While the initial gold market reaction to the surprise decision by the US Federal reserve to begin tapering wavered between positive and negative, the bears came out in force today, driving gold down to a low not seen since 2010. The latest round of Quantitative Easing did nothing for the gold price so it’s hard to reconcile that the “easing of easing” would have such a negative effect. Go figure!
Watching the gold market react to various data points is getting to be like Chinese water torture (the drip, drip variety) which is ironic in more ways than one because our increasingly powerful neighbours to the east are buying just about every ounce of gold they can get their hands on.
When gold gets hit like it did today, there’s always talk about market manipulation which may or may not be the case. But what market isn’t “manipulated” these days to some extent. With the LIBOR scandal still fresh in people’s minds, German regulators investigating Deutsche Bank for manipulation of gold and silver prices, and a slew of other trading related investigations under way, you would have to believe there’s a little fire with all that smoke.
Morgan Stanley analysts Paretosh Misra, Piyush Sood and Marcus Lindberg believe that valuations for gold miners in particular are getting downright cheap given their emphasis on reducing production costs, selling off non-core assets and putting high cost development projects on the back burner.
These initiatives are certain to have a positive impact on their bottom lines when gold recovers. In the meantime, gold investors will have to be patient. Despite the gold price getting wacked in spot and future markets today, two key indexes, the HUI and XAU, didn’t behave too badly.
One fund manager interviewed by the Financial Times today suggested that only the “sticky money” was left in the gold mining stocks and he might well be right. Positioning yourself correctly in the gold market in the coming months will yield some exceptional profits in the future – believe me, I’ve seen the movie before.
I’m working on a research report for mid-January and with so many good undervalued opportunities out there, I will probably start off the year with two or three. I think it’s important to have a diversified portfolio because it just takes three good ones out of ten to make you and your bank manager happy campers.
I’ve been nibbling in the market for the past two weeks, recognizing that you’ll never find the exact bottom. But I would like to see a bit of positive sentiment in the gold market before I really start allocating some serious capital. Timing wise, the first quarter in 2014 seems like a good bet.