1 February 2016 DAVID KERLY'S GOLD-SILVER-SHARES and MARKETS

’s

Gold – Silver – Shares Markets

David Kerly’s

David Kerly’s - Gold-Silver-Shares-Markets - Unique - Insightful - Independent 1 February 2016

No sooner had the ink dried on our January newsletter,

than gold began to rise and World stock markets began

collapsing. Not quite as bad as last August, but the

declines will still go down in history as one of the worst

January’s on record. The DJIA fell 911 points, or more

than 5%, its worst four-day percentage loss to start a

year on record, at least since 1897. These declines took

most people by surprise, but as we have pointing out for

some months now, the writing has been on the wall for

stocks. The US stock market has been defying gravity

for longer than most, but they (in the US) are beginning

to realise that the game is up and a lot of investors took

a rush for the exits last month. There are still some that

think this is only a correction, but clearly they cannot

have looked at all the evidence. Some will have

certainly done so, but have chosen to ignore it, or even

disbelieve it. Denial is a dangerous game to play, as the

truth always outs in the end. Below we show a table of

key market performances last month. We also show the

worst point of January (20th) and the double digit

percentage declines to those points. For Gold and Silver

we show the high point (27th).

Market 31 Dec Jan

low/hi

%

chge

29 Jan %

chge Gold $1062.6 $1127.9 +6.1 $1117.7 +5.2

Silver $13.88 $14.55 +4.8 $14.24 +2.6

FTSE 100 6244 5600 lo -10.3 6124 - 2.0

Nikkei 225 18831 15798 lo -16.1 17863 - 5.1

S&P 500 2058 1811 lo -12.0 1936 - 6.0

DJIA 17554 15775 lo -10.1 16431 - 6.4

DAX 10688 9833 lo -13.4 9251 - 8.0

01 FEBRUARY 2016 A monthly newsletter on gold, silver, shares, and stock markets utilising chart and fundamental analysis Issue 8

Stock market uptrends are history and the bear is awakened.

Astute investors will sell into the current temporary bounce.

The HUI Index (unhedged gold shares) outperforms the XAU

Index (hedged gold and silver shares).

Last month’s panic in stocks is giving way to a sucker rally.

Gold gains 5% and completes a triple bottom base versus the

Dow Jones Transport Index.

Junk bonds are bouncing as well but the chart looks dreadful.

Deflation, not inflation, is the problem as the FED will come

to realise, if they haven’t already.

Gold posts its first higher low versus the FTSE All World Stock

Market Index in over four years.

George Osborne needs to buy back our gold, foolishly sold by

Gordon Brown (but very quietly if he can).


Gold has given us a clue that the main trend priced in

US$ is starting to shift from down to up. Currently, to

confirm a trend change, the sequence of lower highs and

lower lows needs to be broken, the latest being the 14th

October 2015 rally high of $US1191.42 or US$1183.45

(daily close basis). However, the first clue of a trend

change comes from gold’s chart versus the Dow Jones

Transport Index. This is shown below.

A 30% outperformance by gold over the transports in

the last two months took it well clear of a year long

triple bottom base pattern. The 40 week (200 day)

moving average had already stopped falling mid-2015

and it has now turned up. In the near term, there may be

a dip back, but this should find support from the upper

region of the year long base area before the advance

resumes. We do realise of course that this does reflect a

greater decline in the Transport Index than the

corresponding rise for gold. Transport stocks have

fallen by an average of 22.4% since early December

while gold has risen by around 8% over the same time

frame.

THE DOW JONES TRANSPORT INDEX IS A

LEADING INDICATOR

As we mentioned in our last newsletter (4th January)

the Transport Index has also been underperforming the

Dow Jones Industrials, almost exactly as it did in the run

up to the 2008 crash. The Transport Index is a leading

indicator and we think it is providing a very strong

warning of serious trouble ahead. Gold’s recent rise is a

combination of short covering, but lumped in there too

will be new longs. We get the feeling that the safe haven

status of gold, and silver to a degree - though that is still

lagging gold because of its part “industrial use tag”, is

starting to be taken more seriously. Maybe the start of a

new year has focussed investors’ minds and they are

starting to not like what they see for the US and also the

world economy generally.

