Latest Data from INK Show A Huge Surge in Insider Buying

As our friends at INK Research in Canada have pointed out to us, insiders at gold companies have made use of the recent sell-off in the sector to load up on shares to an extent not seen in many years.

 

gold rush copyImage source: bidness etc

 

The INK insider buy/sell indicator for gold stocks has peaked just one day after China’s initial devaluation announcement at nearly 1,200%:

 

1-INK GoldINK’s gold insider sentiment indicator surges to a new multi-year high

 

What precisely does this indicator measure? Here is the explanation provided by INK:

 

“The indicator represents companies with buy only transactions divided by companies with sell only transactions of direct ownership equity securities in the public market by officers and directors (exclusive of officers and directors of subsidiaries) filed over the last 30 or 60 days. When the indicator is at 100% there are the same number of stocks with buying versus selling. At 50%, there are two stocks with selling for every one with buying. A rising indicator suggests that insiders are seeing more value opportunities emerge, while a falling indicator implies that insiders are acting in a way that suggests value is getting harder to find. An indicator peak can signal that a meaningful bottom in valuations has taken place.”

 

When we have previously reported on notable increases in gold insider buying over the past two or three years, short term rallies often (but not always) tended to ensue shortly thereafter. While none of the rallies that have followed on the heels of jumps in insider buying in this time period have proved sustainable so far, it is worth noting that insider buying has really gone “off the chart” this time around.

 

What Insiders Know

With respect to buying by insiders in a sector in which producers have very little or no control over the price of their product, one needs to keep a few things in mind. Insiders in the gold sector usually have no special insights into future gold price trends (there are a few exceptions). In fact, quite often their estimates of the extent or direction of future moves in the gold price turn out to be wrong.

 

2-Gold, 25 yearsSpot gold over the past 25 years – click to enlarge.

 

For instance, most gold mine managers appeared to consistently underestimate the extent of the gold price rally from 2000-2011, and have conversely frequently underestimated gold’s downside potential since the 2011 peak, at least initially. In the meantime this has changed again; although there is only anecdotal evidence available, our impression is that most managers are “hunkering down” and trying to ensure that their companies will survive even lower gold prices. Those who are bullish meanwhile have only very modest price targets. For instance, Goldcorp CEO Ian Telfer, who is still bullish, recently said:

 

“Right now we think $1,300 gold is something that you could depend on going forward.”

 

Obviously, $1,300 is not exactly a rah-rah bullish gold price forecast. A little over three years ago, this would still have been a bearish forecast actually. So what do insiders at gold companies actually know? Is there any value in following their activities?

One thing corporate insiders are definitely aware of is whether their companies’ shares are undervalued or overvalued relative to current gold prices. It is rare that insiders in this sector buy a lot of shares in the open market, so when they do it is a sign that there must be a quite sizable gap between market valuations and what they believe to be fair value.

 

3-Gold-HUI ratioThe ratio of the gold price to the HUI index since 1998 – currently gold stocks are valued at an even lower level relative to gold than at the low in 2000 – click to enlarge.

 

Another thing many managers of gold companies may be aware of are short term trends in physical demand in the major gold importing regions. Outsiders can look at discounts or premiums paid for bullion in places like India or Shanghai, or also on the premiums and discounts at which futures contracts trade relative to spot gold (as regularly reported by Keith Weiner in these pages).

Mainly though one has to assume that insiders in the gold sector base decisions on whether to buy or sell shares in their own companies in the open market on their estimates of the value of their deposits and their estimates of future extraction costs. Obviously they have only limited influence on the latter as well, but on this front they are at least able to exercise some control.

Lastly, managers in the extractive industries have historically actually been quite astute with respect to picking good spots for buying their own companies’ shares – especially with a view toward long term performance. This is to say that they will often make purchases quite early – as they obviously base them on insights most market participants don’t have yet (this is after all why the shares are cheap enough to induce them to buy in the first place).

In short, following their lead is quite likely to pay off, but will require some patience. We remember having observed this in the oil and gas upstream business prior to the big rally in these stocks in the early to mid 2000ds.

 

Conclusion

We have even more reason now to adopt a constructive stance with respect to the gold sector. In this case the indicator isn’t a short term one, but at the current juncture it actually happens to coincide with a number of positive short term signals. Obviously the patience of value investors in this sector has already been tried rather severely. Keep in mind though that once prices do rise, they are likely to quickly make up lost ground and will probably deliver a comparatively outsized return in a fairly short time.

A fairly recent example illustrating the value of exercising patience has been provided by Japan’s Nikkei Index. Anyone buying Japanese shares based on value considerations between 2009 and 2012 was consistently disappointed by market action. However, while no returns could be achieved in those years, the index subsequently proceeded to deliver extremely large returns (obviously, one had to hedge the yen to fully participate, but even unhedged portfolios haven’t done too badly). A compound return of more than 200% over six years is nothing to be sneezed at, even if the first three years delivered a return not far from zero.

 

4-NikkeiThe Nikkei Index, 2005-2015. Buying value in 2009-2012 required patience, but eventually it turned out to have been worth the wait – click to enlarge.

