Signs of the Gold Apocalypse: M&A and Fund Extinction
Signs of the Gold Apocalypse: M&A and Fund Extinction by Tom Luongo – The Burning Platform
For bear markets to truly end investor sentiment has to get to a point where they would rather walk on broken glass than buy that asset or asset class. We’re reaching that point in the precious metals market.
In conjunction with that we also have to see arrogance on the part of short-sellers convinced that all rallies will be sold, keeping a lid on prices. It doesn’t matter if buyers come in at higher prices or above significant technical support levels, they will push because they become convinced this is a one-way trade.
We see this in the government bond markets as well. In traderspeak it’s called the [Insert Head of Central Bank Here] Put. The Greenspan Put begat the Bernanke Put which morphed into the Yellen Put.
Over the past few months we’ve seen sign after sign that the gold and silver markets are nearing the end of their bear markets. These are signs of extreme distress. The first I’ve already mentioned, record speculative short positions among futures traders.
Then there was the re-balancing of Vanguard’s $2.3 billion Gold and Precious Metals fund into the Global Capital Cycles Fund, trimming exposure to precious metals to 25% of AUM — Assets Under Management.
And now we’re seeing the M&A (Mergers and Acquisitions) phase of the bear market. Where companies begin merging to shave costs after having already cut back on production to preserve cash flow.
It was just announced that American Barrick Corp (NYSE:ABX) and RandGold Corp (NASDAQ:GOLD) are merging into one company. The largest mining company by market cap in the world at around $18 billion.
Primary silver producers like Endeavor Silver (NYSE:EXK) are shuttering high-cost mines in this pricing environment. Well run companies with low debt and strong balance sheets don’t do mergers like this, they tough it out or go on a hostile raid of assets under-valued by the market.
There is always something that stands in the way of Gold’s breakout. I’m as frustrated by it as anyone else in the space. But, the reality is that gold at this point is the retail investor’s hedge against government instability and loss of institutional faith.
I’ve made the point before and I’ll make it again, the last gold bull market was primed to go for two years before it finally began in earnest. Gold made a low in 1999 but it took until after 9/11 for it to finally move above the important technical levels to force short sellers and heavily-forward-hedged producers like Barrick to lift their hedges and cover.