The next chart we show is the HUI Index (gold shares

that don’t hedge their gold production or at least very

minimally), versus the XAU Index (gold and some

silver companies that do). The chart goes back 16 years

to 2000.

OUTPERFORMANCE BY THE HUI INDEX

OVER THE XAU INDEX IS A LEADING

INDICATOR OF GOLD PRICE STRENGTH

Here we can see how unhedged gold shares rose far

more than their hedged brothers in gold’s great bull

market that lasted for 10 years from 2001 to 2011. The

outperformance was staggering. The XAU Index rose

by a very nice 459% in those ten years, far far better

than stocks. However, the unhedged HUI Index rose by

an amazing 1664% in the same period. Such

outperformance makes perfect sense as those

companies with 100% exposure to a rising gold price

will make a lot more money than those companies

which have less. So with that in mind it naturally

follows that when the HUI Index starts to outperform

the XAU Index that is a sign that the main direction for

the gold price is shifting to the upside.

We can see on the chart above that the HUI Index has

in the last several months, and particularly January, left

their hedged brothers far behind. The early 2015 rally

peak has been well cleared and the four year downtrend

has been breached. Not only that but there are five

waves down from the 2011 high. So, three down (the 2nd

being the longest or third wave from mid-2012 to end

2014) and two corrective up. Confirmation in Elliott

Wave terms that the bear leg is finished. Of course,

unhedged gold shares now look overbought on a near

term basis (notice the level of the MACD) and could

retrace some of their recent gains. However, such

weakness should prove an opportunity to get into or

even add to existing long positions in those gold stocks.


So if we look at gold companies that are unhedged or

have very little hedging, their share price performance

for the month of January 2016 speaks volumes:

Harmony Gold Mining +92.5%

Sibanye Gold +45.5%

Barrick Gold +34.3%

Gold Fields +22.7%

Randgold Resources +19.9%

AngloGold Ashanti +19.4%

Agnico Eagle Mines +12.0%

Newmont Mining +11.0%

These gold stocks hedge and are in the XAU Index:

Primero Mining Corp +9.6%

IAMGold Corp +2.1%

Kinross Gold -9.9%

Sandstorm Gold -13.3%

Royal Gold Inc -18.3%

Gold Resource Corp -19.3%

Seabridge Gold -25.6%

HARMONY GOLD MINING +92.5% in Jan 2016

SIBANYE GOLD +45.5% in Jan 2016

BARRICK GOLD +34.3% in Jan 2016

GOLD FIELDS +22.7% in Jan 2016

RANDGOLD RESOURCES +19.9% in Jan 2016

Harmony, Sibanye and Randgold have all decisively

surged through their 200 day moving averages. These

averages have yet to turn north and with their RSI’s and

MACD’s overbought, we would take some profits on

long positions and await some probable sharp partial

retracements over coming weeks before considering

jumping back in. Barrick and Goldfields have risen

less above their still falling 200 day moving averages,


but they have more underlying support, and in closer

proximity, than the other three gold stocks. Still, we

would expect downward corrective phases over the

coming weeks as well for these two.

ANGLOGOLD ASHANTI +19.4% in Jan 2016

AGNICO EAGLE MINES +12.0% in Jan 2016

NEWMONT MINING +11.0% in Jan 2016

Anglogold, Agnico and Newmont have risen between

11% and nearly 20% but are still within developing

probable basing trading ranges. They have yet to break

out on the upside, unlike their aforementioned brethren.

A dip back into the mid to lower side of their sideways

ranges seems likely during coming weeks.

PRIMERO MINING CORP +9.6% in Jan 2016

IAMGOLD Corp +2.1% in Jan 2016

Primero and IAMGOLD are both in the XAU index of

hedged producers and failed to see a gain of at least 10%

over the month, unlike their eight unhedged

counterparts as shown ahead of them. Primero posted

a new low in January, though managed to stage a rally,

taking it back into its downward sloping trading range.

This could turn out to be a base pattern, though the price

really needs to get over the October high and break the

falling 200 day moving average to suggest it is and avert

new lows. IAMGOLD tested the July 2015 low but

managed to recover slightly by month end. The pattern

since then could be a double bottom base, but the share

price really needs to get over the early January high and

ideally the October rally peak to suggest it is and avert

the risk of new lows.


