The U.S. stock market continues to implode. At the same time, precious metals, bitcoin, and the Indian stock market are acting as superb safe havens.
Please click here now. Double-click to enlarge this great short term gold chart.
Note the positive bounce from buy-side support at $1237, and the inverse H&S bottom pattern. A fresh rate hike from the Fed tomorrow could crush the stock market again, but if there’s no rate hike, that could also crash the stock market.
That’s because money managers would believe the Fed thinks the supposed “world growth leader” economy is too weak to handle even a 2.5% Fed funds rate!
This Fed meeting could be an important catalyst that makes institutional money managers start to get serious about viewing gold as a respected asset class… that is here to stay.
On that note, please click here now. While an overdue import duty cut remains elusive, the citizens of India (and China) are the clear leaders in the quest to make gold the world’s most respected asset class.
On the government side, the Chinese government has been a leader in building gold market infrastructure to move price discovery from the dingy trading rooms of the Western fear trade to the more positive love trade environment of the East.
The Indian government is beginning to play “catch-up”, and that’s very good news for gold investors around the world.
Please click here now. There are currently about 400 million Indians who have internet access, and that is expected to double to 800 million quite quickly.
The World Gold Council (WGC) estimates that 3 million Indians buy gold online, and they predict that number will soon quintuple to 15 million!
In 2014 I predicted a “gold bull era” was being born and it would be founded on a gargantuan ramp-up in Chindian online gold demand.
Indians can already get physical delivery from most of the online platforms when total purchases reach just one gram of online-purchased gold.
Warren Buffett is buying into one of the platforms (Paytm). This man is an elephant hunter!
Please click here now. Double-click to enlarge this magnificent big picture gold chart.
An almost surreal array of positive love trade and inflation trade price drivers are converging at the same time.
This is happening as gold bullion begins a majestic ascent from the right shoulder low of a gargantuan inverse head and shoulders bull continuation pattern.
Sadly, to view something much less than majestic, please click here now. Double-click to enlarge. My proprietary “Graceland Traffic Light” on the weekly Dow chart has just turned amber.
This is a rare and ominous event. U.S. stock market investors who ignore these major traffic light signals risk tremendous portfolio damage.
If the signal stays amber as of Friday’s close, I’ll consider it a full U.S. stock market sell signal, and any positions bought above the Dow 10,000 level should be sold.
In global stock market downturns like the current one, Canadian money managers will throw the junior mining stocks baby out with the stock market bathwater.
Most of the smaller junior miners trade on the Canadian CDNX exchange, so it’s very important for all gold market investors to be properly diversified in what is obviously the world’s greatest asset class. Junior mining stock investors should own some of the bigger miners to get that diversification.
Please click here now. Double-click to enlarge this spectacular GDX chart. GDX put in another day of strong upside action yesterday, and it did so as the Dow fell almost 500 points!
On Saturday I urged my gublockchain.com subscribers to buy bitcoin (and some “alts”)… right before the latest upside blast that I predicted would be “explosive”. It was explosive, and I have the excited investors in profit booking mode now.
I’ll boldly predict that a few more daily closes above $20.50 are going to produce an equally explosive price surge for GDX and a huge array of individual gold stocks!
Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Juniors With The Juice!” report. While most junior miners have a lot of hurdles to overcome, I highlight six that are likely poised for five bagger gains in 2019! I include daily chart buy and sell points for each stock.
Stewart Thomson
Graceland Updates
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
If we want to know where Gold is going we should follow Gold. Right?
How about following gold stocks? At times, they lead Gold.
What about the U.S. Dollar? Wrong!
In 2019, one market more than any other will impact Gold.
That is the stock market.
History argues (within the current context) that when the Federal Reserve ends its rate hikes, Gold’s downtrend will be over and when the Fed cuts rates, the bull market shall begin.
Fed policy is dictated by economic data and financial conditions which of course can be reflected by the stock market, which is also a reflection of corporate profits.
Extended weakness in the stock market should bring the Fed that much closer to rate cuts. However, if the stock market is able to mount a decent counter trend rally in 2019, it could raise the possibility of another hike. Right now, the market expects no hikes in 2019 and even half of a quarter point cut in 2020.
Other than the cyclical bull market of 1985 through 1987, Gold has never enjoyed a real bull market without outperforming the stock market.
Below we plot Gold and Gold against the broad stock market (NYSE). Gold is still trading below a confluence of resistance ($1260-$1270) and the Gold to stock market ratio, while trading above its 200-day moving average has not broken out of its downtrend yet.
As we pen this, the stock market is breaking lower but Gold is also down and remains below a confluence of resistance at $1260-$1270/oz.
Is our thesis wrong?
The current weakness in equities has not completely changed Fed policy yet. Sure, the weakness in the equity market definitely could cause the Fed to pause its rate hikes and the market has already discounted that for 2019.
However, for the bull market in Gold to be ignited the Fed needs to move from a pause to the start of rate cuts. The current talk is about a pause, not rate cuts.
Hence, Gold is catching a bid and starting to perform better in real terms but has not reached bull market status yet.
The beleaguered gold stocks are recovering from their late-summer capitulation, enjoying a solid young upleg as investors gradually return. Their buying has pushed the leading gold-stock ETF near a major triple breakout technically. That event should really boost capital inflows into this sector, accelerating the rally. A major gold and gold-stock buying catalyst is likely imminent too, a more-dovish Fed this week.
The gold miners’ stocks have always been a small contrarian sector, a little-watched corner of the stock markets. But they’ve been even more unpopular than usual in recent months. That pessimistic sentiment is driven by price action, which has mostly proven poor in 2018. That’s really evident in the performance of the flagship gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF which is struggling.
As of the middle of this week, GDX was down 12.0% year-to-date. That leveraged gold’s YTD decline of 4.4% by 2.7x, which is perfectly normal. Because gold-stock earnings are heavily dependent on prevailing gold levels, gold-stock prices tend to amplify gold’s moves by 2x to 3x. That’s a double-edged sword, really profitable when gold rallies but cutting deeply when it retreats. The drawdowns are challenging to weather.
But gold stocks’ inherent leverage to gold is starting to work again on the upside, portending big gains ahead. This first chart looks at the major gold stocks’ technicals through the lens of GDX over the past several years. This sector soared in a new bull market, plunged with gold after Trump’s surprise election win goosed the stock markets, consolidated sideways to base, and then suffered an extreme capitulation selloff.
Investors and speculators often forget how explosive gold-stock upside is when gold is powering higher in an upleg. In largely the first half of 2016, GDX skyrocketed 151.2% higher in just 6.4 months! Capital just flooded back into the gold miners driven by a new gold bull’s parallel 29.9% upleg. That catapulted GDX to very-overbought levels and a 3.3-year high in mid-2016. So a normal correction got underway soon after.
GDX found support at its critical 200-day moving average, which is often the strongest support zone seen in ongoing bull markets. But that failed in November 2016 after an anomalous surprise. Trump defied the polling and odds to win the presidency while Republicans controlled both chambers of Congress. So the stock markets soared in that election’s wake on euphoric hopes for big tax cuts soon. Gold wilted on that rally.
So the gold stocks naturally followed it lower, again mirroring and amplifying its price action. After it had enjoyed stellar 5.1x upside leverage to gold in its powerful H1’16 upleg, GDX dropped 39.4% over the next 4.4 months. That leveraged gold’s own correction by 2.3x, relatively low in that usual 2x-to-3x range. GDX soon bounced sharply with gold and established a new consolidation trading range between $21 to $25.
The major gold stocks mostly meandered within that GDX range for 21.5 months. While it was vexing at times to see upside-breakout attempts fail, basing consolidations are very bullish. They provide time for bullish newer investors to acquire shares from bearish exiting ones, establishing new price norms well above previous bear-market lows. And the $23 midpoint of that GDX trading range proved relatively high.
This gold-stock bull was born out of fundamentally-absurd lows of GDX $12.47 in mid-January 2016. It peaked at $31.32 in early August that year. Oscillating around $23 on balance, GDX was basing 4/7ths up into its young bull’s entire range. The major gold stocks GDX holds were biding their time waiting for another major gold upleg to catapult them higher. They nearly broke out above $25 in early-September 2017.
But that attempt’s failure damaged psychology so traders gradually sold, this small contrarian sector left for dead. The subsequent lower highs over the next 10.4 months into mid-July 2018 formed a downward-sloping resistance line. Gold-stock prices were being compressed into a bearish descending triangle, as lower highs slumped ever closer to that major $21 support. This sector really needed a major gold rally.
Unfortunately the opposite happened this past summer, gold got hammered crushing the weakened gold stocks. The US stock markets were powering higher trying to regain record highs in July and August 2018, heavily retarding gold investment demand. On top of that the U.S. Dollar Index was surging too, both on expectations for more Fed rate hikes and an emerging-markets currency crisis led by the Turkish lira.
So gold-futures speculators started short selling gold at extreme record levels, blasting their aggregate downside bets far up into anomalous territory never before witnessed. Gold fell sharply on that record gold-futures shorting spree, dragging the struggling gold stocks down with it. So in early August GDX plunged and knifed through its longstanding $21 support. That major breakdown spawned self-feeding selling.
Gold stocks are an exceptionally-volatile sector not for the faint of heart. So it is essential to run loose trailing stop losses on gold-stock positions. While these protect investors from excessive losses, they greatly exacerbate selloffs. The lower gold stocks fell this past summer, the more stop losses were hit. These mechanical automatic sell orders then add to the downside pressure, pushing gold stocks lower still.
That vicious circle of selling begetting selling snowballed into an extreme capitulation in gold stocks, as GDX plummeted in August and early September. In just 5 weeks GDX collapsed 17.0%, far worse than gold stocks should’ve performed with gold merely slipping 1.4% lower in that span. That devastated already-shaky sentiment, leaving most investors and speculators to throw up their hands in disgust and flee.
But with GDX being pummeled to a deep 2.6-year low, the major gold stocks were wildly oversold. I explained all this in depth in an essay on gold stocks’ forced capitulation in mid-September. They were due to mean revert dramatically higher after that extreme selling anomaly. And that process has indeed been underway ever since. The gold stocks have been recovering, clawing their way out of those deep lows.
As usual gold stocks’ dominant primary driver has been gold, which has been grinding higher in its own young upleg as speculators cover their record gold-futures shorts. Investors started returning too when the lofty US stock markets began rolling over hard in mid-October. As of the middle of this week, GDX just hit a new upleg high of $20.45 on close. That extended gains since the capitulation low to 16.4% in 3.0 months.
Although considerable, the gold stocks’ rally still hasn’t grown large enough to return to the radars of contrarian investors. That could be about to change though as a rare triple breakout looks imminent! GDX, the leading gold-stock investment vehicle, is on the verge of simultaneous upside breakouts from its 3 major upper-resistance zones. That will likely unleash big gold-stock buying from technically-oriented traders.
These major resistance levels have all converged near $21. The first and most important is GDX’s key 200-day moving average, which was $20.78 this week. 200dmas are seen as the dividing line between bull and bear markets. When prices surge back above 200dmas after long periods underneath them, the upside momentum often explodes. Traders love chasing gains and 200dma breakouts portend big ones.
The past few years have several examples of gold stocks surging dramatically after 200dma breakouts. The main one was in early February 2016, when GDX rocketing back over its 200dma after deep lows confirmed a new bull market was underway. The great majority of its initial massive 151.2% upleg came after that 200dma upside breakout. Another upleg surged after a 200dma breakout in mid-August 2017.
The latest one came in late December 2017, although that was truncated early by gold stalling out. Realize that no technical line is more important to traders than 200dmas. When they see major gold stocks power decisively back over their 200dma as measured by GDX, they are likely to rush to buy in to ride the momentum. Like selling, buying begets buying. The more gold stocks rally, the more traders want them.
That imminent 200dma breakout will be all the more potent as a new-upleg signal because 2 other major resistance lines have converged there. That downward-sloping resistance line of the descending triangle has also extended right on $21. So once GDX powers decisively above it, this past year’s vexing trend of lower highs will end. Traders will see that as evidence the major gold-stock trend is reversing to higher.
The final resistance line of that triple breakout is the major $21 support of GDX’s consolidating basing range that held rock solid for over a year-and-a-half. When prices fall, old support zones often become new overhead resistance. Traders tend to want to sell again when those old support levels near. So when GDX decisively breaks back out above $21, technical fears of that former support level will vanish.
Once back over $21, GDX will return to its multi-year consolidation basing trend between $21 to $25. So the triple breakout above that old support line, downward-sloping resistance line, and 200dma would set the stage for a sharp surge back towards the top of that old trading range. While GDX $25 isn’t very high in absolute terms, it’s still another 22.2% above this week’s levels. Such a rally would spark some excitement.
Because historical gold-stock uplegs have been so enormous, generating life-changing wealth, there is always latent gold-stock interest lurking. Contrarian investors and speculators alike sour on gold stocks when they are weak, but quickly return when they show technical signs of life. A GDX triple breakout sure qualifies as that! And much-higher gold-stock prices are certainly justified fundamentally, long overdue.
Gold miners’ earnings and thus ultimately stock prices are largely a function of gold levels. Mining costs are essentially fixed during mine-planning stages. So higher gold prices flow directly through to bottom lines in amplified fashion. This is easy to understand with an example. A month ago I waded through the Q3’18 results of GDX’s major gold miners. Their average all-in sustaining costs weighed in at $877 per ounce.
That is what it costs them to produce and replenish gold, and $877 was right in line with their previous 4 quarters’ average of $867. Those collective costs will remain stable even as gold’s upleg accelerates. At gold’s own extreme-futures-short-selling-driven bottom of $1174 in mid-August, the major gold miners of GDX were still earning about $297 per ounce. Such solid levels prove that capitulation wasn’t righteous.
Last Friday gold hit a new upleg high of $1248, up 6.3% from its anomalous late-summer lows. Imagine this young upleg grows to 30% like the H1’16 one, which is quite small by historical standards. That would leave gold near $1525. At those $877 average GDX AISCs, the major gold miners’ profits would rocket to $648 per ounce. That’s 118% higher on a 30% gold upleg! Big gold-stock upside is fundamentally justified.
The ratio between the closing prices of GDX and the dominant GLD SPDR Gold Shares gold ETF is an easy approximation of the critical fundamental relationship between gold-stock prices and gold levels. This last chart is updated from a mid-October essay where I explained why gold stocks are the last cheap sector in all the stock markets. The GDX/GLD Ratio shows gold stocks have vast room to mean revert higher.
This GGR construct has averaged 0.186x during the 3.0 years of this current gold bull so far. This week the GGR clawed back to 0.174x, hitting its own 200dma. But at the gold stocks’ deep capitulation low in mid-September, the GGR plunged all the way down to 0.155x. That’s 0.031x below normal for this bull. After GGR extremes in either direction, this key ratio tends to mean revert the other way and overshoot proportionally.
That argues GDX is easily likely to surge far enough leveraging gold’s gains to regain a 0.217x GGR. That’s certainly not a high level even in the modest context of this gold bull. At this week’s $1245 gold levels which translated near $118 in GLD terms, GDX would have to surge to $25.56 to accomplish that normal mean-reversion overshoot. That’s another 25.0% higher, which would make for a solid upleg well worth riding.
And that GGR target is still incredibly low in longer secular context. In the 2 years before 2008’s first stock panic in a century, the GGR averaged 0.591x. Though gold stocks plummeted in the extreme fear that panic spawned, the GGR rebounded to average 0.422x in the 2 years after that epic anomaly. Over a longer 4-year post-panic span, it averaged 0.381x. So seeing it regain 0.217x is nothing, it should go far higher.
The bigger gold’s own upleg, the more the gold stocks will outperform by the usual 2x to 3x and force the GGR higher. At $1525 gold after a relatively-small 30% upleg, that 2009-to-2012 post-panic-average GGR of 0.381x would yield a GDX upside target around $55 per share. That’s 169% higher from this week’s levels, even without an overshoot! Gold-stock profits growth from higher gold prices justifies huge gains.
And rather conveniently on the verge of that GDX triple breakout, a major gold-buying catalyst is likely thisweek. On Wednesday December 19th, the Fed’s FOMC meets to decide on whether or not to hike rates for the 9th time in this cycle. That rate hike has been universally expected for months now, it is fully baked in. But the thing gold-futures and dollar-futures traders are really watching is the rate-hike forecast.
While the FOMC meets 8 times per year, at every other meeting it releases something called the dot plot. That summarizes where top Fed officials making the decisions think the federal-funds rate should be in coming years. The last dot plot was published on September 26th when the S&P 500 remained just 0.8% under its all-time record high from a week earlier. Fed officials are boldly hawkish when stocks are high.
But the stock markets soon fell apart in Q4’18, the first in history seeing full-speed quantitative-tightening monetary destruction by the Fed! Various Fed officials including the chairman have waxed more dovish since stocks started sliding. Fearing a negative wealth effect adversely impacting the US economy, their resolve to hike rates withers. So there’s a good chance this week’s dot plot will be more dovish than the last one.
Late September’s had effectively forecast 5 more Fed rate hikes including at next week’s meeting. So if this new dot plot shows less than 4 total rate hikes forecast in 2019 and 2020, dollar-futures speculators will likely sell motivating gold-futures speculators to buy aggressively. Fewer expected rate hikes are very bullish for gold, as proven in past dot plots. A great example was the 5th hike of this cycle in December 2017.
A year ago this week the FOMC hiked, but its dot-plot rate-hike forecast was dovish. Instead of upping it to 4 rate hikes in 2018 as traders expected, Fed officials left it at 3. So over the next 6 weeks, gold shot up 9.2% to $1358 on heavy gold-futures buying by speculators. A similar rally after next week’s meeting if the dot plot forecasts fewer rate hikes than the last one would drive gold right back up near $1360 again.
That’s on the verge of a major bull-market breakout which would likely unleash massive new investment buying. And any material gold rally will light a big fire under the gold stocks, rapidly driving them higher. That would put GDX’s triple breakout in the bag with haste. Nothing drives big capital inflows into the gold stocks faster than seeing them decisively rally. They are perfectly set up for major gains in coming months!
A big mean-reversion rebound higher is inevitable and likely imminent. While traders can play it in GDX, that’s mostly a bet on the largest gold miners with slowing production. The best gains by far will be won in smaller mid-tier and junior gold miners with superior fundamentals. A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation than ETFs dominated by underperformers.
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The bottom line is the gold stocks are nearing a rare triple breakout. Three major GDX resistance zones have converged just above current levels. Once the gold stocks surge decisively over, the technically-oriented traders will take notice. They will likely start chasing the momentum accelerating the gains, with buying begetting buying. And gold stocks are so undervalued big gains are totally justified fundamentally.
This bullish outlook should be really bolstered by this week’s FOMC meeting. Worried about the recent stock-market selloff and surging volatility, top Fed officials are likely to dial back their rate-hike forecasts for next year. That will almost certainly hit the US dollar and goose gold. If gold surges again on a dovish dot plot like it has after other rate hikes in this cycle, the gold stocks will blast higher achieving that triple breakout.
Where are the populist government leaders who are cutting their outrageous government debts?
The answer, unfortunately, is that they do not exist.
Citizens riot in France over insane fuel taxes, central bankers resign in India, markets crash in America, and England’s citizens watch their Brexit turn into an overpriced wet noodle.
None of this fazes the world’s populist leaders. They believe they alone can fix what debt broke… with more debt!
Please click here now. Double-click to enlarge. In the middle of all the mayhem and madness, the uncrowned queen of the world, gold bullion, sits cooler than a cucumber. Gold is showcasing a nice steady uptrend on this medium-term price chart.
Please click here now. Heavyweight analysts at JP Morgan, Goldman, Wells Fargo, and other big banks are bullish on gold now, but many amateur analysts and investors are worried (with some sounding outright terrified) that gold is going lower.
This is a classic wall of worry rally, and I expect the upside price action to accelerate in January and February.
There’s also a real possibility that Trump piles on more destructive tariffs by March. If that happens, it would occur just as Chinese New Year gold buying really accelerates.
In that scenario, gold could surge towards the key $1400 area and the US stock market would likely crash like it did in 1929.
Please click here now. Double-click to enlarge. Investors must keep their eye on the big picture, which is all about the growth of the Chindian love trade and the rise of inflation, especially in the West.
A new pillar of gold bullion demand could also emerge now that India’s populist leader (Modi) has essentially taken control of the nation’s central bank. A fresh survey shows that 90% of Indian households see substantially higher inflation coming in 2019. That survey was done before the nation’s top central banker resigned yesterday!
