PMS Weak End Upchuck for Oct 4,5

[ThorAss]

The Fryday smackdown. The CARTELs favourite trick. One must be aware that they are going to do that under certain conditions and prepare for it. In the past it has been a raid on our shares and they quickly move back to new highs. Still it seems to me the worst of the worst of times to be an investor but maybe I'm just looking at it wrong. Someone is making money. I think.

[baby_bear]

I was just thinking--with the dropping prices, and all the frantic selling--who was buying?

[Charmin]

done - 50% retrace of the move from 346 to 394.80 on the gold contract Z is 370.4

 

after the Selling climax what happens?

who is buying the weak longs?

who conducts a rally?

 

It's the Market Makers

 

Where does he buy? - at the bottom

[ThorAss]

Calling all cycloids, goldbuggers and associated animules.

 

Been wandering thru DrAu's Pubic Fart Lisp (which you've hopefully bookmarked by now :wink2: ) and saw some interesting cycle aspects I hadn't noticed before. Assuming the PMS and gold reached an IT peak in Sept (and I'll explain why I assume so in a bit) Gold is adhering to a roughly 4 month cycle peak to peak but the PMS is not. In fact since the low (using the Hooey as proxie) the miners have moved up in 3 distinct 6 month uptrending cycles puntuated by a 6 month then a 9 month SWDN phases. This is why I think we reached an IT top above 200 on the Hooey. It also fits with a top in the physical. The 6 month uptrends of the miners swamps the other cycles when one looks at the ratios like Hooey/Fizz or Hooey/Yiros. My conclusion is that we have entered an IT SWDN. It's difficult to say how long it will last. My guess is it will last n Quarters where n= (1,4). So I would look for the conditions for a base in Dec, Mar, Jun or Sep. My expectation is that it will be sooner rather than later. Dec or Mar. Some individual issues could see some real mean pullbacks but for the LT BaH investor, the gold bull should keep you safe so long as you're not margined.

 

NB: BaH = Buy and Hold, the war-cry of the LT (long-term) investor.

 

BaH, BaH, BaH

 

For traders: Anyway, it's my feeling that we have some time now to sit back and watch. Be the Dog. There are goats out there.

 

PS: I wouldn't be posting charts much cause what I have to say is in the Pubic Lisp. To see what I mean open a link on the side while you read my ranting.

 

Oooo ... One more thing. The actual low may not come at the end of the SWDN phase but the mini cycles could be frustrating. It may be worth it to step up and buy the dips but the best money will be made on one of those 6 month uptrends. Have you got one in your future?

[Guest]

So I would look for the conditions for a base in Dec, Mar, Jun or Sep. My expectation is that it will be sooner rather than later.

XAU seasonals sez:

 

a low 10/22 - 10/31

 

a top 11/4 - 11/11

 

another equal or lower low 11/24 - 12/4

 

after this...seasonally at least...the light is GREEN into 2004

[aureleus]

Strategy. Sorry for the rant.

 

traders watch the ABC unfold which maxxi miser has been posting. Buy point would be surpassing of point A by a few ticks, stop loss being a few ticks below point A. This can be traded on the 60 min and daily. Trailing stops are advisable as soon as in the green. Under no circumstances should Point C be the stop. (This is a adapted setup of Teresa Lo from Trendvue.com).

 

Investors shouldn't care, but then again investors don't read message boards.

 

Active investors: We've had two nasty candles (yesterday and spike top to 390?s) after a tedious grind to the top. So I personally also favor some backing and filling over the next weeks. I am waiting for objective patterns to develop before going back with more than trading positions (e.g. playing the apex, or the ABC pattern). There is an outside chance that a short term ABC actually becomes the only objective pattern to load up fully before new highs, but in that scenario there will be plenty of time to hop on the first retracement. I?ll risk being wrong here, I?ve outlined my reasons for being careful in a previous post.

 

The absolute worst thing anybody can do - esp. the active and worried investors - is sell somehwere in the next days, get excited about a "breakout" at e.g. 195 in 4 weeks, only to plunge fully loaded and/or overleveraged to a deep low, and then to sell that low. The biggest enemy of the active investors is hoping for The Big One and getting the Gold Stock Massacre. So beware the false breakouts. Better yet: just wait, wait and wait for a washout around the 200 MA, even if this occurs on a higher level.