KINROSS GOLD -9.9% in Jan 2016

SANDSTORM GOLD -13.3% in Jan 2016

ROYAL GOLD Inc -18.3% in Jan 2016

Kinross, Sandstorm and Royal Gold broke to new

lows in January, the latter gold share in particular in

spectacular style. These three stocks are in clear and

remorseless downward trends, though of course their

ultimate lows may not be that far away, relatively

speaking. However, we would steer well clear until

signs of a turnaround appear. We can though count five

Elliott Waves for Royal Gold. The fifth wave, i.e the

final third downleg, which appears to have begun from

the October 2015 high, is probably approaching its

zenith. That may mean a final plunge under the January

low ahead of a recovery. One to keep an eye on for the

more adventurous of you.

GOLD RESOURCE CORP -19.3% in Jan 2016

SEABRIDGE GOLD Inc -25.6% in Jan 2016

The chart of Gold Resource Corp has no redeeming

features other than the trend is very strong, DOWN.

However, it is oversold and potentially due a rebound.

We would not though hang our hat on it and would give

it a wide berth. Seabridge Gold on the other hand does.

The plunge in July 2015 looked like capitulation,

particularly with the equally sharp move to the upside

the next month. It has though double topped just under

the January 2015 high and would appear to need to

establish further support near to around current levels

before a challenge of the double top peaks is

forthcoming. Losing the end September low, just under

the recent low, could though trigger a plunge towards

last summer’s lows.


US$ GOLD CHART

Gold moved up strongly last month, gaining 5.2% to

close at US$1127.9 after ending 2015 at US$1062.6.

The advance really began from the mid-December low

of US$1047.55 and was in three distinct phases, giving

a five wave move which retraced just over 50%

(US$1118.8) of the drop from the October high but just

shy of the 61.8% level (US$1136.0). It may attempt to

move up a little more in the very short term, possibly

testing the 61.8% level and falling 200 day moving

average. However, we note that the daily

stochastic has just turned down from

overbought, so the risk of a corrective

phase is perhaps the more likely. Support

levels come in at US$1096.75 and

US$1087.12, with the US$1080 area

particularly strong.

GOLD MAY BE FORMING A

HEAD AND SHOULDERS BASE

PATTERN

We said last month that the December

lows near US$1050 may mark the

bottom of a head and shoulders base

pattern. The latest price action and the

way the stochastic indicator is finding

support around the 50 level, thus keeping

in the bullish half of the scale, is

particularly encouraging. Also, we note

that the ‘gap’ between the commercials

and large specs is still quite narrow. This

has plenty of scope to widen out towards

the -20000 and +20000 boundaries in the

next few months. All told then, there is

definitely a very good chance that gold

will have a crack at the key October 2015

high of US$1191.42, but a near term

corrective phase is likely first.

US$ SILVER CHART (Chart below)

Silver rallied in January, albeit in

choppy fashion, to end the month up

2.6%, but only half the rise of gold, after

being ahead 4.8% last Wednesday. Price

action since the 2nd week of November

has been contained in a tight range of

US$13.625 to US$14.626, the low and

high for December. The daily stochastic

has, like gold’s, turned down, though it

does look medium term bullish, if not

quite as bullish as gold’s because the low

points since December are not as high.

The day silver made its rally high of US$14.553 on

Wednesday it left a “doji” candlestick, signaling

indecision and a possible reversal. That near term trend

change now appears to be underway and silver could

move back towards the December and January lows at

US$13.625/US$13.727, respectively. While the “gap”

between commercials and large specs has widened there

is scope for a greater difference in coming months. If

silver can breach the 38.2% level of US$14.66 later on,

a base would be completed for a return towards the

61.8% retracement level at US$15.30.


GOLD HAS POSTED A HIGHER LOW

VERSUS THE FTSE ALL WORLD

STOCKMARKET INDEX FOR THE

FIRST TIME IN OVER FOUR YEARS

Gold has outperformed most of the stock markets in

the world over the last two months. Again this more

reflects the declines in global stocks, but it does

highlight only too well that the trend for investors

globally are beginning to shift in favour of the asset of

last resort. We would not be surprised to see gold and

silver within the next two to three years being used as a

currency, particularly if we are right about the collapse

in stock markets and possibly fiat currencies that lies

ahead.

