Market Fundamentals

Market fundamentals have begun to engage GBN.V stock, but this is happening in just about in anything that was overloaded with sell side interest and had not moved.

Sell side brokers will have had to fold their tent and get out of their position before the end of year, their money making trades are very likely topped out.

The problem now is that sell side interest firmly convinced that gold is going to crash will not have changed their stance on GBN.V shares, even though we clearly have a higher low and their positions are under water. In addition, the risk is for a higher gold price going forward.

Money market rates in Canada are down a couple of points, while corporate rates are up a few points. Not huge, but should this situation deteriorate and corporate rates widen with money market rates, we should see some very motived buyers of GBN.V stock. I think this should also attract a fair amount of buy side interest. I speculate that we should see ~90¢ in the stock in January if I'm correct. I'll believe it when I see it.

Think of it this way. The stock market is one huge bucket shop where buyers of stock are actually buyers of IOUs, the seller of IOUs, selling millions of shares over a period of years they do not first own, will take the money you give them and bet it on something else. Once they're done with their bet, they come back and buy out their outstanding sell-side interest.

The money goes over to buy-side interest probably in performing shares in the exact same sector, while your stock price languishes under very heavy bear raids. So if you had invested, for example, in Brett Resources and were confused as to why it was so chronically undervalued for so long, that money probably went into Osisko shares, or futures/derivatives markets or large cap golds or what-have-you. Anything that moved. All perfectly legal in Canada, and basically the way markets work. But people treat that notion as some sort of taboo secret with a freak mask rictus on it. No way of predicting which way the balance of buy-side/sell-side interest will change in any stock, though you have to have your fundamentals correct and wait it out. Bear in mind also that we are in a long term bear market for equities on an inflation-adjusted basis. It all changes with a widening of credit spreads.

The widening of credit spreads could be represented by a decline in the discount rate, as we are a mere few points off the zero bound. A decline of the discount rate into the red will touch off a rolling landslide. No telling where the top in the market here is, its all just top-calling until it happens. The $IRX is one very contorted market, so no predicting that either.

http://slopeofhope.com/2011/01/capitulation-vs-complacency.html

GBN.V shares should be the direct beneficiary of this downdraft, as the shares performed during the May 6 flash crash. I believe also, that gold bullion will be the direct beneficiary of the same into the new year. Still looking for a $1500 gold price average for Q1.

The daily chart expresses this whole notion very well with the discount rate and the volatility index overlaid.

Of course, the share price could crash badly along with the equity markets, taking it down to the 200-day MA, but I prefer to be a little more optimistic than that.

supersize: http://www.flickr.com/photos/11747277@N07/5315838239/sizes/l/in/photostream/

stockcharts.com

Conclusion: Rise in gold, the onset of volatility, and the widening of credit spreads will likely drive the stock price.

-F6