 

The case I?m hoping for would be a synchronous washout (RSI) and successful retest for stocks and gold after consolidation measured in weeks. I will not care about gold/hui exceeding any obvious chart points, because there are too many speculators with too many rulers with too many stops in too obvious places (see Fridays trendline break).

 

So I suppose Tiger?s broad target range in the 340?-60?s is my favorite chart for now.

[ThorAss]

XAU seasonals sez:

 

a low 10/22 - 10/31

 

a top 11/4 - 11/11

 

another equal or lower low 11/24 - 12/4

 

after this...seasonally at least...the light is GREEN into 2004

Thank You Au Really Us.

 

The low of which I wrote and you quoted is not the ACTUAL low but the last significant low before the 6 month uptrend. I guess I didn't really make that clear. If we go according to plan their may be several playabull mini-cycles within the SWDN phase, depending on one's timeframe but I like to catch that last one like when I was raving back in March.

[Tonto]

opinions appreciated..this is a post from a friend of mine.

 

the DJ Aig Commodity index is about to break

out big.... it was 119 at the time, now near 122.

http://finance.yahoo.com/q/bc?s=^DJC&t=1y&...l=on&z=m&q=l&c=

 

This is a bullish triangle breakout coming.

 

What does it mean? This index is 22% weighted in petroleum, 11%

Gold-precious metals, 12% industrial metals, 11% natural gas, and also has

silver, copper, nickel, wheat, soybeans and other items in this "weighted"

index. The index is based on volume into various commodities and adjusted

every 12 months.

 

What does it mean to investors? It's often a bad sign for the broader

markets, it means the hard assets are still in a bull market. It also means

you better be overweighted in Oil and NG stocks, especially those who

discover and produce oil and NG.... also nickel, copper etc.

 

This means IVAN, HEC, WHT, N, and a host of others to be owned long right

now. This index will rise to $150 over the coming 2-4 months from 123

now... look for some quasi-ballistic moves in the right stocks as this

occurs.

------------------------------------------------------------------------------

 

In addition I understand that large block orders came in at the miner lows driving the prices back up....amazing how well some of the juniors held up huh.....Im not sure how to possibly somehow distinguish speculation from large buying etc for longer periods but it was very interesting...it made me wonder just what exactly was being priced into some of the juniors. I originally thought that it was at least 400 spec. wize etc. but now am wondering if they actually had a lower price built into them....

 

Im sure everyone noticed how silver filled its 4.80 gap...it fell off a cliff and landed directly on 4.80 where there seems to be some extreme resistance....couldnt fall below that even by 1 cent the rest of the day...imo, if silver even drops one penny that it will go to 4.50....Im not sure about miners here except for they seem they will be alot more volatile from here on out....seems a good time to cost average physical.

 

Due to the upcoming election etc. at the absolute must hold up mentality in the markets seem to tell me that gold/silver miners will be better off investing in towards next summer or spring.....to much at stake and with the vix etc. so low it seems a must to get fear out of the markets....I got a good lesson friday oin how manipulated gold can be.

 

Regardless, the hui was testing upside ande overbought....not sure what happens from here but will probably be waiting for the hui etc. to simply go to Dover Sole..just opinions and ideas here......

 

as to the commodities...does it make since that people will try to front run them catching the end of the rally....seems very odd that commodities and the naz would run to the moon together...opinons appreciated!

[Tonto]

I have an excellent collection of updating miner charts etc. from metamucil posted ....if anyone is interested...they are pretty cool I think...

 

I spent alot of time on them compiling etc....feel free to stop buy and check them out....I think they will be enjoyed and I have some excellent conversations with some really smart people there...

WARNING TO DIAL UPS>>>IT WILL TAKE A MINUTE TO LOAD

http://moneycentral.groups.msn.com/StartIn...15&all_topics=0

 

if it doesnt take you exactly to the thread then it is labeled CHARTS///////

 

good luck all, great stuff!!