LONG TERM CHART OF GOLD VS FTSE ALL

WORLD STOCK MARKET INDEX

The chart at the bottom of the page puts the recent

higher low into context, the latest rise also breaking

above the 400 day moving average. The attempt to do

this in October 2015 was repelled by the average but

this time the outperformance from the first higher low

since 2011 has been enough to break the downward bias

and this long term moving average. The shorter 200 day

moving average (compared to the 400 day that is) was

pierced several times since 2014 but the trend resumed

lower. A quick glance at the chart on the left however

shows that the red 200 day moving average has now

begun to turn up. The MACD and RSI are both turning

down from overbought so we see gold going on the back

burner for a while as stock market rallies around the

world begin to gather a bit of pace.

We will visit various stock market index charts later in

the newsletter, but first we take a look at the US Dollar

Index.

Since the early December plunge

(despite better than forecast non-

farm payrolls - 210,000 vs f/c

200,000), but much lower than the

prior 271,000, the US dollar has

struggled to recover. By rights if

the dollar was going to breach the

key 100.71, March 2015 high,

resistance and sustain a run to the

103.00 area, the final fifth wave

(wave one began in 2011), then it

should not have taken the eight

weeks or so that it has, and not

even back to test 100.60/100.71

yet.

This may reflect that the market is

skeptical that further interest rate

rises are going to be forthcoming


given that “inflation” is not going to be the problem and

that the Federal Reserve is starting to acknowledge that

fact. Indeed at last week’s FOMC meeting last week

when surprise surprise they kept the federal funds rate

the same, they said - “The committee identified low

inflation in the near term, resulting in part from the

recent drop in oil prices, as well as weakness abroad

and in financial markets as the primary risks to its

outlook. While conditions could certainly improve

prior to the committee’s next meeting in March, if

these issues continue to pose similar risks at that time,

it will be difficult for the committee to pull the trigger

on a rate hike at that time.” If stock markets have

recovered a bit further by then and not broken down again,

which we think is a distinct possibility, then another rate

hike will surely send investors scurrying for the exits

again.

LONG TERM CHART OF QUARTERLY US GDP

GROWTH

This very long term chart shows how quarterly GDP

growth in the US has been on a declining trend since the

early 1950’s. However, also notice that since 2000 when

growth was nudging 8%, the average of the peaks between

the 2002 and 2008 recessions was markedly lower than in

the 10 year run up to the year 2000.

Since 2008 GDP growth has not quite managed to hit 5%,

a feat which the economy managed to do for three quarters

in the mid-2000’s. Lately of course GDP has been sinking

rapidly and a glance at the ten year chart will show that

GDP is due to go negative very soon. This will be for the

third time since the disaster of 2008. There is plenty of

evidence to suggest that this time GDP growth, or rather

the lack of it, will be at least as bad as 2008, if not worse.

Following the recent release of 4th quarter GDP figures,

showing that the US economy rose at an annualized rate of

just 0.7%, Rob Carnell of ING Bank said the following:

“The trend in US growth has clearly slowed. Even

allowing for the fact that this data is choppy, and

considering the last two quarters as a moving average,

growth is now barely 1.5%, and is probably consistent

with a widening, not a closing output gap. If this feeds

through into softer hiring trends, then we can forget

further rate hikes from the Fed anytime soon.”

Also,“The slowdown in growth is mainly based on a

slowdown in domestic demand (…) Investment is

another key element of domestic demand that has

declined, with business investment of -2.5%QoQ in

4Q15 a worrying new development – though admittedly

following very strong 3Q15 growth” So, a distinct drop

in business investment!!

COMPANIES ARE STRUGGLING TO GROW

ORGANICALLY SO LETS GO AND TAKE

SOMEONE OUT AND STRIP OUT ALL THE

DEADWOOD SO WE CAN “GROW THAT

WAY”, SEEING AS WE CAN’T GROW OUR

OWN BUSINESS IN THE NORMAL WAY!

Now we know why there was such a vast amount of

Merger and Acquisition activity globally and in

particular in the US last year – companies are struggling

to grow organically! “The search for growth amidst

divergent global economic conditions and technology-

led disruption across many sectors provided a catalyst

for such deals.” Source – capitalinsights.ey.com.

