World’s Largest Gold Mining Company

14 Feb

gold mining companyQ: I see that ABX, the world’s largest gold mining company by sales, has doubled in share price from its low four and a half months ago. What do you make of that? Have we missed the low?
A: Maybe for ABX. Gold share prices do not all bottom at the same time; they never have. There are always leaders and laggards. I would not be surprised if ABX’s low for the bear market was four and a half months ago. Its share price fell to just 5.75 times cash flow. It was selling for less than liquidation value.

Q: How does that fit with the Fixed System?
A: Just fine. ABX will be one of the candidates for call options trading when the low for the gold shares, as a group, is in.

Q: What needs to happen first?
A: We still do not have specialist short covering and an ending wave pattern.

Q: Are you looking for a washout move to the downside?
A: Yes. If it went down from here to new lows that would give us an ending wave pattern.

Q: What wave pattern are we in now?
A: We appear to be in the fifth wave of a five wave symmetrical expanding triangle. If that is true, the down move thereafter should be swift and on good volume in five minor waves down to a new low. But please remember that wave counts are not predictive. They are a confirming indicator. We would need to have the specialist short covering at the same time. In any case, this is not a prediction. I will wait for the market to tell me when it all happens.

Q: I understand your position. Picking a day for the low to one year out is unnecessary. It’s like trying to cross a bridge before you get to it. Also, the odds are not good. There are 364 days to make an error and only one day to be correct. In any case, you’ve given us your view of the possible wave count and told us what you’re looking for to call the low. Thank you.
A: It is impossible to verify the happenings of a future date until we reach that date. Understanding what has happened is a more reasonable goal.

Q: Remind me of the economic law we need to apply here to call the low in the gold market.
A: The economic law is that all value is subjective, including future value. Today’s price action is determined solely by what the majority of market participants expect the future price to be. If the expectation is that the price will be higher than today’s price plus the cost of carry, then, in order to capture potential profit, the price will be bid up until there is no further opportunity for profit. This presumes that there are offers to sell in the market. If there are no offers this means the bid price is below the retention price of existing holders. At that point potential buyers will be forced to increase their bids in order to get an execution. It will also be the point at which market specialists close out their short positions and the gold market turns from bear to bull.

Q: Is all of your analysis based on definite economic law that I can rely on?
A: Yes, up until the specialist short covering. The latter is my application of the law. If my application is proper and my facts are true, my conclusion will be both valid and true. The Fixed System is like the market. It is always right. It never makes a mistake. Both, however, are subject to pilot error. Your advantage here is that I have shown you the flight log and maps. You can stay on the ground, come along for the ride, or learn to pilot the craft.

Q: Do you have a recommendation?
A: It is up to you. But remember: flying is the safest was to travel. Much safer than a car.

Photo credit: Domiriel via Visual Hunt / CC BY-NC

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