 

Any opinions on what the worst miner is? I have an opinion one is RGLD from an excellent write up in febuary at the VIC...(Value Investing Club) .....just check out archived articles and there is a whole array of awesome stuff....end result on RGLD is it isnt fairly valued even with gold at 1000 per ounce....Im thinking of diving back in some miners next week and may short RGLD on strength to use as a hedge....

[dozer]

tonto, good post. good questions. ones that i've been wondering about also.

 

how can naz and commodities climb together?

 

only answer I can think of is: "massive manipulation of naz"

 

 

 

I've seen a number of comments here lately about fall/winter historically being weak for gold; which puzzles me because i've also read a number of times that this season is the -strongest- for -physical- demand.

 

In a market where demand exceeds supply, I would've thought that that physical season would boost the paper market. Guess I was wrong !

 

When I get back home after this @$%[email protected]#$ moving job, the first thing I'm gonna do is subscribe to Doc's anals etc., and start serious cycle study. It seems to be working quite well for several here.

 

Thor: thanks for pointing me to the current thread....again. At least I wasn't the only one this time....hee hee...

 

I can't tell y'all how glad I am to have stumbled across this community. It's become an ongoing learning experience for me. I'm interested in seeing the best of the best here put together their predictions for POG in the 3-9 mo. timeframe. My mining season begins soon, and will run until the rain stops....around June....and with the increased volatility in POG, it will be critically important that I don't sell production until the best times; i.e. cycle peaks.

 

again, thanks to all.

 

off to pack and stack some more....

[Tonto]

thanks!

 

To all ..excuse the long post but interested in feedback here..be sure to remember that this write up was done in mid febuary

Thor,Maxxi, 7 of 11,Charmin, etc. would love your opinion on this as a short candidate or hedge for miners....

RGLD-

 

 

2/18/2003 11:08:00 AM RGLD ($25.75) by mitc567 Rating 6.9 (31 users)

 

Description:

 

 

Royal Gold is an overvalued company that engages in the acquisition and management

of royalty streams from gold mining companies that operate primarily in Nevada.

Following the rebound in gold prices, speculation has resulted in RGLD?s stock

increasing 382% since December 2001. Specifically, RGLD has soared relative to the gold price

index and other un-hedged gold stocks. With an assumed gold price of $360 per ounce

? its recent high ? RGLD is currently valued at 28.8x our estimated FY2003 EBITDA

and 23.86x FY2003 sales. Based on the present value of its future cash flows and a

gold price of $360 per ounce (gold is trading at $345/oz today), RGLD has an intrinsic

at between $3.15 and $4.20 per share compared to yesterday?s closing price of

$25.75. The valuation section later in this report will justify this assertion and

demonstrate that RGLD is overvalued regardless of how spot gold prices change going

forward. There are only 1.18mm shares or 7.9% of the current float being shorted, so RGLD

should not be particularly hard-to-borrow at this point.

 

A Pure-Play Royalty Company: Unlike the larger and well-known mining companies

(e.g. Newmont Mining Corporation, Barrick Gold, Placer Dome, etc), RGLD has no

involvement in the exploration and production of gold. RGLD earns its profits from seven

primary royalty streams. Consequently, one of the few positive characteristics of RGLD

is that no capital expenditures are necessary. Moreover, RGLD continually emphasizes

to investors that its corporate overhead is minimal and that it has only 9

full-time professionals. "It's a good business model because it doesn't carry the same

amount of risk as an operating company," said Jay Taylor, editor of Jay Taylor's Gold &

Technology Stocks. "Capital required is much less than putting a gold mine into

production. And you don't have the labor work force of a mining company." This explains

why RGLD has a ROE of 47.8%; other bull arguments include a clean balance sheet with

no debt; this is why some investors may prefer RGLD to the more complicated and

capital-intensive business of the direct-operators mentioned

above.