The world’s populist leaders want interest rates to stop rising so their governments can borrow even more money and waste it on silly “people helper” programs.
Some of the populist leaders want to buy more bombs, some want more welfare programs, but what they all have in common is they want to spend more, and more, and more! This is highly inflationary.
Please click here now. While many amateur gold analysts have talked about their fear of lower prices, I’ve urged investors to focus on the epic upside breakout taking place on the world’s most important gold mining company. That company is: Barrick.
Junior gold and silver stock enthusiasts can expect to see their stocks begin to follow the Barrick leader. It’s already happening with many of the CDNX-listed stocks, and this morning’s pre-market “super surge” in Barrick’s price is going to start the next major wave higher for most of the junior miners.
What seals the deal? Answer: A weekly close above $14 for Barrick. I expect it to happen this week and investors who waste time reading the fears of the gold bears risk missing out on years of upside price action. The bottom line:
This is not the start of a gold bull market. It’s the start of a bull era that will last a hundred years.
I’ve predicted three U.S. rate hikes for 2019. Goldman was predicting four, but yesterday their chief economist Jay Hatzius reduced his forecast to three.
We’re on the same page now, with both of us predicting three hikes, a surprising rise in U.S. inflation, and GDP growth that fades under the 2% marker by the second half of 2019.
Ray Dalio is head of the world’s largest hedge fund (Bridgewater). Ray predicts an “inflationary depression” will envelop America within about two years. I think it takes three to four years, but given the danger, does the time frame really matter? The timing of a hurricane doesn’t change the fact that people need to get out of its way.
On that note, please click here now. Just as most big bank analysts are positive about gold now, they have increasingly negative forecasts for the U.S. dollar.
The policies of the world’s “spendaholic” populist leaders are extremely inflationary. The bank analysts know that’s bad news for dollar bugs and great news for gold stock investors.
Please click here now. Double-click to enlarge this magnificent GDX price chart. My short term guswinger.com swing trading service has caught all the key swings in the GDX base formation, reducing boredom while making investors richer! I focus on NUGT and DUST for the short term moves and unleveraged GDX for the home run plays!
We booked solid profits yesterday as GDX edged towards the important $20.50 price zone. After a brief pitstop at this minor resistance zone, the GDX bull is poised to drive its golden horns into the bears… and begin a magnificent charge up to $23.50!
Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Golden Outperformers” report. I highlight six GDXJ component stocks that are poised to immediately follow Barrick with major upside breakouts of their own! I highlight key technical signals and provide tactics to help investors book great profits.
Stewart Thomson
Graceland Updates
Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
In recent days we’ve seen the beginnings of an inversion in the yield curve.
The 2-year yield and the 5-year yield have inverted but not yet the the 2-year yield and the 10-year yield, the curve that is watched most. However, “2s and 10s” as bond traders would say appear headed for an inversion very soon.
We know that an inversion of the yield curve precedes a recession and bear market. That is good for Gold. But timing is important and the key word is precedes.
In order to analyze the consequences for Gold we should consult history.
First let’s take a look at the 1950-1980 period.
In the chart below we plot the Barron’s Gold Mining Index (BGMI), Gold, the Fed funds rate (FFR) and the difference between the 10-year yield and the FFR (as a proxy for the yield curve).
The six vertical lines highlight peaks in the FFR and troughs in the yield curve (YC), which begins to steepen when the market discounts the start of rate cuts. A steepening YC is and has been bullish for Gold except when it’s preceded by inflation or a big run in Gold.
Note that five of the six lines also mark a recession except in 1966-1967.
At present, the yield curve is on the cusp of inverting for only the third time since 1990.
The previous two inversions in 2000 and 2007 were soon followed by a steepening curve as the market sensed a shift in Fed policy.
The initial rate cut in 2000 marked an epic low in the gold stocks and the start of Gold strongly outperforming the stock market. In summer of 2007 the rate cuts began and precious metals embarked on another impulsive advance.
The historical inversions carry a different context but the takeaways are not so different.
Aside from the mid 1970s to the early 1980s, we find that a steepening of the curve (which accelerates from the start of Fed rate cuts) is bullish for precious metals. (This also includes a steepening in late 1984 that preceded the bull market in the mid 1980s).
With that said, the inversion itself is not bullish for precious metals because there can be a lag from then to the first rate cut and steepening of the curve.
I took a careful look at four of the previous inversions and counted the time from that point to the next significant low in gold stocks. The average and median time of those four is 10 months.
That appears to be inline with my thinking that the Federal Reserve’s final rate hike will be sometime in 2019.
The recent stock-market selloff is persisting, fueling mounting worries among investors. The intensifying volatility and lack of a quick rebound higher is strangling euphoric sentiment, spawning self-reinforcing selling pressure. Scoffed at a few months ago, the notions that a young bear market is underway and a recession looms are gaining traction. The great beneficiary of this ominous stock-market downturn will be gold.
Gold has always been an essential asset class for prudently diversifying investment portfolios. Uniquely it tends to rally when stock markets weaken, offsetting some of the losses in typical stock-heavy portfolios. Gold acts like portfolio insurance, usually soaring when stock markets plunge on unforeseen news. All throughout history, wise investors have recommended everyone have 5% to 10% of their portfolios in gold.
But like insurance in general, the important role gold plays in portfolios is gradually forgotten when it isn’t needed. Just a few months ago, the U.S. stock markets seemed invincible. The flagship S&P 500 broad-market stock index (SPX) had powered 333.2% higher over 9.5 years by late September. That made for the 2nd-largest and 1st-longest stock bull in U.S. history! Investors were convinced that would last indefinitely.
The SPX had surged 9.6% year-to-date by that latest peak, while gold had slumped 7.3%. Thus investors felt no need to allocate virtually any capital to gold, they were and are radically underinvested in it. This is especially true of American stock investors, who were wildly optimistic after long years of big stock-market gains. Their effective portfolio exposure to gold was vanishingly small back in late September.
The 500 elite stocks of the SPX had an extreme collective market capitalization way up at $26,141.4b as that topping month waned. It is interesting contrasting that with the physical gold bullion holdings of the world’s dominant gold exchange-traded fund, the American GLD SPDR Gold Shares. GLD has long been the go-to destination for American stock investors looking to allocate capital for gold exposure in their portfolios.
At the end of September as stock euphoria peaked, GLD’s total holdings were merely worth $28.4b. That implies American stock investors were running trivial gold allocations around 0.11%! That’s on the order of only 1/50th the minimum 5% that’s been universally advised for centuries if not millennia. So it’s not much of a stretch to argue American stock investors had zero gold exposure, they were effectively all-out.
The sharp stock-market selloff in the few months since those halcyon all-time record highs has surprised most, but it shouldn’t have. As Q4’18 dawned, something ominous happened that was unprecedented in stock-market history. The US Federal Reserve upped its quantitative-tightening campaign necessary to start unwinding its $3625b of quantitative-easing money creation over 6.7 years to its terminal velocity.
October 2018 would be the first month ever to see the Fed’s monetary destruction ramp to a staggering $50b-per-month pace. And even to unwind just half of the Fed’s radical QE, QT would have to keep on destroying $50b per month of QE-conjured money for 30 months! At the end of September when the SPX was just 0.6% off its all-time record high, I explained all this in depth warning it was this bull’s death knell.
And indeed within a week of Fed QT going full-throttle, the SPX started to slide. There was no way QE-levitated stock markets could ignore QT obliterating that QE money. Every daily selloff since had its own unique story and specific drivers, which I discussed and analyzed in our subscription newsletters. These all added up to enough selling to spawn an ongoing stock-market correction, an SPX selloff exceeding 10%.
Blame it on Fed QT, stock-market bubble valuations, mounting US-China trade-war threats, Republicans losing the House, or whatever you want, but by Black Friday the SPX had fallen 10.2% over 2.1 months since that euphoric record peak. The stock markets staged some sharp rallies within that span, but they quickly fizzled proving to be dead-cat bounces. This recent action is ominously looking very bear-market like.
We can’t know for sure whether the long-overdue new bear market driven by epic record Fed tightening is indeed upon us until the SPX falls 20%+ on a closing basis. This recent correction would still have to double to hit that bear-market threshold. But gold has certainly been the main beneficiary of the recent stock-market weakness. Investors are starting to remember the ages-old wisdom of diversifying into gold.
This week’s chart looks at the US-dollar gold price superimposed over the SPX during the past 4 years or so. Despite gold being forgotten in recent years as the stock markets surged ever higher, it remains in a young bull market. And that was spawned by the last set of back-to-back corrections in the SPX, which catapulted gold sharply higher. We’re likely on the verge of another stock-selloff-driven major gold upleg!
GLD’s physical-gold-bullion holdings held in trust for its shareholders reveal how American stock investors feel about gold. This past spring they started slumping as gold was sold to move even more capital into the lofty US stock markets. For 5 months in a row ending in September, GLD’s holdings retreated as investors dumped GLD shares faster than gold was falling. By early October GLD’s holdings hit a 2.6-year low.
I penned a whole essay on this stock-euphoria-driven gold exodus in late September, explaining why it was happening and why it was likely to soon reverse. And that shift in gold-investment sentiment began the very day the SPX started plunging in mid-October! Up until October 9th the stock markets looked totally normal, the SPX had only drifted a trivial 1.7% lower from its peak. Everyone remained wildly bullish.
But something snapped on October 10th, that fateful day the SPX plunged 3.3% out of the blue on no catalyst at all. Heavy technically-motivated selling accelerated led by the market-darling mega tech stocks. For years investors had believed them bulletproof, their businesses so good they could weather any stock selloff or economic slowdown. Fears surged on the worst SPX down day since back in early February.
That very day American stock investors started returning to gold. They poured capital into GLD shares so aggressively they forced a major 1.2% holdings build. GLD’s mission is to track the gold price, but it has its own supply-and-demand profile independent from gold’s. So when GLD shares are being purchased faster than gold is bought, GLD’s share price threatens to decouple to the upside on that excess demand.
So GLD’s managers must vent that differential buying pressure directly into the physical gold market in order to equalize it and maintain tracking. They do this by issuing enough new GLD shares to satisfy all the excess demand, and then plow the cash proceeds into gold bullion. Thus rising GLD holdings show American stock-market capital is flowing into gold. That proved to be GLD’s biggest build in 6.7 months.
That fateful day proved a major inflection point for both near-record US stock markets and the extremely-unpopular gold. As the SPX continued to weaken over the next couple months, GLD continued to enjoy modest builds on investment gold buying. By late November GLD’s holdings had climbed a considerable 4.5% over 6 weeks. That has helped push gold 5.5% higher since its mid-August lows, a solid young upleg.
Odds are that gold buying via GLD by American stock investors is only beginning. The longer this stock-market weakness persists, the deeper their worries will grow. And the more their stock-heavy portfolios bleed, the quicker they will remember they should’ve allocated 5% to 10% to gold. Once gold investment demand is kindled by falling stock markets, it tends to balloon dramatically and take on a life of its own.
Gold’s young bull market today that was forgotten this summer began as 2016 dawned. Much like this year, in the first half of 2015 the US stock markets were powering to dazzling new record highs. Since it seemed like stocks could do nothing but rally indefinitely, gold was forgotten and shunned. It slumped to a brutal 6.1-year secular low by mid-December 2015, with investors really wanting nothing to do with it.
But their ironclad euphoria started to crack soon after the stock markets corrected. In mid-2015 the SPX finally suffered its first correction in an incredibly-extreme 3.6 yearsafter being levitated by relentless Fed money creation from its third quantitative-easing campaign. Gold caught a bid on that 12.4% SPX selloff over 3.2 months, but then faded again into the expected first Fed rate hike in 9.5 years in mid-December.
Then the SPX fell into another 13.3% correction over 3.3 months into early 2016. Seeing menacing back-to-back corrections after long years without one really deflated gold-suppressing stock-market euphoria. So in early 2016 American stock investors began prudently rediversifying their stock-dominated portfolios into gold. That birthed today’s gold bull, and the gold-buying momentum fed on itself to drive a powerful upleg.
Gold went from being left for dead in mid-December 2015 to surging 29.9% higher in just 6.7 months solely on American stock investors returning! This is no generalization, the hard numbers prove it without a doubt. The world’s best gold fundamental supply-and-demand data comes from the venerable World Gold Council. It releases fantastic quarterly reports detailing the global buying and selling happening in gold.
Gold blasted higher on SPX weakness in Q1’16 and Q2’16. According to the latest data from the WGC, total world gold demand climbed 188.1 and 123.5 metric tons year-over-year in those key quarters. That was up 17.1% and 13.2% YoY respectively! But the real stunner is exactly where those major demand boosts came from. It wasn’t from jewelry buying, central-bank buying, or even physical bar-and-coin investment.
In Q1’16 and Q2’16, GLD’s holdings alone soared 176.9t and 130.8t higher on American stock investors redeploying into gold after back-to-back SPX corrections. Incredibly this one leading gold ETF accounted for a staggering 94% of overall global gold demand growth in Q1’16 and 106% in Q2’16! So there’s no doubt without American stock investors fleeing into gold via GLD this gold bull never would’ve been born.
Gold was holding those sharp gains throughout 2016 until Trump’s surprise presidential victory unleashed a monster stock-market run on hopes for big tax cuts soon. Gold was pummeled in Q4’16 as American stock investors pulled capital back out to chase the newly-soaring SPX. That quarter total global gold demand per the WGC fell 103.4t YoY or 9.0%. GLD’s 125.8t Q4’16 holdings draw accounted for 122% of that!
Gold’s fortunes are being driven by American stock investors’ collective buying and selling of GLD shares. And nothing motivates them to redeploy capital into gold to diversify their stock-heavy portfolios like major SPX selloffs. Recent months’ one has already proven serious enough to rekindle differential GLD-share buying. And as H1’16 proved, once investors start driving gold higher its rallies tend to become self-feeding.
The more physical gold bullion American stock investors buy via GLD shares, the more gold climbs. The higher gold rallies, the more investors want to buy it to ride the momentum and chase its gains. So buying begets buying, driving gold higher fairly rapidly. And when stock markets are sliding, gold is often the only asset class rallying. That makes it even more attractive to investors getting pounded by sliding stocks.
This latest SPX correction is even more damaging to sentiment because it is 2018’s second one. Back in early February the SPX plunged 10.2% in 0.4 months, which started to crack sentiment. Back when this gold bull was born it was the second of back-to-back SPX corrections that proved the coup de grâce in hurting stock-market sentiment enough to unleash a reallocation into gold. This scenario is playing out again.
Provocatively seeing the three major US stock indexes suffer two 10%+ corrections within any single calendar year is itself a super-bearish omen. 2018 joined 1973, 1974, 1987, 2000, 2001, 2002, and 2008 as the SPX’s only other dual-correction years. Those coincided with a 48.2% SPX bear, a 20.5% single-day SPX crash, another 49.1% SPX bear, and a third 56.8% SPX bear! All three bears triggered recessions.
This stock-market weakness isn’t only likely to persist, but the odds really favor it snowballing into another major SPX bear market. Gold investment demand will naturally surge as stocks burn, fueling a strong bull market. Gold’s 29.9% gain over 6.7 months at best so far in this bull is nothing. Gold’s last secular bull from April 2001 to August 2011 saw it soar 638.2% higher! Gold’s gains as the SPX rolls over should be massive.
With a trivial 0.1% portfolio allocation to gold, what happens to gold prices if American stock investors just return to a still-immaterial 1.0%? That’s still way under the 5% to 10% recommended in normal times, and plenty of great investors believe 20% gold allocations are necessary during stock bears. Gold’s upside from here with virtually-zero US-stock-market capital allocated to it is vast. And it could accelerate rather fast.
The timing of this current SPX correction is likely to magnify bearish psychology. It has occurred entirely within Q4’18. The SPX exited Q3’18 just 0.6% off its record peak from a week earlier. So I suspect a lot of American retirement investors have no idea just how much carnage their precious capital has suffered. When they get their quarterly statements from their money managers in January, they could really freak out.
Even worse, far too much of this retirement capital was allocated to the market-darling mega techs which were the biggest holdings across most funds. Their losses have far outpaced the SPX’s. As of that latest correction low on Black Friday when the SPX was down 10.2%, Apple, Amazon, Microsoft, Alphabet, Facebook, and Netflix had collapsed 25.8%, 26.4%, 10.8%, 19.9%, 39.4%, and 38.2% from their all-time highs!
The mega techs that nearly single-handedly pushed the SPX higher for years averaged 26.8% losses, or 2.6x the SPX’s! When investors who don’t closely follow the stock markets figure that out next month, the investment demand for rallying gold ought to explode. The first half of 2019 has a setup much like H1’16, where gold essentially powered 30% higher. A similar upleg from mid-August’s lows isn’t a stretch at all.
Another 30% run from $1174 would leave gold at $1525. And once gold climbs decisively back over its bull-to-date high of $1365 from early-July 2016, investment interest and demand will soar. Just like the mega tech stocks, the higher gold prices the more investors want to buy it. A mere 16% gold upleg off August’s lows, or another 10% higher from this week’s levels, would near that psychologically-huge bull breakout!
All investors should always have 5% to 10% of their investable capital allocated to gold. But almost none do today as a long-overdue bear market fueled by epic record Fed QT looms. If you don’t have that core gold allocation, you need to get it in place before stocks fall much farther and gold surges much higher. The gold miners’ stocks will greatly leverage gold’s gains too, their leading index soared 182.2% largely in H1’16!
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The bottom line is this stock selloff is boosting gold. Flagging gold investment demand turned on a dime when the stock markets started plunging in mid-October. Gold has rallied on balance since as American stock investors start redeploying capital. Their buying alone via GLD shares was fully responsible for gold’s sharp 30% upleg in 2016’s first half. That followed the last back-to-back corrections in US stock markets.
And between record Fed tightening running full-throttle, continuing dangerous bubble valuations, and the mounting trade wars, this recent stock selling is likely to persist on balance. So gold investment will look far more attractive. Coming from virtually-zero gold portfolio allocations, investors have massive buying to do. The higher they push gold, the more other investors will chase it. Especially as US stock markets weaken.
The double bottom is the world’s most stressful chart pattern. It forms after a significant price decline. The first low in the pattern creates substantial panic and fear in most investors.
The second low in the pattern is “softer”, but no less dangerous to emotionally vulnerable investors. The volume is generally weak and the price action makes investors feel like they are in some kind of financial gulag.
Then the sun bursts out from behind those financial clouds, and glorious upside action begins! On that fabulous note, please click here now. Double-click to enlarge the spectacular price action on this daily gold chart.
The long term fundamentals and liquidity flows for gold should never be confused with the medium or short term. In the long term, the biggest driver of gold price appreciation is the Chindian “wealth effect”.
It’s all about Chinese and Indian citizens growing their standard of living and buying ever-more gold to celebrate the good times.
In the West, inflation is the most potent driver of the gold price and America is beginning an enormous inflation cycle that will likely continue for fifteen to twenty years.
As Chindians bring respect to gold as an asset class, Western gold bugs won’t need to hide in the closet when they buy it because everybody will be able to get it online from companies like Amazon.
It will be as mundane as buying a coffee at Starbucks is now, but much more profitable!
In a nutshell, the love trade of three billion Chindians combined with the inflation trade of at least 500 million Westerners will soon completely restore gold’s shimmer and place as the ultimate asset.
Please click here now. Double-click to enlarge. All investors should keep their eye on the price action taking place on this long term gold chart. Note the RSI oscillator. It’s poised to leap above 50 and that’s in sync with the arrival of Chinese New Year seasonality.
Some heavyweight money managers believe that an inflationary surprise is coming to America, and it could happen as early as this Friday’s jobs report.
On that very interesting note, please click here now. Double-click to enlarge. A surprising uptick in US wage inflation is imminent and it will be a tremendous tail wind for silver’s upside price action. I don’t know if that inflationary surprise happens in Friday’s jobs report or not, but I do want investors to be positioned to get richer if it occurs!
In the short term precious metals market, I might be shorting GDX via DUST (although the good news is that I currently hold NUGT), but that has nothing to do with the fabulous long term fundamentals in play for the entire precious metals market.
At my short term guswinger.com trading service the average NUGT/DUST or UDOW/SDOW trade lasts only a week or two. I increased my average trade size threefold yesterday… to enhance the adrenaline rush and the profits, with professionally managed risk. Investors should always separate trading accounts from long term core position investing accounts. They are as different as night and day.
Please click here now. Jay Powell had to “blink” with rate hikes and so did Donald Trump with tariff taxes or the U.S. stock market would have incinerated yesterday. So, when Trump “supersized” Powell’s blink with his tariffs blink, the US stock market rocketed higher and I promptly sold half my UDOW swing trade position as the market opened. From there, the rally faded. Pros sold the news.