Also, “The results for global M & A activity in H1 2015

for instance, continued the pace set in 2014. With

US$2.27 trillion’s worth of transactions, it was the

second-highest overall deal value for a first half of the

year – just shy of the all-time first half high of US$2.59

trillion set in 2007. The pace didn’t drop in the second

half of the year and 2015 finished with the highest value

M & A statistics on record.“ Source –

capitalinsights.ey.com. The mere comparison with 2007

sends shivers up my spine. Last one out turn out the

lights!

JUNK BONDS (another leading indicator)


Well, what can we say about the chart at the bottom

of the previous page? Basically it’s Junk! The Barclays

high yield Bond ETF peaked about a year before the

S&P 500 and the Dow Jones Industrial Index, which

along with the Transport Index (though peaked a few

months later towards the end of 2014) are classic

leading indicators for the US stock market.

We’d say that looking at his chart, there is a very strong

likelihood that it’s on its way to the October 2011 low

of 26.13. That is a drop of nearly 23% from where the

ETF is currently, or a fall of 31.5% from the 2014 high

of 38.15. That implies that investors will be demanding

higher and higher yields, despite US interest rates that

are still only scraping along the bottom.

Given the 16.4% decline already seen (to the recent low

of 31.88) investors are clearly building an aversion to

company issued bonds, because of the risk of default,

which can only increase as the year progresses. In the

immediate term however, a corrective rally is getting

underway. We show a shorter term chart on the right.

Notice how far the falling 200 day moving average is

away from the price and the bullish divergence on the

daily MACD and RSI compared with the lower lows of

LONG TERM MONTHLY CHART OF THE

FTSE 100 INDEX

the ETF at 33.03 then 31.88. A bullish two day island

reversal from 31.88 also adds to the scope for a further

rebound. However, we wouldn’t have thought it could

extend much further than a 38.2% retracement (34.20)

of the drop from the May 2015 highs near 38.00. It

could do 34.90 (50%) but that may be stretching it a bit.

The MACD and RSI on the longer term chart (bottom

of the previous page) look permanently locked down in

the bearish zone. That signals renewed weakness to

come.


THE FTSE 100 INDEX LOOKS AWFUL

On the bottom half of the previous page we show a

long term chart of the FTSE 100 Index. As you can see

it very much looks like 2001 and 2008 all over again.

That was when the UK stock market broke below the

key 6000 level, the neckline support of big multi-month

top patterns. Ominously the same thing appears to be

underway again. We have added 13 month and 34

month moving averages and red and blue arrows where

bullish and bearish crossovers occurred. Since the crash

of 1987 there have been three buy signals and four sell

signals. We have recently been given a sell signal. Apart

from the false sell signal after the crash of 1987, quickly

followed by a correct buy signal, the remaining signals,

particularly the sells, have been very reliable and got

you in or out of the market at the early stages of major

trend changes.

The sells work better than the buys because it takes a

long time to build a top and the more gradual

deterioration in the market will be enough to generate

the sell signal before the trend has turned down

significantly. These particular length averages “lag” the

price a lot and given that bottoms such as those in 2003

and 2008 when “vee” bottoms occurred, (panic and fear

being stronger emotions than greed), then a bullish

crossover of the two averages will be far slower to get

you back in the market.

The best solution is to use MACD and Stochastics such

as shown at the bottom of the FTSE100 chart. Currently

the market is in rally mode and has regained the key

6000 level. However, we are sure that it will not last for

very long before the next down wave is unleashed. Two

false upward breaks occurred last year, when firstly the

Index failed to hold over the year 2000 high and then

saw failure to hold over the 2014 highs. The first target

has been reached, the bottom of the trading range prior

to the failed break, in this instance the 6000 level. The

market has yet to fulfill the second. So, the second target

is the bottom of the trading range that preceded the

failed upward break. In this instance it is the 2003 and

2009 lows between 3280 and 3460, as marked within

the two red horizontal lines on the chart.