 

A Roll-Up Strategy: In late 2000, RGLD used its stock to acquire 93.5% of High

Desert from a controlling shareholder and subsequently froze out the minority

shareholders, thereby buying the business for approximately $31 mm. According to CEO Stanley

Dempsey, RGLD has no intention of entering the direct mining business. Because its

business cannot grow organically unless additional gold is discovered, RGLD has made

five significant acquisitions in the last five years. While roll-up strategies may

be quite profitable under the right circumstances, RGLD appears to have paid high

prices for its acquisitions. For example, High Desert cost the Company $31 million and

we estimate that the investment will yield total cash flows of $39 million over a 10

year period. (Using a $360 gold price and a favorable mining schedule) This

translates to an IRR of less than 5%. Should gold prices fall below current levels to $320

an ounce, the IRR is less than 1%.

 

Overview of Properties: Specifically, RGLD has four straight-forward gross royalty

streams and three more complex royalty streams earned net of mining and processing

expenses. RGLD earns approximately 83% of its revenue from four royalty streams

located on one principal property?the Pipeline Mining Complex at Cortez, Nevada. The

Pipeline complex is a joint venture operated by Cortez, which is a subsidiary of Placer

Dome and Kennecott Explorations, a subsidiary of Australian gold company Rio Tinto.

In addition, RGLD owns two royalties through the High Desert acquisition: the

?Leeville? project and the SJ Claims project operated by Newmont and Barrick Gold,

respectively. It is important to understand each specific royalty stream in order to model

potential cash flows based on the sometimes floating royalty percentage, the number

of gold ounces to be mined, and a corresponding mining schedule.

 

It should be noted that RGLD has no influence on when gold is removed from the

ground. The gold operating company gives management an estimated schedule of how much

gold will be mined per year. For example, on the 10-K, management estimates 950,000

ounces of gold will be mined from the Pipeline Property in 2003. According to

management, operator schedules must be planned in advance. This means that even if gold

suddenly spikes, a gold operator cannot quickly increase production. Similarly, gold

operators do not significantly cut back production if gold prices have a big downward

price movement because they need to absorb their fixed operating costs. Each gold

mine lasts around 10 years.

 

The owner-operator of a certain area also breaks out the number of proven and

probable reserves to RGLD. Proven reserves constitute gold that has been clearly

identified and is ready to be removed from the ground. Probable reserves are not

immediately ready to be removed from the ground. It can take several years of planning and

exploring to have an ounce of gold be proven as opposed to probable. According to the

10-K, ?these deposits do not qualify?until further drilling and metallurgical work

are completed, and until other economic and technical feasibility factors based upon

such work are resolved.? There is no guarantee that these probable reserves will

generate revenue for RGLD.

 

Valuation: RGLD shares are currently trading around $25.00 per share. With an

assumed gold price of $360 per ounce, RGLD is currently valued at 28.8x our estimated

FY2003 EBITDA and 23.86x FY2003E sales. Below is a Q2 run-rate equity-market valuation

based on the quarterly earnings report out

today:

 

Run-Rate Q4

 

Stock Price Rev EPS EBITDA

$15.00 24.7x 59.8x 36.5x

$20.00 32.9x 79.7x 48.6x

$25.00 41.2x 99.7x 60.8x

$30.00 49.4x 119.6x 72.9x

 

 

As stated above, determining the true value of RGLD is a rather simple exercise

because the amount of gold reserves and royalty rates are clearly outlined in public

filings. The only crucial variable is the price of gold?which is sensitized below.

There are 19.1 mm diluted shares outstanding and 1.4 mm shares were issued for the

merger.

 

The table below examines the net present value of the expected stream of cash

flows for RGLD based on expected royalty streams from its investments. Each stream has

been gleaned from public filings and/or discussions with mine operators.

 

 

Discount Rate

Price of Gold

10% 12% 14% 16% 18%

$260 $1.45 $1.41 $1.37 $1.33 $1.30

$320 $2.89 $2.76 $2.64 $2.53 $2.42

$340 $3.43 $3.26 $3.11 $2.97 $2.84

$380 $4.55 $4.32 $4.10 $3.90 $3.73

$420 $5.58 $5.28 $5.00 $4.76 $4.53

$460 $6.70 $6.32 $5.99 $5.68 $5.41

$500 $7.63 $7.19 $6.80 $6.45 $6.14

$550 $8.47 $7.98 $7.54 $7.15 $6.79

$1000 $16.03 $15.06 $14.19 $13.42 $12.72

 

