Replies to post #19925 on Value Microcaps Junior Miners

[coinmaker]

clive Maund-

I don't believe in his very pessismistic scenario.

[opzeeland]

HUI / SP500 crash correlation

I think Cleve Maund's conclusion is a bit 'very short through the corner', to say so.

Coincidentally, I studied the 2008 crash again today.


1. Apparently I had a short-term memory or have been brainwashed by most opinions floating around nowadays:
I found the conclusion quite remarkable and confidence-providing:

- The 2008 S&P downturn started already beginning of 2008, while the HUI was still making new highs.
- In July, the HUI started crashing down. Only a month after that, the broad markets started to crash.
- The HUI bottomed in October 2008, while the broad markets only bottomed 4 months later, in March 2009

Take a look at the charts: The S&P chart and HUI chart just do not correlate within this period.

However, if you pull up the Gold chart, you see that this one very much coincides with the HUI chart.

In other words, I dont really think the broad markets and miners aren't so very tied to eachother as the general consensus currently assumes.
I think it is Gold we need to



2. 2008 crash:
SP500 fell 50%; from 1400 to 700.
HUI fell 70%: from 500 to 150

HUI/SP500 crash ratio 2008: 1.4


Fast forward to today: 2010 ‘start of potential crash’ :

SP500 fell from high of 1210 end of April to interim low of 1010 early July: 16,5%
HUI fell from high of 500 (May and June) to interim low of 429 in July: 14,1%


Conclusion: until now, the intermediate(?) bottom of the 2010 crash, the miners are holding up quite well!



Based on the 2008 analysis I concluded it is Gold that we have to watch to get an idea of the direction of the miners.

It is a fact that Gold has gotten a more important role in the financial system since the collapse of 2008.
Central banks buying gold, the BIS gold swap and now also Europeans exchanging their euro for Gold* are just three recent examples.

I think the downside of Gold is limited, and the current selloff might be coming to an end.
The seasonal strong period for Gold is also close to start.



Baseline:
Although I have a limited amount of shorts in the broad markets, I have some confidence that the "all feared HUI re-crash" might not be coming, at least for now.



*: until December 2009 the Gold chart inversed the dollar index chart.
Dec 2009 – until now (July 2010) Euro crisis and (intermediate) recovery, Gold inverses the euro index chart