 

Charts by: INK Research, StockCharts, BigCharts, BarChart

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • US Financial Markets – Alarm Bells are Ringing
      A Shift in Expectations When discussing the outlook for so-called “risk assets”, i.e., mainly stocks and corporate bonds (particularly low-grade bonds) and their counterparts on the “safe haven” end of the spectrum (such as gold and government bonds with strong ratings), one has to consider different time frames and the indicators applicable to these time frames. Since Donald Trump's election victory, there have been sizable moves in stocks, gold and treasury bonds, as the election...
  • Modi’s Great Leap Forward
      India’s Currency Ban – Part VIII India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender. Linked are Part-I, Part-II, Part-III, Part-IV, Part-V, Part-VI and Part-VII, which provide updates on the demonetization saga and how Modi is acting as a catalyst to hasten the rapid degradation of India and what remains of its institutions.   India’s Pride and Joy   Indians are...
  • Global Recession and Other Visions for 2017
      Conjuring Up Visions Today’s a day for considering new hopes, new dreams, and new hallucinations.  The New Year is here, after all.  Now is the time to turn over a new leaf and start afresh. Naturally, 2017 will be the year you get exactly what’s coming to you. Both good and bad.  But what else will happen?   Image of a recently discarded vision... Image by Michael Del Mundo   Here we begin by closing our eyes and slowing our breath.  We let our mind...
  • The Great El Monte Public Pension Swindle
      Nowhere City California There are places in Southern California where, although the sun always shines, they haven’t seen a ray of light for over 50-years.  There’s a no man’s land of urban blight along Interstate 10, from East Los Angeles through the San Gabriel Valley, where cities you’ve never heard of and would never go to, are jumbled together like shipping containers on Terminal Island.  El Monte, California, is one of those places.   Advice dispensed on Interstate...
  • A Trade Deal Trump Cannot Improve
      Worst in Class BALTIMORE – People can believe whatever they want. But sooner or later, real life intervenes. We just like to see the looks on their faces when it does. By that measure, 2017 may be our best year ever. Rarely have so many people believed so many impossible things.   Alice laughed. "There's no use trying," she said: "one can't believe impossible things." "I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for...
  • Pope Francis Now International Monetary Guru
      Neo-Marxist Pope Francis Argues for Global Central Bank As the new year dawns, it seems the current occupant of St. Peter’s Chair will take on a new function which is outside the purview of the office that the Divine Founder of his institution had clearly mandated.   Neo-Papist transmogrification. We highly recommend the economic thought of one of Francis' storied predecessors, John Paul II, which we have written about on previous occasions. In “A Tale of Two Popes” and...
  • Where’s the Outrage?
      Blind to Crony Socialism Whenever a failed CEO is fired with a cushy payoff, the outrage is swift and voluminous.  The liberal press usually misrepresents this as a hypocritical “jobs for the boys” program within the capitalist class.  In reality, the payoffs are almost always contractual obligations, often for deferred compensation, that the companies vigorously try to avoid.  Believe me.  I’ve been on both sides of this kind of dispute (except, of course, for the “failed”...
  • Trump’s Trade Catastrophe?
      “Trade Cheaters” It is worse than “voodoo economics,” says former Treasury Secretary Larry Summers. It is the “economic equivalent of creationism.” Wait a minute -  Larry Summers is wrong about almost everything. Could he be right about this?   Larry Summers, the man who is usually wrong about almost everything. As we have always argued, the economy is much safer when he sleeps, so his tendency to fall asleep on all sorts of occasions should definitely be welcomed....
  • Trump’s Plan to Close the Trade Deficit with China
      Rags to Riches Jack Ma is an amiable fellow.  Back in 1994, while visiting the United States he decided to give that newfangled internet thing a whirl.  At a moment of peak inspiration, he executed his first search engine request by typing in the word beer.   Jack Ma, founder and CEO of Alibaba, China's largest e-commerce firm. Once he was a school teacher, but it turned out that he had enormous entrepreneurial talent and that the world of wheelers, dealers, movers and...
  • Side Notes, January 14 - Red Flags Over Goldman Sachs
      Red Flags Over Goldman Sachs Just to prove that I am an even-handed insulter, here is a rant about my former employer, Goldman Sachs. The scandal at 1MDB, the Malaysian sovereign wealth fund from which it appears that billions were stolen by politicians all the way up to the Prime Minister, continues to unfold.   The main players in the 1MDB scandal. Irony alert: apparently money siphoned off from 1MDB was used to inter alia finance Martin Scorcese's movie “The Wolf of...
  • Money Creation and the Boom-Bust Cycle
      A Difference of Opinions In his various writings, Murray Rothbard argued that in a free market economy that operates on a gold standard, the creation of credit that is not fully backed up by gold (fractional-reserve banking) sets in motion the menace of the boom-bust cycle. In his The Case for 100 Percent Gold Dollar Rothbard wrote:   I therefore advocate as the soundest monetary system and the only one fully compatible with the free market and with the absence of force or fraud...
  • Silver’s Got Fundamentals - Precious Metals Supply-Demand Report
      Supply-Demand Fundamentals Improve Noticeably Last week was another short week, due to the New Year holiday. We look forward to getting back to our regularly scheduled market action.   Photo via thedailycoin.org   The prices of both metals moved up again this week. Something very noticeable is occurring in the supply and demand fundamentals. We will give an update on that, but first, here’s the graph of the metals’ prices.   Prices of gold and silver...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com