 

Using a 14% discount rate and a $420 gold price, RGLD is worth about 20% of its

current stock price based on a discounted cash flow analysis. There are a few things

that cannot be predicted with certainty: (1) The exact schedule for when gold

operators remove the gold from the ground, (2) The percentage of probable reserves that

will ultimately be mined, (3) The potential for these gold operators to suddenly come

across a large amount of new gold. This model has been run with logical and

conservative assumptions to address the first two concerns. First, schedules are consistent

with a run-rate using FY2002 numbers and FY2003 estimates and were checked to the

fullest extent possible by speaking to management. Second, RGLD was given the benefit

of the doubt and the model generously assumed 100% of the probable gold reserves will

be mined. The third point is more difficult to address, but it appears unlikely

that these gold operators will suddenly discover a significant amount of gold. However,

RGLD is so overvalued that there is a huge ?margin of safety? to address this risk.

Hypothetically, if the Pipeline Mining Complex, which accounts for 83% of revenue,

discovered 20 million ounces of proven reserves tomorrow ? which is almost three

times as many ounces as it currently has ? RGLD would remain overvalued as shown in the

following chart:

 

Discount Rate & Price of Gold

 

10% 12% 14% 16% 18%

$340 $9.31 $8.92 $8.55 $8.22 $7.91

$380 $12.46 $11.91 $11.42 $10.96 $10.54

$420 $15.30 $14.62 $14.00 $13.43 $12.90

$460 $18.41 $17.58 $16.83 $16.13 $15.50

$500 $20.94 $19.99 $19.13 $18.33 $17.61

 

Insider Selling: Clearly, the large amount of insider selling suggests that

management realizes its equity is overvalued. In October and November of 2002, Chairman

Stanley Dempsey sold 14,200 shares. Practically every single Director and Officer has

been dumping shares since August, 2001. Director Peter Babin purchased 4,016 shares

at the $10 range in April 2002, but subsequently unloaded 84,153 in the next week.

The last significant purchase was by a Director at $4.75 per share. Please refer to

http://biz.yahoo.com/t/R/RGLD.html for a quick list of trades.

 

Below is a detailed breakout of the different royalty streams that provide the

foundation for the model.

 

GSR1: There are 6.8 mm contained ounces of gold in the Pipeline Mining System.

Management was comfortable with the assumption that ?around 1.1 mm ounces of gold? will

be mined per year for the next six years.

 

Since GSR1 is a sliding-scale royalty directly tied to the gold price, it is

possible to calculate revenue with the gold price sensitized. For example, if an ounce of

gold is $360, Pipeline yields 1.1 mm ounces of gold, RGLD earns revenue at a

sliding-royalty scale of 4.00% X $360 X 1.1 mm ounces?revenue of $13.8 mm. Now, if gold

prices were only $260 per ounce, the GSR1 royalty is 1.30% X $260 x 1.1 mm

ounces?revenue of $3.8 mm; this illustrates the tremendous exposure to the RGLD price. However,

if gold rises to $550 per ounce, the royalty rate is only 5.00%, RGLD because it is

capped once gold passes the $470 level, RGLD records revenue of $31.7 mm. Hence,

there is declining upside at current price levels.

 

There are also 292,500 ounces that are uncontained?probable but not proven. Even

though there is no guarantee that this gold will be successfully mined, I estimated

that RGLD would wait until its existing reserves were depleted and earn royalties of

approximately $0.9 mm annually on 73,000 ounces of gold ? commencing in 2009 and

ending in 2012.

 

GSR2: This royalty is also a sliding-scale royalty. However, this royalty only

covers 2.27 mm ounces of gold that are uncontained in the Pipeline Complex. Because

these reserves are years away from being mined and are not guaranteed, RGLD will earn

relatively higher royalties of 2.34% and 7.20%, assuming gold prices at $260 and

$400, respectively. I conservatively estimated that RGLD would in fact earn royalties on

all 2.27 mm ounces?starting in 2009 and concluding in 2012?yields revenue of $12.5

mm per year.

