ABX

ABX, American Barrick

Hamilton

We have never been all too fond of this company and became downright negative after RBC put it on its focus list quite some time ago. Here is why;

ABX jul 26 2012 l

For a number of years during the late eighties this stock, and also Franco Nevada to mention but one other, was the darling of gold speculators expecting a repeat of the metals performance from roughly 1973 to 1981. Instead they got one of the best formed triangles ever, lasting a little over ten years, (I was focused on Hecla and never looked at ABX).

Triangles occur one leg before the last, which is , of course wave 4. The somewhat violent jump up is called a thrust. Typically it has an amplitude roughly equal (or 1.62X) to the mouth of the triangle, shown here in purple. It is a 5th impulse wave and as such should subdivide into 5 waves. It shows overlap but that is OK as it is a “diagonal” with a nice throw-over at the end. The A makes it right to the lowest level of the e-wave. The B-wave makes a new high and now the C is on its way down to about $17. Here is an old chart from Jan. 2011 showing the B-wave in detail and a chart of what to expect as of today.

abx jan 14 2011ABX jul 26 s 2012

Notice (click to enlarge) that the B-wave is also perfectly formed. After the top we get a rather messy 1-2 that consumes an entire year without going anywhere. Then wave 3 of C which took us to the low of $31.18, almost a drop of 50% just in the third wave, money you could have saved reading previous blogs. A pretty good rebound should now follow for wave 4 and it could again take a whole year! It cannot trade above $46 for this scenario to stay valid. $42 is a better guess for the rebound. After that wave 5 will take the stock to around $17 or so. What a hedge!

So it is a buy now for a gain of about 30% (from today’s low) , then neutral at $42 and a short above, say $44.

PS. Wave 2 is messy, I have used blue to show the composition. It is irregular and consequently I would expect wave 4 to be a sideways “flat” or again a “triangle”.

ELD, Eldorado, Gold etc.etc.

Hamilton

ELD june 2011

This stock has risen from a few cents to $21, precisely over the same time as gold had (or is having) its renaissance. In and of itself , this qualifies as a “bubble” of sorts. If so it is good to remember that all bubbles , without exception , were eventually reduced to their origins or below that!. This stock has already lost about 1/2 of its last leg up. Any time now it could have a very nice bounce but that would probable only be part of a much more complex correction.

  I have an open mind, I think , with respect to the count, and realize that there are other possible counts. But the one thing that stands out in this chart is the very, very clear expanding triangle. These occur only in 4th (and B- ) wave positions, the question is 4 of 3 or 4 of the entire move up. As there is another , smaller contracting triangle right above it, I assume that the bigger of the two is of a higher degree and therefore is wave 4 of the entire move. This does make wave 5 much larger than normal, but where it comes to commodities it is quite normal for the 5th and not the 3d wave to be the extended one. All of this ultimately points to a stock that should trade down to $3 at least.

Further supporting  at least the direction, is that this is a low cost producer. Paradoxically, and this is counter-intuitive, the lower the cost the closer the correlation to the “stuff” itself. This makes sense if you consider that marginal miners benefit disproportionately from a rise in the price of gold. For some reason this did not apply to ELD, see next;

eld gld

Until just recently, ELD outperformed gold (using GLD as a proxy) rising more than 400% against gold at 240%, a very large outperformance that has all but been erased over the past few months. But even now it is over-valued compared to the big boys;

GLD ABX

I have used ABX , which so far has underperformed by about 200%. I could have used Goldcorp or Kinross and the result would have been a little better and a lot worse respectively. Most of these too are low cost producers. Should Eldorado one day join this group its stock price would drop to $3 (where it would also underperform GLD by 200%). A bubble is invariable caused by a concentration of investment capital and this stock is aided in that sense by it’s very popularity with at least 20 analysts (????) following the stock.

Why gold stocks underperform the stuff by so much remains a bit of a mystery. Perhaps it is that you can now take “pure” positions in ETFs that were, until recently, not possible. This is cheaper and does away with the idiosyncratic attributes of individual stocks (think BRX).

ABX

Hamilton

abx apr 2011 abx june 2011

On the left is what we expected ABX to do, just at the time when our most prominent investment firm put the stock on its focus list. On the right is what actually has happened so far. Somewhere in the Atlantic ocean there used to be a tribe that used very large stones as currency. So large that they formed part of the real estate in the front yard.Ownership was transferred by verbal agreement. Gold works much the same, it has little intrinsic value (just like fiat money) and would be utterly useless without  faith.

So I am not that hot on gold one way or another but ABX might just be a buy at these levels, at least for a solid bounce if not more.

ABX

Hamilton

Abx mar 2011 abx apr 2011

On the left last months take on American Barrick. Of course it did not work out exactly that way. As is all too often the case lately,  the “market” manages to use every excuse to delay and frustrate as many people as possible. What looked like the end of wave 2 (or B) proved to be just the a leg of a more complex correction, delaying the inevitable by a whole month and adding only a fraction of a dollar. In the meantime RBC had announced it was a buy and gold kept making new highs. But the company itself gave the impetus for a ride down, a little bit like Mercedes Benz taking over Crysler. Rather than stick to its knitting the company has decided to branch out into copper miming in a big way.To accomplish this they are upping the bid on Equinox and are now at a level where even the Chinese are unwilling to play.

Overpaying for an asset is all fine and dandy, except when gold companies are normally valued at 10x cash-flow ( for whatever reason ) and copper companies at only 6x. Assuming the deal is accretive from day one and that the market will go for the middle of the range, that is 8x, the stock should find its way to $42 easily and then on to our original target of $36.