In the big picture, I think most stock market bulls and bears are working a bit too hard to predict either “make my stock market great” higher prices or the end of the bull market.
It’s simply later in the U.S. business cycle now than it was a year ago, and it will be even later as 2019 gets underway. As the cycle matures, volatility typically grows and that makes analysts a bit desperate about trying to figure out what comes next.
Reality check: What comes next is vastly much wilder price action than has occurred at any point in this bull market! That’s just what happens as earnings fade and inflation rises in an environment of debt worship.
Please click here now. Whether it’s the U.S. government’s maniacal obsession with debt growth and citizen extortion via income and capital gains taxation, the emergence of wage inflation, the negative effect of quantitative tightening on corporate stock buyback programs, or the inverting yield curve, what matters is that it’s all happening in the late stage of the business cycle. Price volatility is poised to go “off the charts” in 2019 as these forces intensify dramatically and synergistically.
Stock market investors should not waste time trying to figure out what comes next. There’s only one course of obvious tactical action for long term U.S. stock market investors, and that is: Reduce trade size now!
With the daily gold chart looking spectacular, what can gold stock investors expect? Well, for 2018 I’ve predicted that the “tax loss selling” of the past few years will be confined mainly to the tiny CDNX-listed juniors. GDX, GDXJ, and SIL and their component stocks are in great shape and poised to join gold in a “shotgun” move higher for the medium term.
Please click here now. Double-click to enlarge this GDX daily chart. GDX is sporting dual inverse head and shoulders patterns.
From a technical perspective, GDX can be viewed as a sports car with twin technical turbos that is revving its engine now. GDX appears poised to rise to the minor highs around $20.50, and then race straight to my $23.50 target zone!
There could be some wild volatility around Friday’s jobs report and the December 19 Fed meeting, but the dual H&S patterns are a powerful technical force to be reckoned with. When both the short term technicals and the long term fabulous fundamentals are weighed carefully, most gold stock investors should be in great spirits and ready for the upside journey of a lifetime!
Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Back Up The Golden Truck!” report. I highlight six under the radar junior gold stocks that could stage five bagger gains or more in 2019. I include key buy and sell signals for each stock!
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
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December 3, 2018
The junior gold miners’ stocks have spent recent months mostly languishing near major multi-year lows. That spawned a sentiment wasteland riddled by bearishness and bereft of bids. But these companies’ battered stock prices aren’t fundamentally righteous, as proven yet again by their latest earnings season. Faring far better in a challenging third quarter than stock prices imply, they need to mean revert way higher.
Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Companies trading in the States are required to file 10-Qs with the U.S. Securities and Exchange Commission by 40 calendar days after quarter-ends. Canadian companies have similar requirements at 45 days. In other countries with half-year reporting, many companies still partially report quarterly.
The definitive list of elite “junior” gold stocks to analyze comes from the world’s most-popular junior-gold-stock investment vehicle. Mid-month the GDXJ VanEck Vectors Junior Gold Miners ETF reported $4.1b in net assets. Among all gold-stock ETFs, that was second only to GDX’s $9.0b. That is GDXJ’s big-brother ETF that includes larger major gold miners. GDXJ’s popularity testifies to the great allure of juniors.
Unfortunately this fame created serious problems for GDXJ a couple years ago, resulting in a stealthy major mission change. This ETF is quite literally the victim of its own success. GDXJ grew so large in the first half of 2016 as gold stocks soared in a massive upleg that it risked running afoul of Canadian securities laws. And most of the world’s smaller gold miners and explorers trade on Canadian stock exchanges.
Since Canada is the centre of the junior-gold universe, any ETF seeking to own this sector will have to be heavily invested there. But once any investor including an ETF buys up a 20%+ stake in any Canadian stock, it is legally deemed to be a takeover offer that must be extended to all shareholders! As capital flooded into GDXJ in 2016 to gain junior-gold exposure, its ownership in smaller components soared near 20%.
Obviously hundreds of thousands of investors buying shares in an ETF have no intention of taking over gold-mining companies, no matter how big their collective stakes. That’s a totally-different scenario than a single corporate investor buying 20%+. GDXJ’s managers should’ve lobbied Canadian regulators and lawmakers to exempt ETFs from that 20% takeover rule. But instead they chose an inferior, easier fix.
Since GDXJ’s issuer controls the junior-gold-stock index underlying its ETF, it simply chose to unilaterally redefine what junior gold miners are. It rejiggered its index to fill GDXJ’s ranks with larger mid-tier gold miners, while greatly demoting true smaller junior gold miners in terms of their ETF weightings. This controversial move defying long decades of convention was done quietly behind the scenes to avoid backlash.
There’s no formal definition of a junior gold miner, which gives cover to GDXJ’s managers pushing the limits. Major gold miners are generally those that produce over 1m ounces of gold annually. For decades juniors were considered to be sub-200k-ounce producers. So 300k ounces per year is a very-generous threshold. Anything between 300k to 1m ounces annually is in the mid-tier realm, where GDXJ now traffics.
That high 300k-ounce-per-year junior cutoff translates into 75k ounces per quarter. Following the end of the gold miners’ Q3’18 earnings season in mid-November, I dug into the top 34 GDXJ components’ results. That’s simply an arbitrary number that fits neatly into the tables below. Although GDXJ included a staggering 70 component stocks mid-month, the top 34 accounted for a commanding 82.9% of its total weighting.
Out of these top 34 GDXJ companies, only 3 primary gold miners met that sub-75k-ounce-per-quarter qualification to be a junior gold miner! Their quarterly production is rendered in blue below, and they collectively accounted for just 3.8% of this ETF’s total weighting. GDXJ is inarguably now a pure mid-tier gold-miner ETF, not a junior one. But its holdings include the world’s best gold miners with huge upside potential.
I’ve been doing these deep quarterly dives into GDXJ’s top components for years now. In Q3 2018, fully 31 of the top 34 GDXJ components were also GDX components! These are separate and distinct ETFs, a “Gold Miners ETF” and a “Junior Gold Miners ETF”. So they shouldn’t have to own many of the same companies. In the tables below I highlighted the symbols of rare GDXJ components not also in GDX in yellow.
These 31 GDX components accounted for 79.2% of GDXJ’s total weighting, not just its top 34. They also represented 31.7% of GDX’s total weighting. Thus nearly 4/5ths of this “Junior Gold Miners ETF” is made up by nearly 1/3rd of the major “Gold Miners ETF”! These GDXJ components also in GDX are clustered from the 11th- to 30th-highest weightings in that latter larger ETF. GDXJ is mostly smaller GDX stocks.
In a welcome change from GDXJ’s vast component turmoil of recent years, only 4 of its top 34 stocks are new since Q3 2017. Their symbols are highlighted in light blue below. Thus the top GDXJ components’ collective results are finally getting comparable again in year-over-year terms. Analyzing ETFs is much easier if their larger components aren’t constantly in flux. Hopefully changes going forward are relatively minor.
Despite all this, GDXJ remains the leading “junior-gold” benchmark. So every quarter I wade through tons of data from its top components’ latest results, and dump it into a big spreadsheet for analysis. The highlights make it into these tables. Most of these top 34 GDXJ gold miners trade in the US and Canada, where comprehensive quarterly reporting is required by regulators. But others trade in Australia and the UK.
In these countries and most of the rest of the world, regulators only mandate that companies report their results in half-year increments. Most do still issue quarterly production reports, but don’t release financial statements. There are wide variations in reporting styles, data presented, and release timing. So blank fields in these tables mean a company hadn’t reported that particular data for Q3 2018 as of mid-November.
The first couple columns of these tables show each GDXJ component’s symbol and weighting within this ETF as of mid-November. While just over half of these stocks trade on US exchanges, the other symbols are listings from companies’ primary foreign stock exchanges. That’s followed by each gold miner’s Q3’18 production in ounces, which is mostly in pure-gold terms excluding byproduct metals often found in gold ore.
Those are usually silver and base metals like copper, which are valuable. They are sold to offset some of the considerable costs of gold mining, lowering per-ounce costs and thus raising overall profitability. In cases where companies didn’t separate out gold and lumped all production into gold-equivalent ounces, those GEOs are included instead. Then production’s absolute year-over-year change from Q3’17 is shown.
Next comes gold miners’ most-important fundamental data for investors, cash costs and all-in sustaining costs per ounce mined. The latter directly drives profitability which ultimately determines stock prices. These key costs are also followed by YoY changes. Last but not least the annual changes are shown in operating cash flows generated, hard GAAP earnings, sales, and cash on hand with a couple exceptions.
Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers. So in those cases I included raw underlying data rather than weird or misleading percentage changes. This whole dataset together offers a fantastic high-level read on how the mid-tier gold miners as an industry are faring fundamentally. They actually did relatively well in Q3.
While this new mid-tier GDXJ is generally excellent, some decisions by its managers are utterly baffling. Out of all the world’s gold miners they could’ve added over this past year, they inexplicably decided on the giant largely-African AngloGold Ashanti. It produced an enormous 851k ounces of gold last quarter, the largest in GDXJ by far. It and the rest of the South African majors definitely don’t belong in GDXJ!
Remember that major-gold-miner threshold has long been 1m+ ounces per year. AU’s production is annualizing to well over 3x that, making this company the world’s 3rd-largest gold miner last quarter. Why on earth would managers running a “Junior Gold Miners ETF” even consider AngloGold Ashanti? It is as far from junior-dom as gold miners get. The same is true with the rest of the troubled South African gold miners.
AU, Gold Fields, Harmony Gold, and Sibanye-Stillwater mined 851k, 533k, 379k, and 309k ounces in Q3’18, all are majors. Yet they accounted for 13.1% of GDXJ’s total weighting. They are riddled with all kinds of problems too, from shrinking production to high costs to increasing stealth expropriations from South Africa’s openly-Marxist anti-white-investor government. Their inclusion heavily skews and taints GDXJ.
These South African majors’ Q3 production of 2.1m ounces was a whopping 41% of the GDXJ top 34’s total! And it still fell 7.0% YoY due to South Africa’s tragic death spiral. Excluding them and the amazing Kirkland Lake Gold which has grown so fast it was moved exclusively into GDX over this past year, the rest of the GDXJ top 34 grew production 3.4% YoY in Q3. The South African majors’ cost impact is even worse.
Mining in that country is very expensive thanks to very-old very-deep mines and endless new government interference via stifling regulations. In Q3 the South African majors’ cash and all-in sustaining costs came in really high averaging $925 and $1088 per ounce. The rest of GDXJ’s top 34 averaged $629 and $877, a massive 32.0% and 19.4% lower! The South African majors are really retarding GDXJ’s performance.
As struggling majors far larger than mid-tiers and juniors, they need to get kicked out of GDXJ posthaste. They can be left in GDX where they belong. AU effectively took KL’s place, which makes no sense at all fundamentally. Kirkland Lake produced 180k ounces of gold in Q3 at $351 cash costs and $645 AISCs. So unlike AU, KL remains solidly in the mid-tier realm and has been performing incredibly well operationally.
While GDXJ’s managers really dropped the ball including those South African majors, they deserve big praise for upping the weighting of the outstanding Australian miners. They are Northern Star Resources, Evolution Mining, Regis Resources, St Barbara, and Saracen Mineral. Their collective weighting in GDXJ grew to 21.7% at the end of Q3’s earnings season, nearly 2/3rds higher from their 13.3% a year earlier.
Unlike AU’s dumbfounding inclusion, the Australians’ rise is well-deserved. Their production surged 8.9% YoY to 686k ounces, or 23% of the GDXJ top 34’s total excluding those South African majors. And the Australian miners are masters at developing great gold deposits and controlling costs, as their cash costs and AISCs in Q3 averaged just $586 and $724! It’s fantastic GDXJ offers American investors this Aussie exposure.
GDXJ’s component list and weightings are a work in progress, and are gradually getting better. For years I’ve pointed out things like the South African majors that weren’t right, and GDXJ’s managers eventually seem to come around and change things for the better. Greatly helping that process is investors buying the better individual stocks like KL and shunning laggards like AU, readjusting their relative market capitalizations.
GDXJ and GDX are essentially market-cap weighted, with larger companies rightfully commanding larger weightings. These leading gold-stock ETFs’ managers can override this by deciding which gold miners to include in each ETF. So they can easily purge GDXJ of the deteriorating South African majors and add real mid-tier gold miners. But the true core problem is having so many of the same stocks in GDX and GDXJ.
Such massive overlap between these two ETFs is a huge lost opportunity for VanEck. It owns and manages GDX, GDXJ, and even the MVIS indexing company that decides exactly which gold stocks are included in each. With one company in total control, there’s no need for any overlap in the underlying companies of what should be two very-different gold-stock ETFs. Inclusion ought to be mutually-exclusive.
VanEck could greatly increase the utility of its gold-stock ETFs and thus their ultimate success by starting with one big combined list of the world’s better gold miners. Then it could take the top 20 or 25 in terms of annual gold production and assign them to GDX. Based on Q3’18 production, that would run down near 139k or 93k ounces per quarter. Then the next-largest 40 or 50 gold miners could be assigned to GDXJ.
Getting smaller gold miners back into GDXJ would be a huge boon for the junior-gold-mining industry. Most investors naturally assume this “Junior Gold Miners ETF” owns junior gold miners, which is where they are trying to allocate their capital. But since most of GDXJ’s funds are instead diverted into much-larger mid-tiers and even some majors, the juniors are effectively being starved of capital intended for them.
That’s one of the big reasons smaller gold miners’ stock prices are so darned low. They aren’t getting enough capital inflows from gold-stock-ETF investing. So their share prices aren’t bid higher. They rely on issuing shares to finance their exploration projects and mine builds. But when their stock prices are down in the dumps, that is heavily dilutive. So GDXJ is strangling the very industry its investors want to own!
Back to these mid-tier gold miners’ Q3’18 results, production is the best place to start since that is the lifeblood of the entire gold-mining industry. These top 34 GDXJ gold miners that had specifically reported Q3 production as of mid-November produced 5063k ounces. That surged by a massive 18.8% YoY, implying these miners are thriving. But that is heavily distorted by that huge 851k-ounce boost from AU’s addition.
Without the world’s 3rd-largest gold miner, the rest of the GDXJ top 34 saw their production slip 1.2% YoY to 4212k ounces. That reflected the peak-gold challenges the gold-mining industry is facing, as I discussed a couple weeks ago while reviewing the GDX majors’ Q3’18 results. The GDXJ top 34 are still outperforming the GDX top 34, which saw their gold production retreat 2.9% YoY in Q3 bucking historical trends.
Sequentially quarter-on-quarter from Q2’18 the GDXJ top 34’s production surged a dramatic 13.3%! And AU was already one of GDXJ’s top components then. That partially came from new mines ramping up at the world’s best mid-tier gold miners. It is far easier for them to grow production off lower bases than it is for the majors off high bases. That’s a key reason why the mid-tiers’ upside potential trounces that of the majors.
For all GDXJ’s faults, it does still offer investors exposure to much-smaller gold miners. The average quarterly production of all the top 34 GDXJ miners reporting it in Q3 was 163.3k ounces. That is 43% smaller than the 288.8k averaged by the top 34 GDX miners last quarter. And again AU’s crazy inclusion really skews this. Ex-AU, the GDXJ average falls to 140.4k. Without all the South African majors, it is 110.8k.
These annualize to 562k and 443k, both solidly in the mid-tier realm. Analyzing GDXJ’s production and costs requires breaking out those heavily-distorting South African majors that have no place in a mid-tier gold-miner ETF. Again their production fell 7.0% YoY in Q3, while the rest of the GDXJ top 34’s ex-KL grew 3.4%! Production and costs tend to be proportionally inversely related because of how mining works.
Gold-mining costs are largely fixed quarter after quarter, with actual mining requiring the same levels of infrastructure, equipment, and employees. The tonnage throughputs of the mills that process the gold-bearing ore are also fixed. So gold produced varies with ore grades each quarter. The more gold that is recovered, the more ounces to spread gold mining’s big fixed costs across. That lowers per-ounce costs.
There are two major ways to measure gold-mining costs, classic cash costs per ounce and the superior all-in sustaining costs per ounce. Both are useful metrics. Cash costs are the acid test of gold-miner survivability in lower-gold-price environments, revealing the worst-case gold levels necessary to keep the mines running. All-in sustaining costs show where gold needs to trade to maintain current mining tempos indefinitely.
Cash costs naturally encompass all cash expenses necessary to produce each ounce of gold, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses. In Q3’18, the overall cash costs of the GDXJ top 34 surged 8.4% higher YoY to $663 per ounce. That was still largely in line with the past four quarters’ $612, $618, $692, and $631 averaging $638.
But that sharp jump was mostly the result of the South African majors’ deepening troubles. Again their average cash costs last quarter were a whopping $925! Without them, the rest of the GDXJ top 34 averaged $629 per ounce which was only up 2.8% YoY and below the rolling-four-quarter mean. So the mid-tier gold miners of GDXJ are holding the line on cash costs, a sign their operations are fundamentally sound.
Way more important than cash costs are the far-superior all-in sustaining costs. They were introduced by the World Gold Council in June 2013 to give investors a much-better understanding of what it really costs to maintain gold mines as ongoing concerns. AISCs include all direct cash costs, but then add on everything else that is necessary to maintain and replenish operations at current gold-production levels.
These additional expenses include exploration for new gold to mine to replace depleting deposits, mine-development and construction expenses, remediation, and mine reclamation. They also include the corporate-level administration expenses necessary to oversee gold mines. All-in sustaining costs are the most-important gold-mining cost metric by far for investors, revealing gold miners’ true operating profitability.
The GDXJ top 34 reported average AISCs of $911 in Q3, up 3.8% YoY. But like cash costs, this was roughly in line with the $877, $855, $923, and $886 seen in the past four quarters. But again that was skewed quite a bit higher by those wrongly-included South African majors, which reported $1088 average AISCs in Q3. The rest of the top 34 averaged $877, which is actually better than the $885 four-quarter average.
So the South African majors are really tainting GDXJ’s collective operational performance, with lower production and higher costs dragging down this entire ETF. Those giant struggling gold producers are an albatross around the neck of the many great mid-tier gold miners in GDXJ! If you are a GDXJ investor, contact VanEck and urge them to boot the South African majors out of GDXJ to help it thrive going forward.
Gold-mining earnings are simply the difference between prevailing gold prices and all-in sustaining costs. And both sides of this equation moved the wrong way in Q3, squeezing the mid-tier gold miners’ profits. Q3’18’s average gold price of $1211 was 5.3% lower than Q3’17’s. And with overall GDXJ top 34 AISCs 3.8% higher at $911, that really cut into margins. These gold miners were collectively earning $300 per ounce.
That implied solid 25% profit margins absolutely, which aren’t bad. But they still plunged 25.4% YoY from Q3’17’s $402 per ounce, which amplified gold’s decline by 4.8x. But gold-mining profits leverage to gold is exactly why the gold stocks make such compelling investments. Gold stocks were weak in Q3 because gold was pounded to a deep 19.3-month low in mid-August on extreme all-time-record gold-futures short selling.
Left for dead and neglected, the gold miners’ stocks are the last cheap sector in these lofty bubble-valued stock markets. Their fundamental upside as gold mean reverts higher on speculators’ gold-futures buying and new investment demand as stock markets roll over is enormous. This is easy to understand with a simple example. In the last four quarters including Q3’18, the top 34 GDXJ gold miners’ AISCs averaged $894.
During gold’s last major upleg in essentially the first half of 2016, it powered about 30% higher driven by surging investment demand after stock markets suffered back-to-back corrections. That was even small by historical gold-bull-upleg standards. If we merely get another 30% gold advance from its recent mid-August low of $1174, we’re looking at $1525 gold. That would work wonders for gold-mining profits and stock prices.
At $1525 gold and $894 AISCs, the mid-tier gold miners would be earning $631 per ounce. That’s 110% higher than Q3’18’s $300! If gold-mining profits double, gold-stock prices will soar. Indeed during that last 30% gold bull in the first half of 2016, GDXJ rocketed 203% higher! So the gold-stock outlook is wildly bullish with gold itself due to power higher as the stock markets roll over on the Fed’s record tightening.
The rest of the top 34 GDXJ gold miners’ fundamentals were mixed last quarter. Cash flows generated from operations totaled $1.3b in Q3, down 21.2% YoY. That’s reasonable given average gold’s 5.3% YoY retreat and their leverage to it. Cash on hand remained high at $5.4b, down just 5.3% YoY. So these mid-tier gold miners have plenty of capital to build and buy new mines to continue growing their production.
