In a press release after the close of trading on Thursday 14th January, B2Gold (BTG, BTO.TO) used the word “record” eleven times to describe its own performance for the December quarter and for all of 2015. It was “record” full-year and quarterly production, “record” sales, another “record” year, “record” this and “record” that. With all these records you could be forgiven for not noticing that annual production came in below the bottom of the company’s guidance range.

Maybe it’s a character flaw of mine, but I think that before the management of a mining company runs victory laps and gives itself big pats on the back for having achieved record results, it should at least reach the bottom end of its own forecast.

At the other end of the scale we have Endeavour Mining (EDV.TO), which also reported “record” annual production after the close of trading on Thursday. One difference is that EDV’s “record” production was comfortably above the top of the company’s guidance range. Another difference is that EDV only used the word “record” once in its press release — in the context of “outstanding health and safety record”.

Here is a picture of the difference between putting out press releases that make it seem as if you are doing a good job and actually doing a good job.

I consider the gold/GYX ratio (the price of gold relative to the price of a basket of industrial metals) to be the ultimate boom-bust indicator. With monotonous regularity, the gold price trends downward relative to the prices of industrial metals during the boom periods and upward relative to the prices of industrial metals during the ensuing busts. Not surprisingly, given economic reality, in addition to being an excellent boom-bust indicator the relative performances of gold and the industrial metals is also an excellent indicator of general (societal) time preference.

Time preference is the value placed on consumption in the present relative to future consumption. In particular, rising time preference involves an increase in the desire to buy consumer goods in the present and, by extension, a decrease in the desire to save or make long-term investments, while falling time preference involves a growing desire to put-off current consumption in order to save or make long-term investments. As an aside, interest rates naturally stem from time preference in that all else being equal — which it often isn’t — people will prefer getting an item now to getting the same item at some future time. For example, even if there is no credit risk, a dollar in the hand today will always have a higher value than the promise of a dollar in the future. The greater perceived value of the present good relative to the future good can be expressed as an interest rate.

Major trends in time preference go hand-in-hand with the boom-bust cycle. During booms fueled by monetary inflation people temporarily feel richer and spend more freely, largely because debt is cheap and easy to come by. This means that booms are accompanied by rising time preference (a greater eagerness to consume). During the ensuing busts, the mistakes and recklessness of the preceding boom come to light. There is a general “pulling in of horns” as the focus turns to the repairing of balance sheets and the building-up of cash reserves. This means that busts are accompanied by falling time preference (a greater desire to save).

Gold is no longer money, in that it is no longer commonly used as a medium of exchange. However, it is widely viewed as a safe and liquid financial asset, rather than a commodity to be consumed. This causes it to perform similarly, relative to other metals, to how it would perform if it were money. In particular, during a period when there’s a general increase in the desire to immediately consume and a concomitant reduction in the desire to hold cash in reserve (a period of rising time preference), the gold price will trend downward relative to the prices of most other metals. And during a period when there’s a general increase in the desire to hold cash in reserve (a period of falling time preference), the gold price will trend upward relative to the prices of most other metals.

In other words, periods of rising time preference are indicated by rising trends in the GYX/gold ratio and periods of falling time preference are indicated by falling trends in the GYX/gold ratio.

On the following chart of the GYX/gold ratio, the periods when the ratio was in a rising trend are shaded in yellow. If you think back to what was happening during these periods you should (hopefully) realise that they were, indeed, periods when societal time preference was rising. Recall how caution was ‘thrown to the wind’ during the NASDAQ bubble of 1999-2000, the real-estate bubble of 2003-2006, the emerging-markets and commodity bubbles of 2009-2010, and the QE-promoted debt bubbles of 2013-2014.

Also, if you think back to what was happening during the unshaded parts of the chart you should realise that these were periods when societal time preference was falling — when investments were revealed as ill-conceived, debts were revealed as unsupportable, and people throughout the economy were collectively spending less in an effort to save more.

