$76 Billion Reasons to Sell Gold Stocks – Reblog


Selling is everything in the investment world and nobody talks about it.

I started my official career in the investment business in April 1986.  I observed and participated in the equity market run-up of 1987.  And then the impossible happened, the ‘Crash of 1987’.  This market event was the most formidable of my career.  Back then it hit me like a ton of bricks, everyone and I mean everyone knows when to buy, NOBODY knows when to sell.  Knowing when to sell became my obsession.  Some twenty years ago, the early beginnings of model price math were introduced to me.  A revelation!

A year ago today, I wrote a blog on an observation in equity markets I have rarely seen.  Three of the largest gold mining stocks all had a ‘negative transit’ – see my blog below for an explanation – not only on the same week but also on the same day!  This was one of the most extraordinary ‘Sell Signals’ I have ever seen in my career and I wrote this blog.   Over the last year, to Friday’s close – February 21st, 2014, these three stocks lost $20 billion in market capitalization.  Each stock at their various 52-week lows, combined, lost over $30 billion in market cap.

Our Model Price application is about improving your financial outcomes with financial algorithms never seen before in finance.  Hopefully increasing our users portfolio returns with endless strategies both in purchasing and selling your equity investments.  Selling any investment before a large loss is rarely seen in the financial press and finance textbooks as leading to improved equity returns not to mention steering away from financial ruin.  Selling anything gold related in the equity sector was a ‘no brainer’ according to Model Price Theory (MPT) since the date of my original blog.  Hope you improved your financial outcome by acting on these observed ‘negative transits’ and if not, no need to worry for dedicated Model Price users, there are endless future ‘negative transits’.

Original Blog, Dated February 24th, 2013

$76 Billion Reasons to Sell Gold Stocks!

I have seen some strange things in the almost 20 years since we have been tinkering with our model price charts but this one takes the cake.  Have a look at these three model price charts.

Barrick Gold Corp.

Barrick Gold Corp. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Barrick Gold Corp. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of ABX subsequent to this post will be maintained on Facebook, here.

Goldcorp Inc.

Goldcorp Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Goldcorp Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of GG subsequent to this post will be maintained on Facebook, here.

Newmont Mining Corp.

Newmont Mining Corp. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Newmont Mining Corp. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of NEM subsequent to this post will be maintained on Facebook, here.

All three companies, all major gold mining companies, had negative transits not only on the same week but also on the same day!  Wow, I have to admit I haven’t seen this in quite some time – if ever.

Just for fun I added the market capitalizations of all three of these companies with an aggregate total of $76 US billion – hence the title of my blog.

All three of these companies had a negative transit of either EBV+2 or EBV+1 this week implying lower prices for all three of these companies in the future.

Who do you believe, analysts or the market?

As you will notice, all three have calculated model prices substantially above where the companies’ shares are trading.  Remember we are delivering two separate calculations for our readers.  The model price calculation or fair market value and our Economic Book Value (EBV) lines.  Our model price calculation is largely influenced by analysts’ mean earnings estimates.  Our EBV lines are a function of the company’s balance sheet.  The market is signalling lower prices in the future, by a negative transit, where the analysts may be late in recognizing that lower earnings estimates may be warranted in the future.  In other words, analysts are usually wrong, as a group, especially at secular tops or bottoms, until future negative news is well known with resulting adjustments in downward estimates are made as a result.

In this instance I believe what the market is communicating – lower prices ahead – and in time I’m sure the analysts will follow with lower estimates thereby reducing our model price calculations.

Maybe a more interesting question is “Are we seeing a secular decline in gold or gold related investments?”  Time will tell however something is surely going on when a sell signal is clearly given this past week with these three major gold producers.

2 responses to “$76 Billion Reasons to Sell Gold Stocks – Reblog

  1. Patrick February 25, 2014 at 1:52 pm

    Hi Brian, thanks for the post. Can you please help me understand conceptually why your model price charts trend down since the beginning of the year while at least two of the stocks you mentioned are up strongly since the new year? I mean just from a high level why your charts & the stock prices are going in opposite directions? Thanks.

    • ModelPrice Guy February 25, 2014 at 4:48 pm

      Very good question! A+ Our EBV Lines represent the balance sheet of the company. Our Green Line or EBV is our calculation of book value – our definition of book value. The other EBV lines (EBV+1…EBV+10) are constants from our EBV (Green Line). Downward sloping EBV lines mean the balance sheet is shrinking over time. Management of the company is usually writing off nonperforming assets. This is bullish for the stock price because, our calculation of Theoretical Earnings (TE) is reduced (See Theoretical Earnings (TE) under Key Concepts) and depending on the the extent of the write-offs, Convexity (again see under Key Concepts) usually has a big increase that helps our calculation of model price. All this maybe confusing to you initially – since none of this you will read anywhere besides here – my blog. Hope this helps and if not keep asking questions. You maybe helping others as well.

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