Revenues only slipped 0.4% YoY to $4.1b, which means the softer gold prices were largely offset by higher production. But GAAP profits looked like a disaster, with the GDXJ top 34’s plummeting to a $379m loss in Q3’18 from being $212m in the black in Q3’17! That was far worse than the lower gold prices warranted, but thankfully it was mostly the result of big non-cash charges flushed through income statements.
Tahoe Resources reported a massive $170m impairment charge on its suspended Escobal silver mine that is being held hostage by the corrupt Guatemalan government. Yamana Gold wrote off $89m after selling a mine in Argentina. Explorer NOVAGOLD reported an $81m loss from discontinued operations on the sale of one of its projects. These three unusual items alone wiped out $340m of profits from GDXJ’s ranks.
Without them, the top 34 GDXJ gold miners’ earnings would’ve fallen to -$39m from +$212m. That isn’t great, but it doesn’t reveal any serious issues a rising gold price won’t quickly solve. Interestingly if KL was still included instead of AU, that would’ve added another $56m in Q3’18 profits. The mid-tiers’ overall earnings should dramatically leverage and outpace gold in coming quarters as it inexorably mean reverts higher.
While GDXJ should certainly no longer be advertised as a “Junior Gold Miners ETF”, it offers exposure to some of the best mid-tier gold miners on the planet. It’s really growing on me, I like this new GDXJ way better than GDX. That being said, GDXJ is still burdened by overdiversification and way too many gold miners that shouldn’t be in there. They are either too large, are saddled with inferior fundamentals, or both.
So the best way to play the gold miners’ coming massive mean-reversion bull is in individual stocks with superior fundamentals. Their gains will ultimately trounce the major ETFs like GDXJ and GDX. There’s no doubt carefully-handpicked portfolios of elite gold and silver miners will generate much-greater wealth creation. GDXJ’s component list is a great starting point, but pruning it way down offers far-bigger upside.
The key to riding any gold-stock bull to multiplying your fortune is staying informed, both about broader markets and individual stocks. That’s long been our specialty at Zeal. My decades of experience both intensely studying the markets and actively trading them as a contrarian is priceless and impossible to replicate. I share my vast experience, knowledge, wisdom, and ongoing research through our popular newsletters.
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The bottom line is the mid-tier gold miners reported solid fundamentals despite a challenging third quarter for gold prices. Excluding the South African majors, they were able to grow their production nicely while holding the line on costs. That portends dramatic operating-cash-flow and earnings growth in the coming quarters as gold mean reverts higher on big investment buying. The mid-tier gold miners’ stocks will soar on that.
Gold stocks are not only unloved and dirt-cheap today, but they are a rare sector that rallies strongly with gold as general stock markets weaken. While virtually no one was interested in these leveraged plays on gold upside in recent months, that will change fast as these lofty stock markets roll over. And the mid-tier gold miners’ recent Q3 earnings season proved they remain ready to fundamentally amplify gold’s gains.
Recent market and economic developments are positive for Gold and precious metals but conditions are not bullish yet.
Bullish conditions and bullish fundamentals would be highlighted by a shift in Fed policy. They aren’t shifting yet. They are slowing, which precedes a shift.
From a market standpoint, we need to see strength in Gold in real terms (against stocks and foreign currencies) and a steepening of the yield curve. These developments along with shifting Fed policy will tell us a new bull market is soon to begin.
In regards to Gold against equities, the chart below shows both progress but the need for more strength.
Gold remains below its long-term moving average against U.S. stocks (NYSE). The trend has not turned bullish yet.
Gold relative to the rest of the world (U.S. excluded) and Emerging Markets has turned the corner but now must prove it can hold above the long-term moving average.
Gold relative to foreign currencies is at an interesting juncture as the chart below shows. Over the past month it has been battling with a confluence of resistance right at its 200 and 400 day moving averages.
From a market standpoint, the stock market is key as it will front-run Fed policy. It’s a reflection of the economy and health of corporations. A stronger stock market means tighter Fed policy.
That could go out the window if and when the S&P 500 loses its recent lows at the 400-day moving average. But these lows could hold for several months.
The yield curve continues to flatten, which is not bullish for Gold. Steepening is.
Although the Fed said something about rate hikes coming to an end and the market now expects only two more hikes, the conditions are not there for Gold.
On the fundamental side, history argues that conditions turn most bullish after the last hike and when the market begins to discount a new rate cutting cycle. It appears we are still months away from the last hike.
On the technical side, there is improvement in the leading indicators but nothing definite yet.
Gold has not broken out of its downtrend relative to U.S. stocks nor has it broken out against foreign currencies. These things should happen before a bull market begins.
In the meantime, don’t try to catch falling knives or chase weakness as there will be plenty of time to get into cheap juniors that can triple and quadruple once things really get going. Moreover, the start of the next bull looks to be more than a few months away.
What a day! This is incredible! We called it with our wave counts, and now it’s really happening as the Fed may have just blinked!
Within wave .iii. we are now working on our first impulsive sequence, as shown on our “Daily Gold Chart”.
Within that first impulsive sequence we believe that we are working on a subdividing wave $iii$. Within wave $iii$, wave !i! ended at the 1246.00 high and all of wave !ii! at 1196.60.
We are now rallying in wave !iii!, which has an initial target of:
!iii!=1.618!i!=1296.40!
Within wave !iii! it looks like we are subdividing again as shown on the Daily Gold Chart. It looks like wave ?i? ended at 1230.90 and that we are now falling in wave ?ii?.
Our retracement levels for the end of wave ?ii? were:
50% = 1213.80;
61.8% = 1209.70.
Our report card on that call: Bingo!
We expected that gold should drop a little further before all of wave ?ii? ends, and that’s exactly what happened.
Longer term our first projection for the end of wave .iii. is:
.iii. = 1.618.i. = 1447.20.
We do have higher projections. Of course, wave .iii. should subdivide into a 5 wave impulsive sequence in its journey higher.
Trading Recommendation: Long gold. Use puts as stops.
Active Positions: We are long, with puts as stops!
Silver:
Short Term Update:
In the very short term, silver has been correcting the rally from 13.86 to 14.54. Silver could be ready to move higher again quite soon.
We are working on the assumption that all of wave ii ended at the 13.86 low and that we are now starting to work higher…
In the initial stages of wave .iii.
We have been waiting to see a very big up day to confirm this assumption.
Silver will accelerate higher (and perhaps quite dramatically) with gold once the 95.93 low in the USDX gives way.
We also need to break above our red downtrend line that is shown on the Daily Silver Chart that connects 17.35 and 14.92.
Our first projection for the end of wave iii is:
iii = 1.618i = 26.09.
Trading Recommendation: Long silver. Use a put as a stop.
Active Positions: We are long, with puts as stops!
GDX & Gold Stocks:
GDX 60 Min Chart:
GDX Daily Chart:
Short Term Update:
We have now updated our count to suggest that all of wave ^i^ ended at the 19.92 high and that all or most of wave ^ii^ at the 18.72 low.
If that is the case then we should now be moving higher in wave ^iii^, as the next big event in this market.
We are now working on the assumption that all of wave -ii- is complete at the 18.26 low and that we are now rallying in wave -iii-.
Our first projection for the end of wave -iii- is:
-iii- = 1.618-i- = 23.49.
Longer term our first projection for the end of wave 3 is:
3 = 1.618(1) = 48.95.
We have updated all of the following counts, for the following:
Kinross: Has now completed its minimum requirements for a completed wave (ii), at the 2.38 low. Wave (iii) rally is now underway.
Barrick:We have completed the minimum requirements for a completed wave (ii) at the 9.53 low. Wave (iii) rally is now underway.
HUI: We have completed the minimum requirements for a completed wave (ii), at the 131.12 low. Wave (iii) rally is now underway.
XAU: We have completed the minimum requirements for a completed wave 2 at the 60.59 low. Wave 3 rally is now underway.
Trading Recommendation: We continue to suggest buying all of the above gold stocks and indices, for a long term hold.
Active Positions: We are long the GDX, ABX, KGC, NEM, SSR, and TSX:XGD with no stops!!
Free Offer For Website Readers:Please send me an Email to admin@captainewave.com and I’ll send you our free “Gold could Hit $1300 By Christmas!” report. We highlight our new weekly wave counts chart for GDX, which suggests that $1300 gold by Christmas can really happen! We discuss tactical approaches to make money on the play!
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November 27, 2018
The next Fed meet (and rate hike) is December 19, and just weeks after that, U.S. president Donald “The Golden Trumpster” Trump may be set to unleash a new round of inflationary and growth-crushing tariffs.
It’s not easy (to put it mildly) for American business to create new factories to replace the products made by highly productive Chinese factories.
So, for 2019, most top U.S. bank economists and money managers are slashing their U.S. GDP growth forecasts and raising their inflation forecasts.
Morgan Stanley’s global stock market weightings are legendary in the institutional world, and they just moved America to a horrifying “underweight” ranking for their global stock market positioning.
Most big-name economists in America see U.S. GDP growth sliding to sub 2% by mid 2019 while inflation stages an “upside surprise”.
Please click here now. Goldman’s top economists clearly have the same view I do.
What’s particularly interesting about this forecast is that their top economist is also forecasting four rate hikes from the Fed in 2019.
Four hikes would put enormous pressure on the U.S. government’s ability to finance its outrageous debt. It can be argued that these hikes are the Fed’s response to the insane growth of that debt.
Whether there are two rate hikes as Morgan Stanley predicts, three as I predict, or four as Goldman predicts, the growth of U.S. government debt is clearly going to put vastly more pressure on the US government bond market (and the corporate bond market) in 2019 than it already has in 2018.
In the matter of “tax loss” season, I realize that many gold market investors are nervous that gold stocks will decline into December like they have in recent years.
Please click here now. Double-click to enlarge. I don’t see anything to be concerned about on this daily gold chart.
Please click here now. Double-click to enlarge. I don’t see anything on this GDX chart to be concerned about either.
GDX and most senior gold stocks are tracking the gold price quite nicely. Gold supply is limited, and top analysts at Goldman and other firms are predicting “Commodities will soar.”
Also, 2019 is an election year in India. Morgan Stanley just raised India to “overweight” in its global stock market weightings, as it moved America to that somewhat pathetic underweight ranking. While GDP growth nosedives to potentially under 2% in America, it should be at least 7% in India for 2019, and I’m predicting it could hit 8%. GDP growth and upside action in the Indian stock market is good news for gold. The bottom line:
Gold demand in India is rock solid, as it is in China. As commodities begin to rise, Goldman will lead institutional investors into more commodities investing. Gold, GDX, GDXJ, SIL, and related stocks should have a great year.
Please click here now. Double-click to enlarge this CDNX venture index chart.
Whether it’s MACD, moving averages, RSI, or a host of other technical indicators, gold and GDX look solid. Unfortunately, that’s not the case with CDNX.
Please click here now. That’s a look at the key buy (green) and sell (gold) signals for the high risk venture sector that I cover in my gracelandjuniors.com newsletter.
The CDNX and related stocks are susceptible to tax loss selling. Penny stocks are high risk (but also high potential reward) and I don’t expect to get a major buy signal for the CDNX index until gold trades at $1420 on a weekly closing basis.
Please click here now. Double-click to enlarge what just may be the world’s most spectacular price chart!
Barrick is chaired by former Goldman president John Thornton. Thornton has aggressively bought stock in the open market and has categorically stated that he is not selling a single one of his shares for short term gain.
Clearly, Thornton is not playing for peanuts. With the majestic bull wedge and inverse head and shoulders bottom in play, it’s obvious that this man is poised to see himself and all Barrick shareholders gain enormous wealth in what I call the “bull era”.
Thornton was the driving force of the Barrick-Rangold merger. That merger was approved by a stunning 95% of shareholders of both companies. The Chinese government has awarded him the government’s highest award for a non-Chinese person. Of foreigners who have contributed significantly to Chinese growth, the Chinese government views John Thornton as one of the fifteen most important people in the world.
Barrick shareholders are not just in good hands. They are in spectacular hands! A breakout from the bull wedge with a Friday close over $14 is a rocket launch signal for the entire gold mining sector. Rather than wasting time worrying about a tax loss season that is going the way of the dodo bird, I suggest that gold stock investors should be positioning themselves, as Goldman clearly is, for the rocket ride of a lifetime, in a fabulous gold bull era!
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line: Are You Prepared?
By Daniel Cook
Part 2: It’s Only Natural…
Every mining company has the same problem, they’ve got to replenish their inventory every year. That means if they’re mining 100,000 ounces of gold annually they need to discover at least 100,000 ounces every year to stay afloat. Analysts and investors demand it and watch these inventory levels closely.
Did you know SSR Mining’s most profitable operation could run out of gold reserves in 7 years or less?
Did you know they just spent $337 million buying that mine (Seabee) in 2016?
Did you know Seabee now accounts for approximately 39% of SSR Mining’s total cash flow and arguably one third of their $1.7 billion market cap?
Imagine if SSR Mining (SSRM, TSX) wasn’t able to find more gold before their reserves run out at Seabee, not enough to sustain production of +100,000 ounces per year anyway, and the negative impact it could have on the Company’s long-term growth plans (SSRM would take a negative hit too).
It’s a legitimate concern, but as a shareholder of SSR Mining you shouldn’t have to worry about that scenario because of the option agreement they signed recently with a little known microcap explorer called Taiga Gold (TGC, CSE).
*Editor’s Note: Taiga is the latest of what’s becoming a tradition of successful spinoffs from Eagle Plains (EPL, TSX-V)
Taiga Gold Staff visiting the Seabee Gold Operation
Here’s the deal…
Taiga Gold has granted SSR Mining an opportunity to earn up to an 80% interest in the 34,000 hectare Fisher property by completing $4 million exploration expenditures and making $3.3 million in cash payments to Taiga Gold.
Looking at the map you can see this isn’t what some might call “closeology” in a derogatory way.
Taiga’s Fisher property is close to Seabee in a complimentary way!
In fact, the majority of what SSR Mining has mapped as the “Santoy shear zone” extends onto Fisher.
Think about that…
According to SSR Mining’s own maps the majority, call it 66%, of the Santoy shear zone extends onto Fisher!
That’s pretty major.
The two properties might as well be one.
This is the same belt of rocks, all underexplored and highly prospective geology for hosting gold deposits. More than 80 gold occurrences including the Homestake Mine and SSR Mining’s Seabee-Santoy mines are situated along the Tabbernor fault, a deep-seated crustal shear system that underlies Fisher for a strike length of 40 kilometres.
Fisher increases SSR Mining’s overall land package in the region by 150%!
Can you see how the Fisher property is majorly important for SSR Mining’s future in Saskatchewan?
Knowing Seabee is SSR Mining’s most profitable mine and it only has roughly 7 years of reserves, maybe less, making new discoveries and adding ounces is crucial.
Early stage exploration work to date includes 1,600 soil samples, 600 rock samples, and 5,200 line km of geophysical data. Highlights being 25 rock samples grading +1 g/t Au and grab sample grading nearly 2 ounces Gold.
SSR Mining had a field crew of 8 people and 2 drill rigs working on the ground all summer. As of the most recent update 8,550 metres (14 holes) have been completed of a 15,000 metre drill program on Fisher in 2018. Results will be formally announced as they are received, compiled, and interpreted.
Who knows, we don’t have a crystal ball, but could you imagine a $1.7 billion company like SSR Mining being content with 80% ownership?
Assuming they meet their JV obligation by spending $4 million on exploration and give $3.3 million cash to Taiga I could see SSR Mining buying Taiga outright. That’s just my gut talking, but it’s certainly within the realm of possibilities.
Also within the realm of possibilities is that SSR Mining plays to win right away by acquiring Taiga before making a $3 million cash payment. As per the terms of the JV SSR Mining first spends $4 million on exploration to earn 60%, from there they have a one year, one-time option, to earn an additional 20% (for a total of 80%) by making the $3 million cash payment to Taiga.
Either way, both roads lead toward a takeover of Taiga.
If the Fisher property secures their future at Seabee why wouldn’t they make an offer?
SSR Mining is sitting on $493 million worth of cash.
Taiga Gold, at 9 cents per share, has a market cap of $5.4 million.
It’s only natural.
Geologically speaking the Seabee and Fisher properties are essentially one, so they belong together.
About the author: Starting out, Daniel Cook was a stockbroker during his college years. At the age of 23 he founded his own Registered Investment Advisory (RIA) firm. Daniel is a full-time investor and prospector of the markets, constantly digging for exceptional opportunities. Helping those companies get discovered and gain traction in the marketplace is Mr. Cook’s main objective.
It is very difficult to pick exact bottoms but there are many tools we can use to help us pinpoint potential bottoms.
You don’t hear technical analysts talk about fundamentals but we do for a reason. Major shifts in the primary trend are supported by fundamental shifts, though they can be very hard to spot until after the fact.
Because of our extensive study of history, we are convinced that precious metals will not begin a real bull market until the Fed stops hiking rates. The data shows that many times (though not every time) the gold stocks bottomed soon after the Fed’s final rate hike.
Yes, we’ve beaten this to death but the point is fundamentals matter.
Moving on, we are going to introduce you to a number of tools and indicators which you can use to spot potential bottoms and turning points on a shorter term basis.
The first and foremost focus should be the price action and the various support and resistance lines that are nearby.
In the chart below, we highlight the support and resistance areas.
For example, GDX last week bounced from support at $18. It faces strong resistance above $20. A loss of $18 would likely lead to a test of support in the $16s. GDXJ meanwhile, bounced from its September low at $26. It faces strong resistance near $30 and if it loses the recent low could test support in the $22-$24 range.
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After considering the price action and important support and resistance levels, we turn to the breadth indicators which provide us information in regards to participation and sector divergences.
We plot GDX below along with its advance decline (A/D) line, the bullish percentage index (BPI) and new highs minus new lows.
The A/D line, which is one of the most trusted leading indicators is flashing a negative divergence. It looks similar to the one in early 2015. Note that it flashed a major positive divergence in early 2016. Smaller positive divergences were seen in March 2018 and September 2018.
The BPI currently is not telling us much. It needs to fall to 10% for the sector to be considered very oversold.
Days ago the new highs minus new lows indicator hit nearly -40%, which is fairly oversold. In my opinion over -50% or even -70% tends to signal a sustained low as it did in late 2014, summer 2015 and late summer 2018.
Another breadth indicator (and one we custom made for GDXJ) is the percentage of stocks that closed above various moving averages. Below we plot GDXJ along with the percentage of a basket of 55 junior stocks (mostly in GDXJ) that closed above the 20-day moving average, 50-day moving average and 200-day moving average.
This data showed a strong positive divergence in early 2016 as well in late 2017 and to a lesser degree in late 2016. Last week it showed an oversold condition in GDXJ but no positive divergences.
In addition to breadth indicators, we can also study how the stocks are performing versus the metals and we can track various momentum oscillators.
My two favorite oscillators to study are the rate of change indicator and the distance from the moving average indicator. We plot these in the GDXJ chart below on a 20-day and 50-day basis.
Note that the most oversold points usually occur on the first leg down or the first break of support. Subsequent tests of the same support will show a less oversold condition. That’s good if that low can hold. If not, it’s worse as the market will break to new lows in a less oversold state.
So what can we conclude from the current price action and these various indicators?
The gold stocks hit an oversold condition last week as evidenced by the very weak breadth in GDXJ and the new highs minus new lows indicator for GDX touching nearly -40%. They also hit some technical support.
However, there are no positive divergences in any of the breadth indicators and the GDX (A/D) line is flashing a serious negative divergence.
After breaking upside from a double bottom pattern, gold continues its solid price action. More good times lie directly ahead for precious metals investors, because Chinese New Year buy season begins very soon.
Please click here now. Double-click to enlarge. Note the solid position of my key 14,7,7 Stochastics indicator on this daily gold chart.
The U.S. stock market’s “traditional end of the year rally” is turning into a veritable turkey shoot for the bears. Gold seems immune to the action, suggesting that unseen inflationary pressures may be larger than most investors realize.
Please click here now. Double-click to enlarge. Investors need to understand that as the business cycle matures, volatility in the stock market rises.
Any decline could be the start of a bear market. A “buy the dip” approach to the market becomes a death trap as corporate earnings peak, rates rise, GDP peaks, and inflation gains attention.
The bottom line: U.S. stock market bears crack the whip, and late cycle price chasers take a horrific trip!