 

GSR3: This 0.71% royalty is fixed and does not change with the gold price. It was

purchased in 1999 that covers the same Pipeline Mining Complex cumulative area as

GSR1 and GSR2 do. Assuming a gold price of $360, RGLD will earn $2.9 mm per year from

2003 from this specific royalty stream until the Pipeline Complex is depleted and

approximately $1.6 mm subsequently from the probably reserves.

 

NVR 1: This royalty is a 0.37% fixed-rate royalty, net of processing-related costs

that are included in the 0.37%. (RGLD is not responsible for mining-related costs)

NVR1 covers a portion of the Pipeline Mining Complex that is excluded from GSR1,

GSR2, and GSR3. There are currently 5.0 mm ounces of proven reserves. Assuming a gold

price of $360, RGLD will earn $.87 mm annually for six years and $.64 mm for four

years starting in 2009 based on probable gold ounce reserves of 2.4 mm.

 

Bald Mountain: In 1998, RGLD purchased a 1.75% fixed-rate, net royalty from a

property located near Elko, Nevada. This royalty stream is very small, with only 231,000

contained ounces and 691,600 probable ounces. Management explained that this

particular area is ?near the end of its mine-life.? Assuming a gold price of $400, RGLD

could earn $490,000 annually for three years and $1.45 mm annually for the subsequent

three years until 2008.

 

Leeville Project: This royalty stream from areas controlled through Newmont Mining

was acquired through the High Desert merger. Based on public filings from

Vancouver-based, High Desert, RGLD earns a 2.00% net return royalty on approximately 4 mm

ounces of gold. RGLD management stated that it will earn royalties on the difference

between the price of gold and the mining cost, which is around $205.00 per ounce.

However, information obtained from Newmont Mining?s web site states that ?Leeville? is

currently being explored and developed, so no gold can be mined for a few years. This

was confirmed by speaking to Newmont investor relations. Assuming production begins

in 2006 and the same gold price of $360 per ounce, RGLD will earn royalties of

$1.55 mm annually for eight years based on 500,000 ounces of gold mined each year.

 

SJ Claims: This royalty operated by Barrick Gold was also acquired through the

High Desert acquisition. This net returns royalty of 1.00% covers 9.76 mm ounces of

proven gold reserves. It is estimated that this royalty should earn RGLD about $3.42

million annually based on a $360 per ounce gold price. This figure is very generous as

High Desert only received $1.4 million from its two streams for the nine months

ending September 30th, 2003.

 

Non-Producing Royalties: RGLD owns several non-producing royalties in Nevada and

the Greek island of Milos?all of which do not contribute and are not expected to

contribute to the bottom-line. RGLD owns silver royalties from Yamaha Resources based in

Argentina?which are immaterial to RGLD revenue due to the low value of silver.

 

 

 

 

 

Catalyst:

 

 

Catalysts

 

(1) Any meaningful decline in the price of gold. It might be a good idea to hedge

this short against the price of gold via options or purchasing a larger, liquid gold

company such as Newmont Mining that is not hedged against the price of gold.

(2) Any positive news on the situation in the Iraq.

(3) Time for investors to realize the irrational valuation.

(4) Additional insider sales

[flockofsheeples]

I sold 10 ozs. $2 from the top last thurs. to tulving co. (newport beach) and promptly shipped them off. delivered on sat. I emailed tulving to make sure everything was received OK and was informed a check was going out on thursday. I just received a priority mail package back from them containing my coins with a letter stating that "they were not of the quality they sell to their customers" but the funny thing is that I originally purchased the coins from them. Coincidentally they were mailed out after gold's asswhuppin yesterday. anyone have any thoughts on this?

[FeedFool]

best to wait for gold to hit the trend line.

[anjing bau]

a look back....

[anjing bau]

13 months consoliadtion... 21 months uptrend... repeat consoildation again from oct/nov 03 to ~ the election.... post election we start a new ~ 2 + year upleg.....

 

the next year I see as range bound... buy the 154 zone sell the 200 zone I expect 2-3 touches near the botttom and the same near the top....

 

again this is the opinion of a barking mad dawg and not to be taken at all seriously.... I mean would a dawg ever become a Dean? ... hahahaha... sorry for my oversight last night Dean... please don't kick me off the campus ....