath and picked up a slug of gold streamer Franco Nevada (FNV). I know it’s one you’ve talked extensively about in the past, and I couldn’t resist the 6% decline. I bought a shade over $64, which is a minor support level. Could it go lower, sure, and I hope it does. The percentage of our portfolio that is in hard assets has gotten out of whack over the last few years. While I wish I had jumped on it back in January, kudos by the way, I am building a position as the price comes in.

    Happy Hunting indeed. I also had to chuckle at the yield plays getting hit so hard today…..but that’s a discussion for another time. Weird day! May we have many more 🙂

    -Bryan

    • FI FighterNo Gravatar October 7, 2016, 1:23 am

      Bryan,

      It’s been a brutal last few days, that’s for sure. FNV is an excellent stock and you got in at a great entry point.

      Sit tight, and hopefully more buying opportunities emerge for all of us.

      Best wishes!

  • AlexNo Gravatar October 4, 2016, 5:11 pm

    As bad as it got today I think this is just the next step for big money to load up on cheap shares right before this election etc I’m not worried I got spanked pretty hard today but will continue to hold through all of this

    • FI FighterNo Gravatar October 7, 2016, 1:24 am

      Alex,

      Yup, a great time to load up… When buying, it’s always preferable to buy on the massive dips, as opposed to chasing up, trying to catch the momentum train.

      Happy hunting!

  • JamesNo Gravatar October 4, 2016, 8:08 pm

    Not to pat myself on the back, but I bought JDST yesterday for insurance and it’s up 30% today. I’m net long GDXJ and felt the pain along with everyone else, but the hedge help cushion the blow. I’m not worried though. The gold thesis remins intact. There’s a HUGE pile of debt out there, the world economy is slowing (e.g., Hanjin) creating deflation and making the debt more expensive. ZIRP and NIRP aren’t going away anytime soon. And fiscal deficit spending is around the corner as we’re due for the next recession. The average correction in a gold bull lasts 4-5 months, and we’re 3 months into this one. So, I’m holding on and planning to take advantage of this sale.

    • FI FighterNo Gravatar October 7, 2016, 1:25 am

      James,

      Excellent move on the hedge! It’s serving you very well right now 😉

      Yup, long-term, I think gold is only headed in one direction and that’s up… Being able to buy up the miners before the next leg up is the opportunity many sitting on the sidelines have been waiting for… I can’t say things won’t head lower, but we look pretty oversold at this point.

      All the best!

  • Fire InsuranceNo Gravatar October 4, 2016, 10:53 pm

    Righto on the fire insurance. Wanted to check in here and see how you were handling the beat down. Asian arbitrage really seems to be huge factor. Knew this was coming w/ their markets closed all week. Now we can recall this for the future. Nice job on the hedge by James. I like the FNV purchase here, was thinking the same. But then again the Sprott funds take care of themselves. FNV has the dividend. Is that the better play for that reason? For the price of 15-20 shares of FNV, I’m probably better off shooting for growth with a junior.

    Oh, the DB thing with the XETRA gold redemption is bogus, doesn’t mean anything. It seemed the fund is really just not meant for redemption. It’s a paper derivative. Investors beware — paper gold is paper. Physical gold is gold.

    • FI FighterNo Gravatar October 7, 2016, 1:29 am

      Fire Insurance,

      Thanks for checking in. I’m holding up pretty well, all things considered. I’m being selected and patiently waiting for an entry point, and I have a few ideas that I like right now.

      In terms of growth, yup, a junior will probably give you more leverage, but FNV provides stellar defense thanks to its excellent portfolio of well diversified assets and their status as the best streaming and royalty company in the business.

      With DB, yup, I hear you… All paper products promising to be backed by physical gold should always be looked at with skepticism… It’s unfortunate for anyone who doesn’t realize what they are getting into, which is why I think the best way to own physical gold is to buy it and store it in a safe, private vault…

      I’m jus trying to document all the DB headlines so that I can time capsule what looks to be their inevitable demise.

      Cheers!

  • Roadmap2RetireNo Gravatar October 5, 2016, 10:33 am

    It was quite a day of bloodletting in the PM space. Terrific buying opportunity as the gold and silver market just became so much more lucrative. Someone wants to sell me more gold and silver for a lower price? I will happily hand over the fiat currency for that hard asset 🙂

    Best
    R2R

    • FI FighterNo Gravatar October 7, 2016, 1:30 am

      Sabeel,

      Indeed, it was a most brutal day in the precious metals space! Haha, I love your attitude! Buy at a discount when people are starting to panic sell… That’s how you operate as an opportunist. Last month, I wasn’t finding many good deals, but now they are plentiful again.

      All the best!

  • Cool SpotNo Gravatar October 5, 2016, 10:20 pm

    I understand the appeal of buying when stocks crash, it’s the basic idea of buying low and selling high. When the market crashes in a particular segment, so long as the fundamentals are solid, it makes sense to load up.

    Yet being a contrarian for the sake of being contrarian makes sense if you understand the fundamentals. I don’t trade the markets too actively and I don’t know the answer to this, but are earth metals a good buy long term?

    On the one hand, they are used in alternative energy as you have alluded to in my many of your other posts.

    But on the other hand, there could be long term bearish reasons like:

    1. China’s rising economy drove demand for earth metals, and they’ve entered a slowdown. Will they come back out of it? Japan hasn’t.

    2. Alternative energy is booming (or on the verge of booming), but that doesn’t necessarily mean uranium. Consumers want clean energy and that means solar, wind, and hydro.

    3. Just because there’s a crash doesn’t mean it’s going to come back. The pound crashed the day after the Brexit vote and it’s now down to a 31-year low. Does that mean it’s a great buy right now? If Brexit means that the UK loses its place as a center of finance and surrenders it to other places like Germany or Singapore, then that means the fundamentals of the pound have changed. Similarly, I don’t know the fundamentals of earth metals to know if a crash represents adjusting to a new reality, or if this is just an overvalued correction that was long overdue.

    That’s all I can think of. Again, I’m not saying this is not a good trade, but rather, I am sure that I don’t know if is because I know nothing of the underlying forces, short and long term.

    • FI FighterNo Gravatar October 7, 2016, 1:34 am

      Cool Spot,

      Definitely not trying to be a contrarian for the sake of being a contrarian. Precious metals are the safe haven trade and in times of uncertainty and fear, they tend to outperform the rest of the markets… And right now, there’s a lot of headwinds facing the global economies.

      1. I’m not targeting any earth metals. Nope, just gold/silver/lithium/graphite/uranium… Lithium and graphite are for the long-term clean energy revolution which will be producing CAGR of double digits for the foreseeable future. Uranium is a beaten down, most hated sector… Just a small tranche, but I don’t think it’s going obsolete either…

      2. Uranium is growing, there are many new reactors under construction… The demand for clean energy is vast, and there is more than enough demand to go around for hydro, wind, solar, uranium, etc.

      3. No, general equities may not come back… But in a deflation/inflation, I gotta like my odds with precious metals. I don’t hold any general equities atm.

      Take care!

  • AdrianNo Gravatar October 6, 2016, 5:25 pm

    Got a few hundred worth today… all I had left 🙁 Bought a few weeks ago… frustrating. Got to ride it out. Waiting on pending drill assays … wanted to put profits into some u308 🙂

    • FI FighterNo Gravatar October 7, 2016, 1:31 am

      Adrian,

      Yeah, day trading this stuff will be frustrating… If you take a more long-term approach, the volatility will dampen out and you should do very well.

      Waiting for drill assays is always a degree of both fun and anxiety 😉

      Cheers!

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