Please click here now. Morgan Stanley’s top currency analysts believe the dollar has peaked against most of the currencies it recently rallied against. Hedge fund “superman” Ray Dalio is talking about a 30% dollar devaluation. He proposes monetizing the U.S. government’s huge debt as a “final solution.”
I’ve suggested a “Plaza Accord 2.0” is going to happen. I believe U.S. President Trump will lead preliminary discussions about it from behind closed doors at the upcoming G20 meeting.
Please click here now. As empires peak and then die, the peak usually comes with the nation enveloped in a state of “war worship.”
Massive amounts of money are borrowed by the government to fund the madness, but even that isn’t so enough, so more is extorted via “taxes” from struggling citizens.
In the case of America, more than 25% of the government’s gargantuan debt is easily attributable to war worship.
The final nail the U.S. government’s debt coffin likely came when instead of cutting the capital gains tax to zero and beginning a Treasury monthly gold buy program, the government decided to impose tariff taxes to “boost growth and make trade fair.”
Import tariffs are the best form of taxation, but only when used instead of income and capital gains taxation. In this case, tariffs are layered on top of income and capital gains taxes. The bottom line: Instead of becoming a super-sized version of Switzerland, America risks becoming a stagflationary wasteland.
Ray Dalio speaks of “other currencies” rising to prominence as the dollar fades. He says he doesn’t want to be specific about it though. Is that because gold is one of those currencies?
The U.S. stock market has begun collapsing, inflation is on the move, and junior miners should be looking good. Are they?
For the answer to that question, please click here now. Double-click to enlarge. Most of the world’s smallest resource companies are in the Canadian CDNX index.
It’s the best indication of the overall health of the global junior mining and junior energy sectors. I highlight key buy and sell action points on my www.gracelandjuniors.com website for many of the CDNX component stocks. This is a look at the signals for the index itself.
There’s no significant buy signal yet, but in early 2019 as inflation likely moves higher and U.S. GDP declines, a “America, it’s time to usher in the new year with a new and not so exciting era of substantial stagflation!” welcome mat will be rolled out.
I expect to get a major buy signal for the entire junior mining sector as that happens.
Please click here now. Double-click to enlarge. I’m impressed with the price action of GDX on this daily chart.
Note how quickly GDX has surged back above the neckline of that pesky H&S top pattern after breaking down. That’s positive action and now there’s a bull wedge in play too!
Please click here now. Double-click to enlarge this long term GDX “Trigger Time” chart.
Investors also need to watch the price of Barrick (ABX-NYSE) closely. If it can close above $14.00 on Friday of this week, that will be a major buy signal, and Barrick is my most important lead indicator for GDX and the entire senior gold stocks sector.
All gold stock investor eyes need to be laser-focused on the $22.50 zone for GDX, because if GDX can stage two consecutive Friday closes above that price, I will have a massive buy signal in play!
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line: Are You Prepared?
The major gold miners’ stocks remain mired in universal bearishness, largely left for dead. They are just wrapping up their third-quarter earnings season, which proved challenging. Lower gold prices cut deeply into cash flows and profits, and production-growth struggles persisted. But these elite companies did hold the line on costs, portending soaring earnings as gold recovers. Their absurdly-cheap stock prices aren’t justified. Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Companies trading in the States are required to file 10-Qs with the U.S. Securities and Exchange Commission by 40 calendar days after quarter-ends. Canadian companies have similar requirements at 45 days. In other countries with half-year reporting, many companies still partially report quarterly.
These quarterlies offer the best fundamental data available for individual major gold miners, showing how their operations are really faring. That helps dispel the thick obscuring fogs of sentiment that billow up the rest of the time. While I always eagerly anticipate perusing these key reports, I worried what this Q3’18 earnings season would reveal. Lower gold prices, flagging production, and weak sentiment are a witches’ brew.
The definitive list of major gold-mining stocks to analyze comes from the world’s most-popular gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF. Its composition and performance are similar to the benchmark HUI gold-stock index. GDX utterly dominates this sector, with no meaningful competition. This week GDX’s net assets are 50.5x larger than the next-biggest 1x-long major-gold-miners ETF!
GDX is effectively the gold-mining industry’s blue-chip index, including the biggest and best publicly-traded gold miners from around the globe. GDX inclusion is not only prestigious, but grants gold miners better access to the vast pools of stock-market capital. As ETF investing continues to rise, capital inflows into leading sector ETFs require their managers to buy more shares in underlying component companies.
My earnings-season trepidation soared on October 25th. The gold stocks were doing fairly well then, with GDX rallying 14.4% out of mid-September’s deep forced-capitulation lows . Sentiment was slowly improving. But that day GDX plunged 4.4% out of the blue, and the flat gold price at upleg highs certainly wasn’t the driver. The most-loved major gold miner had plummeted after reporting shockingly-bad Q3 results. Goldcorp has always been one of GDX’s top components. It reported mining just 503k ounces of gold last quarter, which plunged 11.9% sequentially quarter-on-quarter and 20.5% year-over-year! That forced its all-in sustaining costs a proportional 20.8% higher YoY to $999 per ounce. Investors panicked and fled, hammering GG stock 18.7% lower. That was the worst down day in the 24.6-year history of this company.
That left it at an extreme 16.2-year low! GG hadn’t been lower since August 2002 when gold was still in the low $300s, it was apocalyptic. That really torpedoed still-fragile sentiment in this sector, even though GG’s woes looked short-lived. It was bringing a new expansion online at one of its big mines, which was what caused the shortfall. Now in Q4’18 Goldcorp expects production to rebound to 620k ounces at $750 AISCs.
After GG’s Q3 disaster, I worried frayed investors would dump other gold stocks on any hints of less-than-optimal quarterly results. But GDX has ground sideways on balance since that GG shock, weathering this risky earnings season with sentiment so fragile. Ever since I’ve been anxious to analyze the collective Q3 results of the major gold miners as a whole, to see if GG’s travails were unique to it or more systemic.
GDX’s component list this week ran 48 “Gold Miners” long. While the great majority of GDX stocks do fit that bill, it also contains gold-royalty companies and major silver miners. All the world’s big primary gold miners publicly traded in major markets are included. Every quarter I look into the latest operating and financial results of the top 34 GDX companies, which is just an arbitrary number fitting neatly into these tables.
That’s a commanding sample, as GDX’s 34 largest components now account for a whopping 93.5% of its total weighting! These elite miners that reported Q3’18 results produced 296.4 metric tons of gold, which accounts for fully 33.9% of last quarter’s total global gold production. That ran 875.3t per the recently-released Q3’18 Gold Demand Trends report from the World Gold Council. I’ll discuss production more below.
Most of these top 34 GDX gold miners trade in the U.S. and Canada where comprehensive quarterly reporting is required by regulators. But some trade in Australia and the U.K., where companies just need to report in half-year increments. Fortunately those gold miners do still tend to issue production reports without financial statements each quarter. There are still wide variations in reporting styles and data offered.
Every quarter I wade through a ton of data from these major gold miners’ latest results and dump it into a big spreadsheet for analysis. The highlights make it into these tables. Blank fields mean a company had not reported that data for Q3’18 as of this Wednesday. Looking at the major gold miners’ latest results in aggregate offers valuable insights on this industry’s current fundamental health unrivaled anywhere else.
The first couple columns of these tables show each GDX component’s symbol and weighting within this ETF as of this week. While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges. That’s followed by each gold miner’s Q3’18 production in ounces, which is mostly in pure-gold terms. That excludes byproduct metals often present in gold ore. Those are usually silver and base metals like copper, which are valuable. They are sold to offset some of the considerable costs of gold mining, lowering per- ounce costs and thus raising overall profitability. In cases where companies didn’t separate out gold and lumped all production into gold-equivalent ounces, those GEOs are included instead. Then production’s absolute year-over-year change from Q3’17 is shown.
Next comes gold miners’ most-important fundamental data for investors, cash costs and all-in sustaining costs per ounce mined. The latter directly drives profitability which ultimately determines stock prices. These key costs are also followed by YoY changes. Last but not least the annual changes are shown in operating cash flows generated, hard GAAP earnings, revenues, and cash on hand with a couple exceptions. Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers. So in those cases I included raw underlying data rather than weird or misleading percentage changes. This whole dataset together offers a fantastic high-level read on how the major gold miners are faring fundamentally as an industry. Was Goldcorp’s disaster systemic?
The recent weakness in Gold and gold mining stocks is not over. In fact, we are worried about another leg down getting underway.
If that comes to pass, we are positioned to profit from it. But I digress.
Long-term oriented investors and speculators should be aware of the near term trends but they should also be aware of the conditions that will lead to a shift from a bear market to a bull market.
Here, we focus on five factors that precede major bottoms in precious metals.
Gold Outperforms the Stock Market
Other than in 1985 through 1987 there has never been a real bull market in Gold without it outperforming the stock market. A weak stock market usually coincides with conditions that are favorable for precious metals. That’s either high inflation or economic weakness that induces policy that is usually bullish for precious metals. The 2016-2017 period failed to be a bull market because the equity market continued to outperform Gold. Note that the Gold to Stocks ratio bottomed prior to the 2001 and 2008 bottoms.
Gold Outperforms Foreign Currencies
Gold outperforming foreign currencies is important because this usually happens while the US Dollar remains in an uptrend. It signals relative strength in Gold and shows that Gold is not being held hostage by the strong dollar. It also can signal a coming peak in the dollar. Gold was outperforming foreign currencies prior to the 2001, 2008 and late 2015 bottoms. There are currently no positive divergences in place.
Major Peak in the US Dollar
This does not precede bottoms in Gold as it typically is a lagging indicator. But a list of “4” things does not carry the same weight as five. Anyway, Gold is not going to embark on a major, long-lasting bull market without a corresponding peak in the US Dollar. Sure, they can rise at the same time and for months on end. However, it’s difficult to imagine a multi-year bull market in Gold without a corresponding peak in the dollar. Peaks in 1993 and 2016 led to brief runs in Gold but those were nothing like the 1985 and 2001 peaks.
Gold Mining Stocks Crash
This is not a mandatory component of major bottoms but definitely is something that can occur before a major bottom. Below we plot GDM, which is the forerunner to GDX. Note that gold stocks essentially crashed into their late 2000 and late 2008 lows. They also crashed into their summer 2015 low which wasn’t the final low for the sector but was for the senior miners. The main point is that if gold mining stocks fall apart again it could very well be a sign that a bottom is almost imminent.
Fed Policy Change
Over the past 60 years, gold stocks have often bottomed almost immediately after the peak in the Fed Funds rate (FFR). In 10 of 12 rate cut cycles, gold stocks bottomed a median of one month and an average of two months after the peak in the FFR. The average gain of gold stocks following that low was 185%. There are also points where the gold stocks declined during a period of rate cuts or no Fed activity. Bottoms then were sometimes followed by the start of Fed hikes. However, given the current conditions, we are quite confident that gold stocks will bottom immediately after the Fed’s final rate hike.
Now you know what to look for to signal that a major bottom is imminent.
Last week GDX and GDXJ were down almost 12% at their lows on Thursday. Since then, they’ve recovered but only a tiny fraction of recent losses.
The crash did result in the miners reaching an extreme oversold condition while trading around long-term support at their December 2016 lows. It was the perfect setup for shorts to cover. That combination often results in at least a relief rally.
While a rally is underway, where it goes from here remains to be seen.
One thing to keep in mind, the recent decline was the result of a technical breakdown that followed months and months of consolidation. It’s extremely unlikely to immediately reverse course.
With that said, let’s keep in mind the measured downside targets.
For GDX, the downside target is $16.50-$17.00. For GDXJ, it’s $23-$24 and for Silver it is $12.70-$13.10.
On the sentiment front we should note that Gold’s net speculative position reached 1.5% of open interest. That is the second lowest reading in the past 17 years. Does that mean this is December 2015 or 2001 for Gold?
Do note that sentiment was at a similar level twice in 2013 and Gold trended lower after a rebound. Moreover, look at what happened in the 1980s and 1990s.
With the net speculative position already down to 1.5%, it figures to go negative if Gold is going to test its low at $1040/oz or even $1000/oz. If you think sentiment cannot get worse, think again.
Ultimately, its not sentiment or technicals that will decide a major bottom but fundamentals. After studying decades of history as well as the current market environment, we became convinced that precious metals will not begin a bull market until the Federal Reserve is done hiking rates.
Consider the following.
Over the past 60 years, in 10 of the last 12 rate hike cycles gold stocks boast an average gain of 185% with a minimum gain of 54%. The advance began on average one month and a median of two months after the Fed Funds rate peaked.
The precious metals sector is currently extremely oversold and a relief rally is underway. It should last at least a few more weeks and maybe a few months. However, the primary trend is down and there are downside targets that are even lower. Our plan is to let the rally run its course and when the time is right, go short again.
The major gold miners’ stocks plummeted in brutal cascading selling this week as stops were run.That shattered strong multi-year support, devastating sentiment among the handful of contrarians remaining in this forsaken sector.With fear and despair extreme, it’s critical to take a deep breath and get grounded in the gold miners’ just-reported Q2’18 fundamentals.They reveal if this surprise anomalous plunge was justified.
Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports.Companies trading in the States are required to file 10-Qs with the US Securities and Exchange Commission by 45 calendar days after quarter-ends.Canadian companies have similar requirements.In other countries with half-year reporting, many companies still partially report quarterly.
The definitive list of major gold-mining stocks to analyze comes from the world’s most-popular gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF.Its composition and performance are similar to the benchmark HUI gold-stock index.GDX utterly dominates this sector, with no meaningful competition.This week GDX’s net assets are 33.4x larger than the next-biggest 1x-long major-gold-miners ETF!
GDX is effectively the gold-mining industry’s blue-chip index, including the biggest and best publicly-traded gold miners from around the globe.GDX inclusion is not only prestigious, but grants gold miners better access to the vast pools of stock-market capital.As ETF investing continues to rise, capital inflows into leading sector ETFs require their managers to buy more shares in underlying component companies.
GDX’s component list this week ran 49 “Gold Miners” long.While the great majority of GDX stocks do fit that bill, it also contains gold-royalty companies and major silver miners.All the world’s big primary gold miners publicly traded in major markets are included.Every quarter I look into the latest operating and financial results of the top 34 GDX companies, which is just an arbitrary number fitting neatly into these tables.
That’s a commanding sample, as GDX’s 34 largest components now account for a whopping 91.7% of its total weighting!These elite miners that reported Q2’18 results produced 241.0 metric tons of gold, which accounts for fully 28.8% of last quarter’s total global gold production.That ran 835.5t per the recently-released Q2’18 Gold Demand Trends report from the World Gold Council.I’ll discuss production more below.
Most of these top 34 GDX gold miners trade in the US and Canada where comprehensive quarterly reporting is required by regulators.But some trade in Australia and the UK, where companies just need to report in half-year increments.Fortunately those gold miners do still tend to issue production reports without financial statements each quarter.There are still wide variations in reporting styles and data offered.
Every quarter I wade through a ton of data from these elite gold miners’ latest results and dump it into a big spreadsheet for analysis.The highlights make it into these tables.Blank fields mean a company had not reported that data for Q2’18 as of this Wednesday.Looking at the major gold miners’ latest results in aggregate offers valuable insights on this industry’s current fundamental health unrivaled anywhere else.
The first couple columns of these tables show each GDX component’s symbol and weighting within this ETF as of this week.While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges.That’s followed by each gold miner’s Q2’18 production in ounces, which is mostly in pure-gold terms.That excludes byproduct metals often present in gold ore.
Those are usually silver and base metals like copper, which are valuable.They are sold to offset some of the considerable costs of gold mining, lowering per-ounce costs and thus raising overall profitability.In cases where companies didn’t separate out gold and lumped all production into gold-equivalent ounces, those GEOs are included instead.Then production’s absolute year-over-year change from Q2’17 is shown.
Next comes gold miners’ most-important fundamental data for investors, cash costs and all-in sustaining costs per ounce mined.The latter directly drives profitability which ultimately determines stock prices.These key costs are also followed by YoY changes.Last but not least the annual changes are shown in operating cash flows generated, hard GAAP earnings, sales, and cash on hand with a couple exceptions.
Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers.So in those cases I included raw underlying data rather than weird or misleading percentage changes.This whole dataset together offers a fantastic high-level read on how the major gold miners are faring fundamentally as an industry.Was this week’s plummeting righteous?
This ongoing quarterly post-earnings-season project to better understand how the gold-mining industry is actually faring fundamentally is tedious and time-consuming.The best insights don’t emerge until all the research is complete, as the big picture is more illuminating than individual companies’ results.As I was doing much of this work this week, the plummeting gold-stock prices cast a dark psychological pall over everything.
I always start at the top of GDX’s component list and gradually work my way down, examining the latest quarterly filings from each company.Early on I was shocked by the sharp annual production declines at the world’s biggest gold miners!Newmont Mining and Barrick Gold have run neck-and-neck as the top gold miners for long decades now.Compared to most other gold miners, their resources may as well be unlimited.
They have diversified portfolios of gold mines across continents and many countries, and deep pipelines of exploration projects and new-mine builds.NEM and ABX pour vast amounts of capital into maintaining their gold production as existing mines are depleted.The major gold miners hate reporting declines in production, as investors punish stocks for it with sizable selling.It is seen as signaling deteriorating health.
So gold miners suffering production drops often intentionally obscure it by omitting normal year-over-year comparisons from their press releases announcing quarterly results.They don’t present the tables with the current quarter next to the comparable prior-year quarter like they do when production is growing.It feels like a game of misdirection, emphasizing other metrics while forcing investors to dig deeper for that data.
The bigger the gold miners, the more opportunities they have to make up production shortfalls at some of their mines from other mines in their portfolios.So it was stunning to see NEM report its Q2’18 production plunging 14.1% YoY.And ABX’s was much worse, plummeting a catastrophic 25.5% YoY!That ominous trend infected other top gold miners too.Goldcorp mined 10.1% less gold in Q2’18 than it did a year earlier.
Kinross Gold’s production fell 13.4% YoY.Together these 4 elite major gold miners account for almost a quarter of GDX’s total weighting!How on earth can their total production plunge 17.3% from 4.1m ounces in Q2’17 to 3.4m ounces in Q2’18?That was actually contrary to the gold-mining industry as a whole.Again according to that latest WGC GDT, overall world mine production grew 3.0% YoY from Q2’17 to Q2’18.
The excuses given are nothing new to gold-mining investors, primarily lower-grade ore processed along with geological and geopolitical challenges at various individual mines.Wresting gold from the bowels of the earth in remote locations is never easy, as all the low-hanging fruit has long since been mined.With even the biggest and the best gold miners failing to maintain production, peak-gold theories are bolstered.
Incredibly as a whole, these top 34 GDX gold miners responsible for well over a quarter of the total world gold mined in Q2 saw their overall production plummet 20.9% YoY to 7.7m ounces!That’s skewed though, as two major South African gold miners had reported their Q2’17 production a year ago this week but had yet to disclose Q2’18 production as of Wednesday’s data cutoff for this essay.They chose not to do it this year.
AngloGold Ashanti and Gold Fields report in half-year increments, so they have no obligation to separate out quarters.I wonder if the reason they did last year but not this year is to mask slowing production.If their H1’18 results are divided by two, they would’ve added another 789k and 497k ounces.But that still leaves GDX’s top 34 miners with collective gold production down a sharp 7.7% YoY, way worse than the industry.
While Q2’18’s underperformance by the biggest gold miners dominating GDX and the HUI was striking, it is nothing new.That’s why I’ve long recommended investors avoid many of the largest gold miners.Mid-tier miners with growing production as they bring new mines online and much-smaller market caps have far-greater upside potential during gold uplegs.They are bucking the increasingly-evident peak-gold predicament.
Gold deposits economically viable to mine are very rare in the natural world, and getting much harder to find after centuries of exploration.It is growing ever more expensive to explore for gold, in places that are getting less hospitable with every passing year.Even after new deposits are discovered, jumping through all the Draconian regulatory hoops necessary to secure permitting for construction can take another decade.
Building the gold mines takes additional years and hundreds of millions if not billions of dollars each!This industry normally has enough capital to invest in replenishing depleting production.But ever since 2013 when gold plunged on extreme central-bank machinations, the gold miners have been heavily starved of necessary capital.So their new-production pipeline has inexorably withered away to a shadow of its former self.
As long as gold stocks remain deeply out of favor among investors because gold prices are so low, this supply deterioration will continue if not accelerate.But even if gold doubled or tripled today and stayed high for years, it would still take well over a decade for world mined supply to adjust.Some top mining CEOs and analysts believe we are seeing peak gold, that production will keep declining regardless of gold prices.
