The Phaserl


Do Gold Mining Stock Prices Follow Cycles?

by Argentus Maximus, TF Metals Report:

Usually when I write in this blog, I try to look at some aspect of the gold market, or silver market, in which I have expertise, and at the same time that thing, or fact or theory is not well known or talked about among the readers of the blog. In short I attempt to bring something fresh to the table of discourse on the subject of gold investing.

This week I considered mining stocks. There are many other people who talk or write about mining stocks, so I appreciate that adding information on this is entering a crowded space. One way to freshen things up is to bring some market history into the conversation. History has a tendency to repeat from time to time, and somehow surprise everybody when it does so. But not all that many mining companies have a long history what with the limited lifespan of their mines, takeovers, mergers and so on.

Newmont Mining is an exception though. It was founded in 1921 (wikipedia says 1916 but I take Newmont’s own date of 1921 ) by William Boyce Thompson and consequently, this year Newmont is 96 years old. My first encounter with this stock came about 1989 when Corporate Raider billionaire Jimmy Goldsmith – using a stake generated from swopping ownership of Cavenham Forest (the 5th largest timber corporation in the US) tried to take Newmont over and break it up for resale as parts. Newmont resisted and survived these attacks. It also fended off unwanted advances from Consolidated Goldfields, Hanson Industries and T Boone Pickens about that time.

Newmont is big. I thinks it’s the second biggest gold producer, after Barrick Gold Corp, and it’s the only gold mining company included in the S&P 500 Index. Last quarter Q1 2017 it produced 1.23 million ounces of gold.

The above attempts to take ownership of Newmont took place during the nineteen year long 1980’s gold bear market following the gold price high during 1980. Newmont is a stock that billionaires have historically become attracted to when it was down after a general gold bullion market decline.

This long history and large capitalization means there is liquidity in the stock of Newmont. Liquidity is something I look for when beginning to analyze a financial asset. Liquidity is one of the glues that hold cycles together, and cycles is one thing I look for.

Are there cycles in the price of Newmont? Let’s see what I can find.

Here is Newmont relative to the HUI Index:

That’s three and a half years of outperformance there. This is one to watch.

So what if any cycles did I find? I decided to look for larger swings first. So I chose a monthly timeframe.

This is using a double logarithmic plot. And it looks cyclical, doesn’t it?

If you count along either the highs or lows in the above chart it becomes apparent that, for the last thirty years or thereabouts, Newmont has made highs to highs and lows to lows from seven to nine years apart.

So I ran an algorithm to test for such cycles. In monthly 7 to 9 years would be 84 to 108 months. The results were disappointing. There are not many repetitions of such long cycles, I have data since 1983, and as a result the cycles had not built up a strong track record. Also the length keeps changing from 7 to 8 sometimes to 9 and so on. So reliability is a problem.

So to get around this I looked for smaller nested sub cycles that might add up build into to a 7-9 year “parent” wave and this is what I found:

Length of Hypothetical cycles in months:

5.64, 6.79, 12.52, 17.79, 68,98, 72.60

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