The most recent downturn in societal time preference appears to have been set in motion by the bursting of the shale-oil investment bubble. Many people (not including me) thought that the large decline in the oil price would turn out to be a major plus for the US economy. Just like a tax cut, they claimed. It was actually a negative, though, because substantial debt-funded investments had been predicated on the oil price remaining high.

As to how long the current trend will continue, a lot will depend on whether or not the stock market’s cyclical bullish trend is over. If it is over, which it probably is, then the GYX/gold ratio will continue to fall for at least another 12 months.

The final point I’ll make is that in a free economy that didn’t have a central bank, trends in societal time preference would tend to be more gradual and neither a rising nor a falling time preference would be a problem to be reckoned with. Instead, trends in time preference would influence interest rates throughout the economy in such a way as to provide valid and useful signals to businesses and investors.

The Gold BUGS Index (HUI) dropped sharply on Monday 11th January, but managed to hold above its 50-day and 20-day moving averages by the barest of margins. It therefore hasn’t yet fallen by enough to signal an end to the rebound that began on 17th November.

However, while the HUI is hanging on by the skin of its teeth, several high-profile gold-mining stocks have already broken out to the downside. For example:

1. Despite offering excellent value, KGC clearly broke below support on Monday and appears to be heading for a test of its September low.

2. B2Gold (BTG) broke out to the downside last Friday and extended its decline on Monday. It does not yet offer great value and the recent downside breakout projects significant additional weakness prior to a sustained bottom, but it sure looks ‘oversold’.

3. Royal Gold (RGLD), one of the world’s lowest risk and highest-quality gold stocks, made a new bear-market low on Monday. The price action suggests that the stock is on its way to $30, but the risk/reward is very attractive at $35 or lower.

4. Newmont Mining (NEM) plunged below the bottom of a 3-month price channel on Monday and appears to be heading for a test of its September low.

With the US$ gold price having broken above resistance at $1088 last week and having held above its breakout level during the pullback of the past two trading days, why has the gold-mining sector been so weak?

I think it’s mainly because of what’s happened to non-gold mining stocks. As illustrated below, the Diversified Metals and Mining Index (SPTMN) has fallen by about 20% over the past 5 trading days and plunged to a new bear-market low on Monday 11th January. The gold-mining sector is certainly capable of bucking a general downward trend in mining stocks, but it would take a lot of strength in the gold price to offset the downward pull caused by the sort of general mining collapse seen over the past few days.

One of the most ridiculous arguments in favour of a rising stock market is that there is a large amount of cash on the sidelines. Regardless of the stock market’s actual prospects, this argument will always be complete nonsense.

The reason is that all of the cash in the economy — every single dollar of it — is always effectively on the sidelines, because money must always be held by someone. Money never goes into any market; it just gets shuffled around between the bank accounts of buyers and sellers. For example, when Bill buys Microsoft shares from Bob, no money goes into Microsoft or into the stock market. What happens is that money gets transferred from Bill (the buyer) to Bob (the seller), with the total amount of money on the ‘sidelines’ and the total amount of money in the economy remaining unchanged. It’s the same story with every other transaction involving the use of money to buy something. It’s amazing that you can become the chief executive or the chief investment officer of a company with billions of dollars under management and not understand this basic monetary concept.

The fact is that the amount of cash on the sidelines at any time is simply a function of the preceding amount of monetary inflation. If the money supply has grown then the amount of “cash on the sidelines” will have grown by the same amount. A consequence is that the amount of cash on the sidelines grows almost every year, regardless of whether the stock market rises or falls. For example, the amount of cash on the sidelines in the US was a lot higher just prior to the 2008 market collapse than it was three year’s earlier and the amount of cash on the sidelines will almost certainly be at a new all-time high a year from now irrespective of what happens to the stock market in the meantime.

So, equity permabulls, stop insulting my intelligence by telling me that stock prices will be supported by the record amount of “cash on the sidelines”.