Peak gold is likely bearish for the largest gold miners that drive GDX and the HUI.Capital inflows from investors will wane along with their production.But lower gold mined supply on balance going forward is wildly bullish for the mid-tier and junior gold miners growing their production!The resulting higher gold prices will catapult their profits and thus stock prices higher, attracting in investors fleeing the struggling majors.
The only way to reap these massive gains is directly investing in the best individual gold miners.Their fundamentals are far superior to their sector as a whole.While buying GDX is easy, the lion’s share of that capital is funneled into the major gold miners with slowing production.Their underperformance will dilute away any outperformance among mid-tier miners in this ETF, leading to mediocre overall gains.
One key reason slowing production is bad for gold miners is it usually leads to proportionally-higher costs.Again in Q2’18 NEM’s production fell 14.1% YoY, so its all-in sustaining costs rose a symmetrical 15.8% YoY.ABX’s colossal 25.5% production drop fueled 20.6% higher AISCs.And KGC’s 13.4% lower gold production last quarter forced its AISCs 11.9% higher.Higher mining costs naturally drive profits lower.
With major gold miners’ production falling sharply, their costs of mining should be proportionally higher.Gold-mining costs are largely fixed during mine-planning stages, when engineers and geologists decide which ore to mine, how to dig to it, and how to process it.The actual mining generally requires the same levels of infrastructure, equipment, and employees quarter after quarter.Little changes in throughput terms.
The mills processing the gold-bearing ore and inevitable accompanying waste rock have hard limits to tonnages they can chew through.When richer ore is processed, more ounces of gold are produced to spread the big fixed costs across.But when mine managers have to dig through lower-grade ore, either on the way to higher-grade stuff later or in depleting mines, fewer ounces of gold must bear the full cost burden.
So as I started digging through the top 34 GDX components’ Q2 results, I expected to see the major gold miners’ collective AISCs rise due to lower production.That’s certainly bearish fundamentally, portending lower profits that could justify some of the brutal gold-stock selling this summer.But as a whole, rather amazingly these elite gold miners held the line on costs!The top majors’ rises were offset by other miners.
There are two major ways to measure gold-mining costs, classic cash costs per ounce and the superior all-in sustaining costs per ounce.Both are useful metrics.Cash costs are the acid test of gold-miner survivability in lower-gold-price environments, revealing the worst-case gold levels necessary to keep the mines running.All-in sustaining costs show where gold needs to trade to maintain current mining tempos indefinitely.
Cash costs naturally encompass all cash expenses necessary to produce each ounce of gold, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses.In Q2’18, these top 34 GDX-component gold miners that reported cash costs averaged $610 per ounce.That was merely up 0.8% YoY from Q2’17, rather remarkable considering the lower production!
The capitulation-grade gold-stock selling this week was horrendous, with GDX plummeting 9.5% in just 3 trading days ending Wednesday.This leading gold-stock ETF plunged to $18.60 per share, shattering its major $21 support that had held strong through five major challenges since the dawn of 2017.Down a dreadful 20.0% year-to-date, GDX was trading at a miserable 2.5-year low on cascading stop-loss selling.
But with cash costs averaging $610 per ounce, the major gold miners are certainly in no fundamental peril!While gold somehow managed to plunge 2.9% in those same few trading days despite crazy-all-time-record spec gold-futures shorts, it was still near $1176.The gold stocks face no existential threat as long as gold prices remain far above the cash costs of mining it.There’s nothing to fear fundamentally this week.
Way more important than cash costs are the far-superior all-in sustaining costs.They were introduced by the World Gold Council in June 2013 to give investors a much-better understanding of what it really costs to maintain gold mines as ongoing concerns.AISCs include all direct cash costs, but then add on everything else that is necessary to maintain and replenish operations at current gold-production levels.
These additional expenses include exploration for new gold to mine to replace depleting deposits, mine-development and construction expenses, remediation, and mine reclamation.They also include the corporate-level administration expenses necessary to oversee gold mines.All-in sustaining costs are the most-important gold-mining cost metric by far for investors, revealing gold miners’ true operating profitability.
With the top 34 GDX gold miners’ Q2’18 production down 20.9% YoY or even 7.7% if that implied South African production is added in, I would’ve bet their AISCs would’ve surged proportionally.Yet incredibly they actually slipped 1.3% YoY to just $856 per ounce!This was no anomaly either, as the top 34 GDX miners’ AISCs have averaged $867, $868, $858, and $884 over the past four quarters.Q2’18’s were in trend.
The fundamental implications of this are very bullish, proving that this week’s gold-stock capitulation was purely an overdone herd-sentiment thing.Gold averaged $1306 in Q2’18, up 3.9% YoY.That means the elite major gold miners were earning average profits just under $450 per ounce.Thanks to the slightly-lower AISCs and modestly-higher gold price, those earnings rose 15.2% YoY from the $390 per ounce in Q2’17.
With gold mining a heck of a lot more profitable last quarter than a year earlier, you’d think the gold-stock prices would’ve been proportionally higher.Yet GDX’s average price last quarter was 1.5% lower YoY.That makes zero sense fundamentally.And even if this week’s capitulation-grade $1175 gold was able to magically persist as if those crazy-record gold-futures shorts were never covered, gold mining is still very profitable.
At Q2’18’s average AISCs which are again exactly in line with recent years’ levels, $1175 gold would still yield hefty $319-per-ounce profits for the major gold miners.That number is quite provocative.This Wednesday the flagship HUI gold-stock index plunged to 143.3 on that cascading-stop-loss selling, a deep 2.5-year low.But the first time the HUI ever hit this week’s levels was way back in May 2002, 16.2 years ago!
Then gold was trading near $326, which was its best levels of its young secular bull at that point.Think about this absurd fundamental disconnect.Today’s gold-stock prices were first seen way back when the entire gold price was about the same level as today’s absolute profitability alone!That is just ridiculous, highlighting the extreme undervaluation in gold stocks.Their crazy-low stock prices are an extreme anomaly.
Should a sector running hefty 27% profit margins even at $1175 gold be trading this week at price levels first seen when gold was 72% lower?Hell no!Similar past capitulation-like anomalies have led to huge subsequent mean-reversion-rebound gains.During 2008’s stock panic, the HUI fell as low as 151.6 in response to $720 gold.Those were higher gold-stock prices than this week despite gold being 38% lower!
Just like this week, back in October 2008 fear was extreme as investors fled gold stocks.They foolishly assumed extreme gold and gold-stock declines could persist indefinitely rather than quickly burning themselves out.So the traders who couldn’t get past their own herd-driven emotions sold at the bottom.They unfortunately missed the HUI more than quadrupling over the next 2.9 years with a major 319.0% bull run!
As long as the gold miners can produce gold at all-in sustaining costs way below prevailing gold prices, they will generate big profits for investors.Eventually their stock-price levels have to reflect their true underlying profitability.With $1175ish gold and $856 AISCs, the gold miners’ stock prices must rebound radically higher.Their extreme low levels today are fundamentally absurd, they can’t and won’t last for long.
The rest of the top 34 GDX gold miners’ core fundamentals in Q2’18 reflected their lower year-over-year production.Their overall cash flows generated from operations fell 18.3% YoY to $2747m.That’s not out of line considering the 7.2% decrease in sales to $9993m due to less gold mined.Interestingly in addition to mining 20.9% less gold YoY excluding those non-reporting South African miners, silver production fell more.
GDX has plenty of major silver miners among its ranks, as the pool of major gold miners is fairly small.Silver is much less profitable to mine than gold at current depressed price levels, so traditional big silver miners are increasingly investing in diversifying into gold mining.The top 34 GDX components’ overall silver production plummeted 32.4% YoY to 29.1m ounces in Q2’18!That helped sales fall despite higher gold prices.
These top 34 GDX gold miners’ total GAAP accounting profits reported to regulators looked like a disaster in Q2’18.They cratered 66.2% YoY to $802m!But that’s very misleading, as one-off charges and gains flowing through to miners’ bottom lines can greatly distort headline profitability.There were a couple massive non-recurring gains in Q2’17 results that I discussed a year ago that artificially boosted those profits.
Back then Barrick Gold reported an enormous $880m gain selling half and quarter interests in a couple major gold projects in Argentina and Chile.And IAMGOLD reversed impairment charges to report a huge $524m non-cash gain.Removing just these two unusual items alone from overall Q2’17 profits recasts Q2’18’s decline as a far-milder 17.1% YoY.That’s about what you’d expect with sales sliding 7.2% in that span.
While not included in this table, the average trailing-twelve-month price-to-earnings ratios of these major gold miners declined 2.2% YoY to 38.0x.And that number is skewed way high by a few outliers, as there are plenty of top 34 GDX gold miners trading at cheap TTM P/Es in the low double digits or even single digits this week.The gold miners’ earnings are fine, and don’t remotely justify this week’s capitulation-like plunge.
Another fundamental metric for gold miners’ health is their cash balances.Despite the lower production and sales in Q2’18, these top 34 GDX components exited it with $12.4b of cash on their balance sheets.That provides a huge buffer to weather lower gold, and gives them enough capital firepower to expand existing mines and build or buy new ones to help offset declining production.That was only down 9.6% YoY.
If your view on gold-mining stocks is solely based on their price levels, you’re probably convinced they are doomed after this week’s plunge.Everyone freaked out as they got sucked into anomalous gold selling which triggered all kinds of involuntary stop-loss selling.This definitely wasn’t the first time this sector was hammered by fearful herd psychology, and certainly won’t be the last.But such extreme anomalies soon reverse.
While sentiment is devastated, the major gold miners’ underlying fundamentals remain strong.They are struggling with shrinking production overall, but their mining costs still remain far below prevailing gold prices still driving strong profitability.While sales reflect fewer ounces mined, they are still generating big operating cash flows and earnings.Today’s gold-stock price levels are ludicrous relative to their fundamentals!
So a big mean-reversion rebound higher is inevitable and imminent.While traders can play that in GDX, that is mostly a bet on the largest gold miners with slowing production.The best gains by far will be won in smaller mid-tier and junior gold miners with superior fundamentals.A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation than ETFs dominated by underperformers.
At Zeal we’ve literally spent tens of thousands of hours researching individual gold stocks and markets, so we can better decide what to trade and when.As of the end of Q2, this has resulted in 1012 stock trades recommended in real-time to our newsletter subscribers since 2001.Fighting the crowd to buy low and sell high is very profitable, as all these trades averaged stellar annualized realized gains of +19.3%!
The key to this success is staying informed and being contrarian.That means buying low when others are scared, before undervalued gold stocks soar much higher.An easy way to keep abreast is through our acclaimed weekly and monthly newsletters.They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks.Subscribe today and take advantage of our 20%-off summer-doldrums sale!We’re redeploying stopped capital in new gold-stock trades at extreme fire-sale prices.
The bottom line is the major gold miners’ fundamentals are quite strong based on their recently-reported Q2’18 results.While production declined sharply, these miners still held the line on all-in sustaining costs.That fueled fat operating profits and strong cash flows.These will only grow as gold rebounds on record futures short covering.Many miners are forecasting improving H2’18 production as well on higher-grade ore.
Yet gold stocks are priced today as if they are doomed to spiral lower forever.That’s truly fundamentally absurd given their strong profits even at this week’s battered gold levels.Traders need to look through this frightened herd sentiment to understand these anomalous gold-stock prices soon have to mean revert radically higher.It’s hard staying long while everyone else is scared, but that’s when big gains are won.
Fed week is exciting for some. Gold bulls and bugs alike hope the Fed will do something or say something that will trigger a huge move in precious metals. It doesn’t work like that. The Fed follows the market, which for the Fed Funds rate (FFR) is the 2-year yield. The 2-year yield has been screaming higher over the past 12 months and it implies at least another two rate hikes in the future. That’s not good for precious metals and could be partly why (among other reasons) Gold and gold stocks have lost their 200-day moving averages. Whatever the reason, the short-term technicals are negative and there is risk of increased selling before a potential rebound in July.
First, let’s take a look at Gold and gold against the equity market. As we can see from the chart, Gold in June has failed twice at its 200-day moving average. That is different from 2017 when each time Gold lost its 200-day moving average, it made a V rebound back above it.
Gold & Gold/Stocks
Gold’s weakness against the broad equity market is another concern. At the bottom of the chart we plot Gold against the NYSE, a broad stock market index. The ratio recently failed at its downtrending 200-day moving average and is also threatening a move to new lows for essentially the first time since 2015. (The December 2017 break was not sustained to the downside).
Elsewhere, the miners have spent the second quarter wrestling with their 200-day moving averages. GDX failed at its 200-dma twice in the past month, including last week. Meanwhile, GDXJ has shown a tiny bit more strength but essentially has wrestled with its 200-dma since April. The silver stocks (SIL) have been weaker as they have not traded above their 200-dma since January and could have started to breakdown on Friday by closing at 3-month low.
GDX, GDXJ, & SIL
The immediate outlook for precious metals is negative as the price action suggests but current bearish sentiment implies a rebound is on the horizon. The summer could be playing out as we anticipated three weeks ago. An immediate move lower could push Gold to strong support around $1260 and that would put sentiment indicators into truly extreme territory. From there, it is critical that the sector recaptures 200-day moving averages. Given our recent cautious views, we have narrowed our focus to a smaller group of companies capable of performing well in this environment. To follow our guidance and learn our favorite juniors for the next 6 to 12 months, consider learning about our premium service.
The next Fed rate hike is only about two weeks away, and another ramp-up in monthly quantitative tightening is scheduled for the end of June.
Investors are generally quite positive about the economy, but they don’t have much cash to invest. Most citizens of the Western world have meagre savings, a lot of debt, and inflation threatens to make matters worse for them. A lot worse.
Please click here now. With each passing month, more institutional money managers and influential analysts voice major concerns about inflation being the catalyst that ends the US equities bull market.
Please click here now. Double-click to enlarge. The Dow has gone nowhere since Powell became Fed chair, and I expect it to go nowhere throughout his tenure. That’s the best-case scenario. I shouldn’t mention the worst-case, because almost nobody believes that the Dow can crash in inflationary inferno. That’s not only the worst-case scenario, it’s by far the most likely one.
Investors could buy very light positions in the buy zone I’ve highlighted on this Dow chart, and sell them in my sell zone, but sand in the bull market hourglass is running out fast. It’s really a trade for gamblers. Serious investors need to be lightening up here. In my US stock market portfolios, I’m at about 30% cash, and it’s rising.
Central bank tightening is a global theme and barely out of the starting gate. It’s happening against the background of rising US government debt, corporate debt, citizen debt, and inflationary tax cuts.
Citizens and governments are generally euphoric, as they were in 2007, 1999, and 1929. The difference between now and previous peaks in euphoria is that the average citizen doesn’t have much cash to spend this time. It’s gone.
Please click here now. Double-click to enlarge. Since oil made its low in 2016, energy and tech stocks have received significant mainstream media attention.
Oil is in a danger zone now. At a bare minimum, a supposedly healthy correction is overdue. Trump wants oil lower and federal election campaigning has started in India. Indian currency and bond markets are being ravaged by high oil prices and global central bank tightening. Modi just flew to Russia and met with Putin. His meeting marked the top in oil.
I think the sell-off in oil could become more significant than most investors are prepared for, but once it’s over the arrival of significant global inflation will drive oil towards $200 a barrel.
By this time next year, gold should be challenging the $1500 area, and perhaps trading as high as $1650 – $1750. On that note, please click here now. Luis Oganes is an institutional heavyweight. He’s on the inside. When he speaks, gold bugs need to drop what they are doing and pay attention. He’s not only predicting gold will be at $1700 next year, but has the potential to surpass that juicy target price!
Few investors realize that the major mining stocks that I hold in my www.gudividends.comportfolio are up an average of 150% from that 2016 oil market low. They have blown away technology and energy stocks, and left the global stock market indexes even further behind.
Most importantly, as inflation transitions from an institutional investor concern to an outright wrecking ball, I expect this fabulous performance of the giant base metal miners to continue, with gold and silver miners shooting past all market sectors to become the ultimate market darlings.
Please click here now. Double-click to enlarge. The dollar is again in freefall against the yen, and that suggests the dollar will soon be taken to the woodshed by gold.
Investing champions like Ray Dalio are working hard to make investors understand that gold is not simply a fear trade hedge. Instead, it is the ultimate portfolio returns enhancer in good times as well as bad.
Having said that, as inflation becomes a massive theme in 2019, investors can give gold any label they want. That won’t matter. What matters is that institutional money managers will be buying it with both hands…and with three if they had an extra hand!
Please click here now. Double-click to enlarge. There’s nothing more glorious than a great gold price rally, and a big one is getting underway now.
Note the technical perfection being showcased by the “queen of assets” on this short-term chart. A symmetrical inverse head and shoulders bottom breakout was followed by a picture-perfect pullback to the neckline, and now, as I predicted, the queen of assets is following the yen and beating on the dollar like King Kong beating on a tin can.
My next target is $1327, and I think gold can now reach up and touch that price with very little effort. It’s a great place for short term profit booking and it should happen ahead of the key June 13 Fed meet. After that pause and likely right shoulder low, gold should blast through $1375, and make a medium-term beeline towards $1450.
Please click here now. China just launched an important physical metals trading platform yesterday. Attention all silver bugs: Trading begins with base metals, but will quickly expand to include… silver bullion!
I’ve referred to a future dominated by China and India being the gold and silver “bull era”. A key part of that thesis involves COMEX price discovery for gold and silver becoming vastly more related to physical demand versus physical supply.
Price discovery has been dominated in the past by Western hedge funds gambling on gold-irrelevant nonsense from “Fed speakers” and “gold doesn’t pay interest” mainstream media propaganda. Bull era price discovery is already happening with gold, and silver is next on deck. Investors can write that down and take it to the bank. The silver bullion bank!
Please click here now. Double-click to enlarge this superb GDX chart. Many of the component stocks are in roaring uptrends. GDX itself has been coiling sideways since mid-April in a bullish drift. That should be resolved with a significant rally that stuns most analysts with its intensity.
The financial system and QE-oriented gold fear trade is alive but on the back burner. There’s a new generation of gold bugs in the Western gold community who understand that inflation is coming and will be here to stay. The love trade and the inflation trade will form the backbone of the bull era. Eager investors around the world who know this is true are now aggressively accumulating portfolios of gold stocks, in preparation for decades of upside fun!
Thanks!
Cheers
St
Stewart Thomson
Graceland Updates
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
Gold continues to act superbly for eager buyers in this time of seasonal softness. Against a background of static mine supply, Chinese demand is strengthening slightly and Indian demand is moderately soft.
The price action reflects these key fundamentals perfectly. Please click here now. Double-click to enlarge this important daily gold chart.
Amateur investors should focus on $100 per ounce price sales for gold. From the recent $1375 area highs, that makes my $1280 support zone even more important for accumulators of the world’s mightiest metal.
Some investors are concerned that rising oil prices will increase the AISC (all-in sustaining costs) of miners significantly. That was a legitimate concern during the past two decades when deflation and collapsing money velocity ruled the gold stocks roost.
America now looks eerily similar to the late 1960s, when inflation began to emerge. The oil shock of 1973 sent fuel prices skyrocketing, but gold stocks were bought aggressively by investors who were very worried about rampant inflation.
Gold stocks soared as fuel costs soared. That was then, and I believe it is poised to be now. Here’s why:
Bullion is a major asset class. In terms of dollar volume, more bullion trades daily in London than the entire NYSE daily volume. It’s the fifth most active FOREX contract in the world. Simply put, the market for bullion products is gargantuan.
In contrast, gold stocks are a very small sector of the market. So, it only takes modest institutional buying to boost prices, and boost them quite significantly.
Please click here now. Double-click to enlarge. This hourly-bars gold chart is technically positive. Some “build-out” of the right shoulder is possible, but that won’t take long.
The next COMEX option expiry day is May 24, and it should be the catalyst that launches the next great rally for the entire precious metals asset class.
Please click here now. In 2014 I predicted that China would lead a “gold bull era” where investors buy exponentially more physical gold with their smart phones.
Key gold jewellery manufacturers and retailers in China are seeing a significant increase in sales now, and I’ve predicted this is only the very beginning of what will be a glorious multi-decade ramp-up in online demand for gold.
Please click here now. Top technicians at Goldman see the $1275 price zone as the outskirts of a key buying area, but it’s possible that the low for this “price sale” is already in!
Please click here now. The fundamental drivers of American inflation are arguably as strong or even stronger now than they were in 1968.