Finally we can make an estimation of when the index

will get to that support area. Notice the green vertical

lines and black arrows. The first two green vertical lines

show when the market bottomed and the first two black

arrows shows when the moving average sell signals

were generated. Notice where the latest black arrow is

in relation to the stochastic indicator – starting to

approach the bottom of the scale like it did in 2001 and

early in 2008. Based on how long it took from those two

points for the market to reach its ultimate lows we have

drawn two green vertical lines from the current position.

These sit at September 2016 and July 2017. Thus on

past performance the market should bottom any time in

the next eight to eighteen months. If it is the former then

we will have a massive crash on our hands. If it is the

latter (which we suspect it will be) then the bear market

will be more laboured, though not without some very

nasty sell-offs along the way. If the latter is correct then

you can be sure that many market “professionals” will

still be talking of tremendous value in stocks after each

sell-off. They can only decimate their investors

pensions and portfolios along the way, or until they take

a dose of reality. Unfortunately for many that may come

much further down the line, when other shrewd

investors will have been reaping the benefits from

cashing up far far earlier and having already put a large

chunk of that money in gold and silver bullion and

selected gold and silver mining shares.

THE FTSE 350 INDEX IS SIMILARLY BEARISH

The FTSE350 Index has also left two false upward

breaks. For this Index, there is a slightly upward sloping

trading range which captures the 2003 and 2009 lows

and the 2000 and 2007 highs. The red upsloping line

that runs parallel with the upper boundary line marks

the key pivot line, currently around 3400, which equates

to the 6000 level on the FTSE100 Index. The target

from the first failed break was this 3400 region which

has been met. A rally attempt has been underway, but

this too should soon give way to a fresh downward leg.

Our target is the 2100 area, on the lower boundary line

of the multi-decade trading range.

On the next page we show a long term chart of the

German DAX Index.


The German DAX Index broke over its 2000 and 2007

highs and unlike the FTSE100 Index continues to trade

above them. However, this is very misleading as the six

year bull market from the March 2009 low can be

clearly be identified as a completed elliott wave five

wave structure. That strongly indicates that a three wave

decline should follow. While we note that the 13 and 34

month moving averages have yet to give a sell signal,

the MACD and stochastic indicators have. Also, note

that the fifth and final wave that peaked over 12,000 was

a classic elliott wave throw over above the trend line

that connected the top of waves one and three. In

essence a false upward break as the Index is now back

beneath that line, and in fact reversed down from it at

the end of last year after a corrective rally in October

and November 2015.

The level to watch is the horizontal red line that

connects the 2000 and 2007 highs around 8170. A break

under there, which looks likely, will open up a target

back down to the 2009 low around 3590.

UPDATE ON THE WEBSITE

The loading of fundamental content continues to take up

a lot of time to build the website but this is nearing the

end and will be very useful for those who wish to know

important information relevant to each of the gold and

silver mining shares that we will be following in depth.

Such information includes company descriptions,

location of mines, geographical, political and economic

information that each company operates in. Five year

financial information including revenue, production,

attributable earnings, eps, dividends, all in sustaining

costs, cash/debt position. We also identify those that

hedge and those that don’t. Rankings for AISC’s and

AISC margins over average gold price received, plus

production growth, reserves and resources, expansion

and exploration plans, life of mines, quality of

management, history of delivering on production

guidance and mine development. We will also show

relevant information to gold and silver itself, including

central bank holdings, Dow/gold ratio, gold/silver ratio

etc. Importantly we will provide frequent detailed

technical analysis of individual gold and silver shares,

utilizing candlestick charts, elliott wave where there is

a clear wave count, Fibonacci retracements and

projections plus the conventional forms of technical

analysis such as trends, patterns, gaps, moving

averages, MACD, RSI, and stochastics.

DISCLAIMER

Gold-Silver-Shares Markets expresses our views and

opinions on precious metals, shares and other financial

markets and are subject to change without notice. Trading or

investing in stocks or any other financial market carries a high

degree of risk and it is possible that an investor may lose part

or all of their investment. The information in this newsletter

is expressed in good faith, but is not guaranteed. A market

service that is completely accurate100% of the time does not

exist. Please ask your broker or investment advisor to explain

the risks involved before making any trading and investing

decisions.

Documents

1 February 2016 DAVID KERLY'S GOLD-SILVER-SHARES and MARKETS