US demographics bear similarity to that time; in the late 1960s, the baby boomers were young and rebellious. The London Gold Pool was ending. The free-trade for gold didn’t get completely launched until about 1974, but some gold products (like certificates) were free-trading by the late 1960s and gaining popularity. Most importantly, it was happening as rates and inflation rose.
A lot of analysts draw parallels between the economic policy of the Trump administration and the Reagan administration, and the policy is similar, but the Fed policy and the business cycle are not.
Both administrations used tax cuts to promote growth, but the Reagan administration had the start of the greatest rate cutting cycle in American history as wind at its back. It also took office at the end of a major economic downturn.
The Trump administration faces a rate hiking cycle, the late stage of the business cycle, and the end of a twenty year bear market in money velocity. The business upcycle has featured huge stock market buyback programs with only modest expenditure on business expansion. That’s very inflationary.
What’s essentially happening is the US private economy is expanding but overheating, and the US government is pushing rates higher with its huge budget deficit.
An inflationary genie is poised to leap out of the bottle in a very big way. The US private economy should continue to grow in the 3% range, but inflation will soon emerge. The big loser in this situation is the US government, and rightly so.
More inflationary tax cuts are almost certainly coming. These cuts are necessary. Even after Trump’s first tax cut, US small business taxes are still about twice as high as supposedly “socialist” Canada’s rate.
Please click here now. Double-click to enlarge. The US dollar bear market rally against the yen is probably almost over. A last push towards 112 – 115 is possible, but when Powell announces his next rate hike on June 13, it’s likely the end of the rally.
Please click here now. Double-click to enlarge this GDX chart. While GDX appears sleepy, many GDX component stocks are in powerful uptrends now. This often happens ahead of a major advance for indexes and ETFs like GDX.
Investors should watch the $23.25 price zone for GDX very closely. A two-day close above that line in the sand should ignite a multi-month advance towards my $30-$35 target zone, and probably by year-end. That’s a huge percentage gain for eager accumulators who buy with gusto now!
Thanks!
Cheers
St
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
The major gold miners’ stocks are still largely grinding sideways, mired in a bearish sentiment wasteland. Traders tend to assume low stock prices must be righteous, reflecting weak fundamentals rather than poor psychology. But once a quarter earnings seasons’ bright fundamental sunlight parts the obscuring fogs of popular sentiment. The gold miners’ just-reported Q1’18 results prove they remain deeply undervalued.
Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Companies trading in the States are required to file 10-Qs with the US Securities and Exchange Commission by 45 calendar days after quarter-ends. Canadian companies have similar requirements. In other countries with half-year reporting, many companies still partially report quarterly.
The definitive list of major gold-mining stocks to analyze comes from the world’s most-popular gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF. Its composition and performance are similar to the benchmark HUI gold-stock index. GDX utterly dominates this sector, with no meaningful competition. This week GDX’s net assets are 25.7x larger than the next-biggest 1x-long major-gold-miners ETF!
GDX is effectively the gold-mining industry’s blue-chip index, including the biggest and best publicly-traded gold miners from around the globe. GDX inclusion is not only prestigious, but grants gold miners better access to the vast pools of stock-market capital. As ETF investing continues to rise, capital inflows into leading sector ETFs require their managers to buy more shares in underlying component companies.
GDX’s component list this week ran 49 “Gold Miners” long. While the great majority of GDX stocks do fit that bill, it also contains gold-royalty companies and major silver miners. All the world’s big primary gold miners publicly traded in major markets are included. Every quarter I look into the latest operating and financial results of the top 34 GDX companies, which is just an arbitrary number fitting neatly into these tables.
That’s a commanding sample, as GDX’s 34 largest components now account for a whopping 92.1% of its total weighting! These elite miners dominate world gold mine production, which ran 770.0 metric tons in Q1’18 according to the World Gold Council’s recently-released Q1 Gold Demand Trends report. The top 34 GDX gold miners reported collectively mining 286.5t of gold last quarter, nearly 3/8ths of the world’s total!
Most of these top 34 GDX gold miners trade in the US and Canada where comprehensive quarterly reporting is required by regulators. But some trade in Australia and the UK, where companies just need to report in half-year increments. Fortunately those gold miners do still tend to issue production reports without financial statements each quarter. There are still wide variations in reporting styles and data offered.
Every quarter I wade through a ton of data from these elite gold miners’ latest results and dump it into a big spreadsheet for analysis. The highlights make it into these tables. Blank fields mean a company had not reported that data for Q1’18 as of this Wednesday. Looking at the major gold miners’ latest results in aggregate offers valuable insights on this industry’s current fundamental health unrivaled anywhere else.
The first couple columns of these tables show each GDX component’s symbol and weighting within this ETF as of this week. While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges. That’s followed by each gold miner’s Q1’18 production in ounces, which is mostly in pure-gold terms. That excludes byproduct metals often present in gold ore.
These are mostly silver and base metals like copper, which are valuable. They are sold to offset some of the considerable costs of gold mining, lowering per-ounce costs and thus raising overall profitability. In cases where companies didn’t separate out gold and lumped all production into gold-equivalent ounces, these GEOs are included instead. Then production’s absolute year-over-year change from Q1’17 is shown.
Next comes gold miners’ most-important fundamental data for investors, cash costs and all-in sustaining costs per ounce mined. The latter directly drives profitability which ultimately determines stock prices. These key costs are also followed by YoY changes. Last but not least the annual changes are shown in operating cash flows generated, hard GAAP earnings, sales, and cash on hand with a couple exceptions.
Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers. So in those cases I included raw underlying data rather than weird or misleading percentage changes. This whole dataset together offers a fantastic high-level read on how the major gold miners are faring fundamentally as an industry. And that was really well in Q1’18!
As I waded through all these gold miners’ new 10-Qs or their foreign equivalents this week, the biggest surprise was production. The whole business of gold mining is digging up and selling gold, so naturally production is the mothers’ milk of this industry. Companies are always striving to grow their production, which boosts their cash generation and thus expansion opportunities available by finding or buying other mines.
These elite gold miners certainly had every incentive to boost their production in Q1, since its average gold price surged 8.9% YoY to $1329. Investors are always looking for rising production too, seeing it as signs of good management and strong fundamental health. Since gold stocks suffering flagging production are often punished with selling, the major gold miners really hate reporting it. Yet Q1’18 was stuffed with declines!
This wasn’t readily apparent to casual observers, as the major gold miners carefully tailor their quarterly-results press releases to accentuate the positive and intentionally mask the negative. Yet if you look at the YoY changes in gold production above, fully 21 of the 33 top GDX companies reporting it suffered steep average declines of 9.6%! This lower production was so universal and widespread it looks to be systemic.
Overall these top 34 GDX companies mined 9.2m ounces of gold in Q1’18, which was down a sharp 4.6% YoY. This was actually contrary to the industry trend too. The World Gold Council’s new read on Q1’s fundamentals showed global gold mine production actually rising 1.4% YoY! Yet the top 10 GDX stocks commanding 60.3% of this ETF’s total weighting all saw gold declines averaging a major 7.4% YoY.
Most of these top gold miners had explanations, which were often excluded from press releases. I found them deep in quarterly regulatory filings most investors will never bother looking into. Mine sequencing leading to lower ore grades, individual-mine technical challenges, and slowing production at older mines were mostly to blame. This wasn’t a one-off dip though, as Q4’17’s GDX-top-34 production also fell 2.0% YoY.
Investors choosing to buy GDX instead of individual gold stocks with superior fundamentals must realize the lion’s share of their investments are flowing into giant gold miners with slowing production. As long as this proves true, their stocks have far-less appreciation potential than their smaller peers still able to grow production. What the top major gold miners are experiencing is increasingly validating peak-gold theses.
Gold deposits economically viable to mine are very rare in the natural world, and the low-hanging fruit has largely been harvested. It is growing ever more expensive to explore for gold, in far-less-hospitable places. Then even after new deposits are discovered, it takes up to a decade to jump through all the Draconian regulatory hoops necessary to secure permitting. And only then can mine construction finally start.
That takes additional years and hundreds of millions if not billions of dollars per gold mine. But because gold-mining stocks have been deeply out of favor most of the time since 2013, capital has been heavily constrained. When banks are bearish on gold prices, they aren’t willing to lend to gold miners except with onerous terms. And when investors aren’t buying gold stocks, issuing new shares low is heavily dilutive.
The large gold miners used to rely greatly on the smaller junior gold miners to explore and replenish the gold-production pipeline. But juniors have been devastated since 2013, starved of capital. Not only were investors completely uninterested with general stock markets levitating, but the rise of ETFs has funneled most investment inflows into a handful of larger-market-cap juniors while the rest see little meaningful buying.
So even the world’s biggest and best gold miners are struggling to grow production. While that isn’t good for those individual miners, it’s super-bullish for gold. The less gold mined, the more gold supply will fail to keep pace with demand. That will result in higher gold prices, making gold mining more profitable in the future. Some analysts even think peak gold has been reached, that world mine production will decline indefinitely.
There are strong fundamental arguments in favor of peak-gold theories. But regardless of where overall global gold production heads in coming years, the major gold miners able to grow their own production will fare the best. They’ll attract in relatively-more investor capital, bidding their stocks to premium prices compared to peers that can’t grow production. Stock picking is more important than ever in this ETF world!
With major gold miners’ production sharply lower, their costs of mining should be proportionally higher. Gold-mining costs are largely fixed during mine-planning stages, when engineers and geologists decide which ore to mine, how to dig to it, and how to process it. The actual mining generally requires the same levels of infrastructure, equipment, and employees quarter after quarter. Little changes in throughput terms.
The mills processing the gold-bearing ore and inevitable accompanying waste rock have hard limits to tonnages they can chew through. When richer ore is processed, more ounces of gold are produced to spread the big fixed costs across. But when mine managers have to dig through lower-grade ore, either on the way to higher-grade stuff later or in depleting mines, fewer ounces of gold must bear the full cost burden.
But interestingly this often-ironclad inverse relationship between gold production and per-ounce costs did not really play out in Q1’18. Costs rose, but nowhere near as much as the lower gold production implied they would. The major gold miners are getting more efficient. They could’ve also chosen to sequence lower-grade ore into their mills because higher prevailing gold prices would offset some of the production declines.
There are two major ways to measure gold-mining costs, classic cash costs per ounce and the superior all-in sustaining costs per ounce. Both are useful metrics. Cash costs are the acid test of gold-miner survivability in lower-gold-price environments, revealing the worst-case gold levels necessary to keep the mines running. All-in sustaining costs show where gold needs to trade to maintain current mining tempos indefinitely.
Cash costs naturally encompass all cash expenses necessary to produce each ounce of gold, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses. In Q1’18, these top 34 GDX-component gold miners that reported cash costs averaged $667 per ounce. They indeed surged a sharp 7.1% YoY, the result of fixed costs spread across lower production.
These industry-wide cash costs are the gold-price pain point where miners’ viability and survivability is in jeopardy. Seeing gold anywhere near those levels again is exceedingly unlikely. The last time gold hit $667 was 10.7 years ago in August 2007, before trillions of dollars of central-bank money printing after 2008’s stock panic. Provocatively the HUI gold-stock index was near 320 then, 80% higher than today’s levels!
Way more important than cash costs are the far-superior all-in sustaining costs. They were introduced by the World Gold Council in June 2013 to give investors a much-better understanding of what it really costs to maintain gold mines as ongoing concerns. AISCs include all direct cash costs, but then add on everything else that is necessary to maintain and replenish operations at current gold-production levels.
These additional expenses include exploration for new gold to mine to replace depleting deposits, mine-development and construction expenses, remediation, and mine reclamation. They also include the corporate-level administration expenses necessary to oversee gold mines. All-in sustaining costs are the most-important gold-mining cost metric by far for investors, revealing gold miners’ true operating profitability.
With the top 34 GDX gold miners’ production down 4.6% YoY in Q1, I would’ve bet their AISCs would’ve risen a proportional 4% to 5%. Yet their cost control was outstanding, as these elite gold miners reported average AISCs up just 0.7% YoY to $884 per ounce! That’s roughly in line with the quarterly trend from 2017 seeing $878, $867, $868, and $858 averages running from Q1 to Q4. Costs are really being contained.
The major gold miners have to manage costs exceptionally well to maintain AISCs while production is also slowing. This argues against the popular complaint that gold miners’ managements are doing poor jobs. Because gold-stock prices are so darned low, traders again assume the miners must be plagued with serious fundamental problems. But it’s relentlessly-bearish herd sentiment suppressing gold-stock prices.
Flat AISCs combined with sharply-higher gold prices led to exploding operating profitability among the major gold miners last quarter! That certainly isn’t being reflected in their stock prices. In Q1’17, gold averaged just $1220 against $878 average AISCs. That yielded per-ounce profits of $342. But this past year saw gold surge 8.9% to that $1329 quarterly average in Q1’18 while AISCs only climbed 0.7% to $884.
That drove fat operating margins of $445 per ounce, exploding 30.2% higher YoY! That works out to excellent 3.4x upside profits leverage to gold! In any other stock-market sector such massive earnings growth would be crowed about from the rooftops and capital would flood in. But that wasn’t enough to blow away the darkening bearish pall over gold stocks. GDX’s average share price still fell 3.0% YoY in Q1’18!
Gold-stock profits as measured by the difference between average gold prices and average AISCs even surged 6.3% quarter-on-quarter from Q4’17. There is a vast fundamental disconnect between the left-for-dead gold-stock prices and gold miners’ strong operational performances. This bearish-sentiment-driven anomaly is very extreme and won’t last forever. Investors will rush back in when they discover the value.
The major gold miners’ fundamental health is reflected in their operating-cash-flow generation. These top 34 GDX gold miners reporting OCFs for last quarter collectively produced $3355m. That’s up 3.9% YoY despite their 4.6% lower gold production, mostly due to that sizable 8.9% average-gold-price rally. Most of these elite gold miners saw big annual growth in cash generated from operations, a very-bullish sign.
As long as OCFs remain massively positive, the gold mines are generating much more cash than they cost to run. That gives the gold miners the capital necessary to expand existing operations and buy new deposits and mines. Given how ridiculously low gold-stock prices are today, you’d think the gold miners are hemorrhaging cash like crazy. But the opposite is true, showing how silly this bearish herd sentiment is.
These top GDX gold miners’ actual GAAP profits didn’t look as good, plunging 48.5% YoY to $855m in Q1. While that was a huge improvement over Q4’17’s $266m loss, it still seems incongruent with those flat all-in sustaining costs and growing operating cash flows. Of the 25 of these top GDX components reporting earnings in Q1, just 3 had losses. The only big ones came from Royal Gold and Yamana Gold.
Royal Gold’s $154m loss was the result of a gigantic $239m impairment charge in its interests in gold royalties. That came from Barrick Gold’s big Pascua-Lama project, which straddles the border between Chile and Argentina. In Q1 Barrick decided the current economic and geopolitical environment made the Chilean side of this project not worthy of further investment. Chile’s government is harassing Barrick on it.
Yamana Gold’s $161m loss was largely from a $103m impairment of a majority investment it made in a smaller gold company. When a third company agreed to acquire all the shares of that smaller miner in Q1, Yamana had to write off its loss. These two impairments alone battered overall GDX GAAP profits $342m lower! Without them, the top 34 GDX gold miners’ earnings would’ve slid a much-smaller 27.9% YoY.
It doesn’t take many of these non-cash charges to greatly alter the collective GAAP earnings of the elite gold miners. And there’s a third huge one to consider. Back in Q1’17, Barrick Gold recorded a colossal $1125m non-cash gain reversing previous impairment charges on a gold project after Goldcorp agreed to buy a quarter of it. That really inflated overall GDX GAAP profits in the comparable quarter a year ago.
Just excluding that huge Q1’17 impairment reversal and that pair of Q1’18 impairment charges radically changes the profits picture. Again those were non-cash and had nothing to do with operations. That yields Q1’18 GAAP profits of $1197m for these top 34 GDX gold miners, a staggering $123% higher than Q1’17’s if its Barrick impairment-reversal gain hadn’t happened! The major gold miners are faring really well.
These surging accounting earnings are evident in the classic trailing-twelve-month price-to-earnings ratios of these top gold miners as well. They aren’t included in these tables, but averaged 37.3x in Q1’18 for the 24 of these companies that had net earnings over the past year. While that’s not an accurate reflection of true valuations due to non-cash things flushed through income statements, it was still 28% lower.
On the sales front these top 34 GDX gold miners’ revenues climbed 1.5% YoY to $10.6b in Q1’18. That reflects the combination of higher gold selling prices with lower gold production. Actual sales growth was probably better, as 26 top-34 GDX companies reported sales in Q1’18 compared to 28 in Q1’17. GDX saw three new companies climb into the ranks of its top 34 over this past year, highlighted in light blue above.
Two of these are the great low-cost Australian gold miners Regis Resources and St Barbara Limited. They report in half-year increments, and gave no revenues data for Q1 which was an interim quarter for both. The companies they knocked out of the top 34 had reported sales a year earlier. So the sales growth in the elite major gold miners was really good considering their sharply-lower gold production.
Finally these top 34 GDX gold miners’ cash on their balance sheets fell 4.2% YoY to $12.7b. That’s a big number for this small contrarian sector, meaning these companies have lots of capital firepower available to expand existing operations or buy gold mines from other companies. The more cash on hand the gold miners have, the more flexibility and resilience they have to grow their businesses and weather challenges.
So overall the major gold miners’ fundamentals looked really strong in Q1’18, a stark contrast to the miserable sentiment plaguing this sector. Gold stocks’ vexing consolidation since early 2017 isn’t the result of operational struggles, but purely bearish psychology. That will soon shift as stock markets inevitably roll over and gold surges, making the beaten-down gold stocks a coiled spring overdue to soar dramatically.
While investors and speculators alike can certainly play gold stocks’ coming powerful uplegs with the major ETFs like GDX, the best gains by far will be won in individual gold stocks with superior fundamentals. Their upside will far exceed the ETFs, which are burdened by over-diversification and underperforming stocks. A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation.
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The bottom line is the major gold miners’ fundamentals are really strong based on their recently-reported Q1’18 results. While production declined fairly sharply, the miners still held the line on all-in sustaining costs. That fueled fat operating profits and strong cash flows. And many of the elite gold miners have forecast improving production throughout 2018 on higher-grade ores, which will push profits even higher.
Yet gold stocks are priced today as if gold was half or less of current levels, which is truly fundamentally-absurd! They are the last super-undervalued sector in these euphoric, overvalued stock markets. When gold investment demand resumes on weakening stock markets and pushes gold higher, capital will flood back into the forgotten gold miners. That buying will catapult them back to far-higher fundamentally-righteous prices.
Most analysts in both the gold and mainstream investment communities seem to be in “summer doldrums” mode. They are nervous about stock markets because of rate hikes and the late stage of the business cycle. That’s understandable.
Unfortunately, they also seem to be unaware of the fabulous uptrends developing in many gold stocks.
In contrast, I’m extremely excited by the price action in a wide array of gold stocks, silver stocks, and blockchain currencies. I have predicted that the upside fun will continue and is poised to accelerate quite dramatically in the second half of this year.
Please click here now. Western governments focus on regime change in Mid-East while China takes another step forwards in what I call the gold bull era.
Morgan Stanley’s stock market indexes are a institutional benchmark, and China’s gold demand growth is strongly correlated with income growth, stock market performance, and overall GDP growth.
In terms of goods and services produced and consumed, China is by far the world’s largest economy. Soon it will become the richest as well, leaving demographically-impaired and debt-obsessed America in its wake.
Gold investors in the West can choose to live in an emotional state of doldrums and boredom, or they can feel great comfort as they watch China put a relentlessly rising floor under the gold price.
I choose to enjoy the mild excitement and great comfort generated by the gold bull era.
Please click here now. While China expands its gold-oriented influence, India is functioning like a gold-oriented starship attached to a Chinese locomotive train with a gigantic rubber band.
As the strong season for gold in India begins in the summer, inflation has suddenly started a nasty turn to the upside. Indians and Germans are the global citizens most concerned with inflation.
As inflation begins to stun most observers with the power of its surge over the next eighteen months, I expect Indian gold demand to begin a historic leg higher. Germans will join the fun, and institutional money managers around the world will commit to substantial gold stock buy programs as that happens.
Please click here now. Double-click to enlarge. There are only four to six weeks before the strong demand season for gold begins, and does so against the background of more rate hikes, QT, a fading US business cycle, and inflation that could grow like “Jack And The Bean Stalk”.
There’s not much time to get positioned in my key $1310 – $1280 buy zone before the strong season and rising inflation raise the gold price floor above $1400 and keep it there for decades.
Nervous accumulators can mitigate their nervousness with a put options strategy, but even if bullion pulls down to $1280, I expect many miners to keep rallying!
Please click here now. I’m in absolute agreement with Pete Boockvar, and I’ll take his views a step further and suggest that in the current environment QT and rate hikes are going to make inflation grow like Jack and the golden beanstalk!
Please click here now. My “line in the sand” head and shoulders top neckline for US T-bonds looks ready to break. There could be some hesitation but I think a June rate hike and accelerated QT from Powell will seal this deal.
That could create an equity market panic and more concern about real estate mortgages. Previous Fed hikes have coincided with the start of significant gold price rallies, and this one could turn into a real barnburner.
Please click here now. London’s biggest metals dealer has announced bitcoin and gold trading. There’s a growing synergy between the blockchain and gold community.
I expect that to intensify quite dramatically as miners like Agnico and Goldcorp get more involved with the technology.
Please click here now. The excitement being generated by the blockchain currency assets is incredible. ZCASH is a key currency and it has surged 40% just in the past twenty-four hours. The Gemini exchange run by the Winklevoss billionaires just received regulatory approval for institutional and retail trading of more great blockchain currencies like ZCASH!
For bitcoin itself, I have an eighteen-month target of $50,000 a coin, and an ultimate target of $500,000.
I’m a miner myself, and I’m installing a lot of solar panels to ensure I have more than enough juice to power my joyous blockchain era upside ride! Investors who want to get richer with blockchain currency action can subscribe to my maverick www.gublockchain.com newsletter.
Please click here now. Double-click to enlarge this important GDX chart. Some individual component stocks of the GDX ETF are going to keep rising in the uptrend and others will pull back a bit before blasting higher.
At this point it’s simply unknown which route GDX follows before global inflation begins to grow faster than what I’ll call Jack and his bull era bean stalk! What is known is that I want all gold community investors to be comfortably invested in key gold stocks so they build maximum wealth as the bean stalk of inflation begins to grow… and grow… and grow!
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am.The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
Please click here now. Double-click to enlarge this daily gold chart. Gold has traded in a drifting rectangle pattern for most of this year.
Please click here now. Double-click to enlarge this important weekly gold chart.
The rectangle pattern on the daily chart is part of a huge weekly chart base pattern. That has been forming for about five years.
Note the enormous increase in trading volume over the past two years. This is extremely positive technical action.
Trump appears ready to make an announcement concerning US government relations with Iran today. That could re-open the oil-for-gold trade in Turkey and other countries.
It’s unlikely that anyone in China really cares very much about what the US government announces today, tomorrow, or in the future, and rightly so.
In another five years it’s unlikely that anyone in India will care what the US government does either.
This is the beginning of what I call the China and India oriented “gold bull era”. It’s an era that is rekindling respect amongst global money managers for gold as the ultimate asset and portfolio returns enhancement tool.
I’m adamant that the correct minimum amount of gold that should be held in a stock and bond portfolio to maximize returns is 20%. The ideal portfolio may be 30% bonds, 30% stocks, 30% gold, and 10% blockchain.
Regardless, long term precious metals investors should ignore short term market noise and focus on the big weekly chart base pattern for gold. Note the price targets of $1500 and $1750.
That’s where to book some profits and/or buy put options in expectation of a significant pullback in the price.
Please click here now. Double-click to enlarge this dollar-yen chart. Another bear market rally for the dollar is nearing completion. That bodes well for a gold price surge towards my first target at $1500.
Most analysts claim the dollar is rallying because of rate hikes, but the cold truth is that the dollar has collapsed after almost every recent rate hike.
I’m projecting this trend will continue and likely accelerate. Please click here now. If investors are racing to buy US bonds to get higher rates, why does this T-bond chart look like something the cat dragged in?
Many investors are indeed buying bonds because of rate hikes, but the Fed’s QT program is countering their buying. All the mainstream media hype about higher rates and the dollar has produced nothing more than wet noodle rallies for both bonds and the dollar.
It’s just a matter of time before more rate hikes and QT from Jay Powell push the T-bond under my 142 “line in the sand” zone.
When that price zone fails, panic amongst institutional money managers could begin. That could usher in a substantial new leg down for the US stock market.
“Some investors and institutions may not be well positioned for a rise in interest rates, even one that markets broadly anticipate, and, of course, future economic conditions may surprise us, as they often do.” – Jay Powell, US Fed Chair, May 7, 2018.
I believe the surprising economic conditions that Jay alludes to in that statement are going to be surprisingly inflationary.
On that note, please click here now. Double-click to enlarge this GDX chart.
Many Western gold mining stocks are trading at 1998 prices, and a large part of the problem relates to the deflationary collapse in US money velocity that began in 1995.
A new era of inflation is beginning in the West. That is going to turn gold stocks into the kind of safe haven that bullion functioned as during the previous 1995 – 2014 deflationary era.
GDX is trading in a tight rough range between $21 and $23.25. All inflation and bull era enthusiasts should be buyers of GDX and component stocks in this range. Use put options to manage emotional jitters.
Aggressive traders can buy a two-day close above $23.25 with an initial target of $25, and this is likely the beginning of a much longer-term move that should see GDX rise to new all-time highs as gold reaches $1750.
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
A time-tested mantra for the US stock market is, “Sell in May and go away.”
The depth of a stock market sell-off that begins in May depends on where the United States economy sits in the business cycle. In the early stages of the cycle, sell-offs that begin in May are great buying opportunities.
As the business cycle peaks, the US stock market has a nasty habit of not just losing upside momentum in May, but suffering a horrific crash in September or October.
Tomorrow is the next FOMC meeting and there’s clearly a new sheriff in central bank town.
I refer to Ben Bernanke as Dr. Jeckyll and Jay Powell as Mr. Hyde. The bottom line is that Powell is proceeding with aggressive rate hikes and quantitative tightening (QT).
With the Fed now deploying a major hiking cycle while the business cycle is in a late stage, the more appropriate mantra for 2018 could be, “Sell in May or get blown away!”
Please click here now. Double-click to enlarge. Note the price zone on this Dow chart that I’ve defined as a key line in the sand for the US stock market.
Some Fed speakers have talked about the potential for the central bank to become more aggressive, given the inflationary implication of tax cuts coming at this late stage of the business cycle. If Powell himself makes any such statement this week it could create an institutional investor panic. That would likely send the Dow tumbling under my line in the sand zone.
Please click here now. Stock market investors who bought only in recent years should give serious consideration to the use of put options as a strategy to mitigate the fast-growing risks that the US central bank is putting on their table.
My personal stock market focus is China and India, and to a lesser degree South Korea and Japan. These markets can crash along with the US market, but they are poised to recover more quickly and offer vastly more long-term upside potential than US markets.
Most neocons think that North Korea’s Kim responded to Trump threatening him. I don’t believe Kim or most North Koreans are threatened by Trump at all. Trump did show Kim that if North Korea wants to spew endless war mongering propaganda about America, he can do so too. He simply showed Kim how silly and outdated this propaganda is for the modern era.
Peace on the Korean peninsula is coming not because of silly “hawk talk” from Trump but because North Korea’s government is ready to make economic deals and move away from pure communism. Trump has likely offered significant economic carrots to Kim in return for dialing back its nuclear weapons programs.
“Some big investors see warning signs ahead for markets but are holding their positions. Egyptian billionaire Naguib Sawiris is taking action: He’s put half of his $5.7 billion net worth into gold.” – Bloomberg News, May 1, 2018.
Please click here now. Sawiris is arguably one of the world’s biggest gold stock investors. He’s a master investor with a target of $1700 to $1800 for bullion.
Sawiris wants to see more hardcore business owners on the boards of gold mining companies. His opinion is that there are too many miners and bankers on these boards, and to really succeed in what I call the “gold bull era”, more businessmen are needed. I agree!
Please click here now. Double-click to enlarge. Sawiris is one of the largest shareholders in Australia’s Evolution Mining stock, and it’s pretty clear he’s riding a winning horse. Evolution is the number two gold producer in Australia now and it’s magnificently poised to prosper in the China and India oriented gold bull era.
I have a long-term target of $100 a share for Evolution. Investors can be comfortable paying as much as $10 for this fabulous company. In the $5 to $3 area, I’m an eager buyer on every 25cents dip and an eager seller of a third of what I buy on rallies that carry the stock 50cents higher than my buy price.
I cover Evolution (and other key Aussie miners) on my junior miners site at www.gracelandjuniors.com It’s a key component of my extensive “Thunder Down Under” portfolio.
Please click here now. Double-click to enlarge. Gold bullion is performing exactly as I’ve projected it would over the past couple of weeks. Excitingly, it’s now entering my key $1310 to $1280 buy zone.
Investors who took my recommendation to buy put options in the $1370 area should begin booking juicy profits on those options now. Book more profits on more options on any deeper weakness under $1300 ahead of this Friday’s jobs report release.
I don’t expect any serious upside gold price fireworks to occur until the Fed’s June meeting is complete. That will almost certainly see Powell oversee another rate hike and a ramp-up of QT. That should shock US stock and bond markets and blast gold higher. Having said that, gold is oversold now. In the days following the jobs report, a decent move higher is likely in the cards for gold price enthusiasts.
Please click here now. Double-click to enlarge. For the past few years, key Chinese gold jewellery stocks and Aussie miners have soared higher while GDX and most Western miners have languished. I think that’s about to change, with GDX set to join the upside fun, regardless of what happens to bullion in the medium term.
Yesterday’s high-volume day should be noted. Days where volume spikes tend to suggest a minor trend rally or decline is almost finished. Some GDX components (like Barrick) have soared higher while bullion has swooned. That hasn’t happened in a meaningful way since the heady inflationary days of the 1960s and 1970s. The inflation that will be created by launching tax cuts in the late stage of the business cycle is only beginning, and investors need to get positioned in gold stocks now to benefit.
Investors should focus any buying of protective put options more on bullion than gold stocks. Regardless, gold bullion is poised for good second half of the year performance, and gold stocks are poised for a great one!
The gold miners’ stocks have mostly been consolidating low this year, exacerbating bearish sentiment. Even with gold grinding higher in a solid uptrend and nearing a major upside breakout, the gold stocks just can’t get any love. But that may be about to change, with gold and its miners’ stocks in the midst of their spring rally. Strong seasonal tailwinds make May one of the best months of the year in gold-stock bulls.
Gold-stock performance is highly seasonal, which certainly sounds odd. The gold miners produce and sell their metal at relatively-constant rates year-round, so the temporal journey through calendar months should be irrelevant. Based on these miners’ revenues, there’s little reason investors should favor them more at certain times of the year than others. Yet history proves that’s exactly what happens in this sector.
Seasonality is the tendency for prices to exhibit recurring patterns at certain times during the calendar year. While seasonality doesn’t drive price action, it quantifies annually-repeating behavior driven by sentiment, technicals, and fundamentals. We humans are creatures of habit and herd, which naturally colors our trading decisions. The calendar year’s passage affects the timing and intensity of buying and selling.
Gold stocks exhibit strong seasonality because their price action mirrors that of their dominant primary driver, gold. Gold’s seasonality generally isn’t driven by supply fluctuations like grown commodities experience, as its mined supply remains fairly steady all year long. Instead gold’s major seasonality is demand-driven, with global investment demand varying dramatically depending on the time within the calendar year.
This gold-demand seasonality is well-known and heavily studied. The seasonal gold year starts in late July as Asian farmers begin reaping their harvests. They plow some of their surplus income into gold. That’s followed by the famous Indian wedding season in autumn, with its heavy gold buying for brides’ dowries. That culture believes festival-season weddings have greater odds of yielding long, successful marriages.
After that comes the Western holiday season, where gold jewelry demand surges for Christmas gifts for wives, girlfriends, daughters, and mothers. Following year-end, Western investment demand balloons after bonuses and tax calculations as investors figure out how much surplus income the prior year generated for investment. Then Chinese New Year gold buying flares up after that heading into February.
These understandable cultural factors drive surges of outsized gold demand between summer and late winter. But interestingly there is one more gold-demand spike in spring. Over the years I’ve seen a variety of theses explaining this April-and-May seasonal gold rally, but nothing definitive like for the rest of the year’s gold seasonality. As silly as it sounds, I suspect spring itself is the reason for this demand surge.
Sentiment exceedingly influences investing, which requires optimism for the future. Investors won’t risk deploying their scarce capital unless they believe it will grow. And the glorious expanding sunshine and warming temperatures of spring naturally breed optimism. The vast majority of the world’s investors are far enough into the northern hemisphere that spring has a major impact. This seasonality extends to stocks too.
Since it’s gold’s own demand-driven seasonality that fuels the gold stocks’ seasonality, that’s logically the best place to start to understand what’s likely coming. Price action is very different between bull and bear years, and gold is absolutely in a young bull market. After being crushed to a 6.1-year secular low in mid-December 2015 on the Fed’s first rate hike of this cycle, gold powered 29.9% higher over the next 6.7 months.
Crossing the +20% threshold in early March 2016 confirmed a new bull market was underway. Gold corrected after that sharp initial upleg, but normal healthy selling was greatly exacerbated following Trump’s surprise election win. Investors fled gold to chase the taxphoria stock-market surge. Gold’s correction cascaded to monstrous proportions, hitting -17.3% in mid-December. But that was shy of a new bear’s -20%.
Gold’s last mighty bull market ran from April 2001 to August 2011, where it soared 638.2% higher! And while gold consolidated high in 2012, that was technically a bull year too since gold just slid 18.8% at worst from its bull-market peak. Gold didn’t enter formal bear-market territory at -20% until April 2013, thanks to the crazy stock-market levitation driven by extreme distortions from the Fed’s QE3 bond monetizations.
So the bull-market years for gold in modern history ran from 2001 to 2012, skipped the intervening bear-market years of 2013 to 2015, and resumed in 2016 to 2017. Thus these are the years most relevant to understanding gold’s typical seasonal performance throughout the calendar year. We’re interested in bull-market seasonality, because gold remains in its young bull today and bear-market action is quite dissimilar.
This chart averages the individually-indexed full-year gold performances in those bull-market years from 2001 to 2012 and 2016 to 2017. 2018 isn’t included yet since it remains a work in progress. This chart distills out gold’s bull-market seasonal tendencies in like percentage terms. Quantifying gold’s bull-market seasonal tendencies requires all relevant years’ price action to be recast to be perfectly comparable.
That’s accomplished by individually indexing each calendar year’s gold price action to its final close of the preceding year, which is recast at 100. Then all gold price action of the following year is calculated off that common indexed baseline, normalizing all years regardless of price levels. So gold trading at an indexed level of 105 simply means it has rallied 5% from the prior year’s close, while 95 shows it’s down 5%.
This methodology renders all bull-market-year gold performances in like percentage terms. That’s critical since gold’s price range has been so vast, from $257 in April 2001 to $1894 in August 2011. Finally each calendar year’s individually-indexed gold prices are averaged together to arrive at this illuminating gold-bull seasonality. Gold has always tended to enjoy strong rallies in the spring months of April and May.
During these modern bull-market years from 2001 to 2012 and 2016 to 2017, gold’s spring rally tended to start in mid-March on average. From that major seasonal low following the winter rally, gold often starts grinding higher before its gains accelerate through April and most of May. This spring rally has generally run its course by late May. Across the 14 bull years in this study, gold averaged nice spring rallies of 3.7%.
This spring rally unfolds rapidly, with an average duration of just 2.2 months. That makes it the smallest and shortest of gold’s three major seasonal rallies, falling way behind the champion 9.5% winter rally that precedes it and strong 6.6% autumn rally that follows the summer doldrums. Nevertheless, it is still well worth trading. 3.7% gains still really make a difference, and naturally about half of years exceed this average.
This year gold’s spring-rally bottoming came on March 20th, when gold closed at $1310 the day before the Fed was universally expected to hike for the 6th time in this cycle. That was March’s 14th trading day this year, right in line with gold’s average seasonal low on March’s 10th trading day. And so far gold has largely followed the spring-rally seasonal pattern since, gradually grinding higher from late March to mid-April.
Climbing the typical 3.7% from that spring low into May’s spring-rally topping would propel gold to $1358. That’s right on the verge of being a major decisive breakout from the horizontal $1350 resistance line that gold-futures speculators watch like hawks. And it isn’t far from new bull-market highs above July 2016’s $1365 bull-to-date peak. As I wrote last week, this spring rally really ups the odds gold is nearing a bull breakout!
And given its performance in April, gold ought to see a bigger May rally than usual this year. On average in these 14 modern bull-market years, gold climbed 1.8% in Aprils then another 1.3% into its late-May spring-rally toppings. But as of the middle of this week, gold was actually down 0.1% month-to-date in April. That’s poor performance by April standards, setting up this May for a strong mean-reversion rally.
Historically this spring-rally April-May span is often self-equalizing. If gold materially underperforms or outperforms its seasonal averages in April, its May performances tend to mean revert and overshoot in the opposite direction. Back in 2009 for example, gold fell 3.4% in April but then blasted 10.0% higher in May! In 2016 gold surged 5.1% in April before dropping 6.1% in May. Weak Aprils often lead to strong Mays.
If gold is bid too aggressively in April, the resulting excitement entices in and exhausts all available near-term buying before the summer doldrums. That certainly hasn’t happened this year. Gold rallied into mid-April, but reversed sharply on a strong short-covering rally in US Dollar Index futures. Thus gold has largely drifted sideways on balance this month. So the usual spring buying likely hasn’t even started yet!
That leaves traders with full capital firepower to flood back in in May, likely as the sharp USDX rally runs out of steam. The delayed spring-rally gold buying this year can all be compressed into May, which really increases the odds of outsized gains. While nothing is guaranteed in seasonals since they merely use multi-year averages to reveal trend tendencies, strong Mays are definitely more likely following weak Aprils.
And as goes gold, so go gold stocks. Gold stocks also exhibit strong seasonality, which is of course the direct result of gold’s own seasonality. Since gold-mining costs are largely fixed when mines are being planned, fluctuations in gold’s price flow directly into amplified moves in gold-mining profits. Higher gold prices drive much-higher earnings for the gold miners, which attract in more investors to bid up stock prices.
The ironclad historical relationship between the price of gold, gold-mining profitability, and therefore the gold-stock price levels is exceedingly important to understand. If you need to get up to speed, I wrote an essay looking at gold-stock price levels relative to gold early last month. Fundamentally gold stocks are leveraged plays on gold. Thus they really outperform in the spring due to gold’s strong seasonal rally.
This next chart applies this same bull-market-seasonality methodology used on gold directly to the gold stocks. It looks at the average annual indexed performance in the flagship HUI NYSE Arca Gold BUGS Index in these same bull-market years of 2001 to 2012 and 2016 to 2017. Because of gold’s dominant influence over gold-mining earnings, gold-stock seasonality naturally mirrors and amplifies gold’s own seasonality.
Gold stocks’ seasonal spring rally is much stronger than gold’s, buttressing that spring-optimism-drives-stock-buying thesis. Between mid-March and early June, the gold stocks have averaged hefty 12.8% rallies in these 14 modern bull-market years. That makes for exceptional 3.5x upside leverage to gold’s 3.7% seasonal spring rally! Interestingly this is gold stocks’ best seasonal leverage to gold’s gains by far.
While the HUI averaged 15.5% surges during gold’s winter rally, that only made for 1.6x upside leverage to gold’s big 9.5% gain. And the HUI’s 10.5% average gain during gold’s autumn rally also only amplified gold’s 6.6% gain by 1.6x. So while the gold-stock spring rally’s 12.8% average gains rank second out of these three seasonal rallies, it offers the most bang for the buck in gold-stock upside compared to gold!
This year the gold stocks’ spring-rally bottoming happened on March 20th, the same day as gold’s. The HUI slumped to 169.2 that day. Since then this leading gold-stock index has recovered 6.9% as of the middle of this week, trouncing gold’s 1.0% spring-rally gains so far. A merely-average spring rally would take the HUI to 190.9 by late May or early June, which is another 5.6% higher from here. That’s worth riding.
But if gold’s seasonal spring rally is compressed into May, and strong buying forces it over $1350 or even better its $1365 bull-to-date high, the gold miners’ stocks have far more near-term upside potential. For the most part gold stocks remain deeply out of favor, forgotten or ignored. But they will explode back on to speculators’ and investors’ radars if major new gold highs attract the financial media’s interest and attention.
Again as I discussed last week, gold’s nearing bull breakout will work wonders for not only psychology but hard gold-mining profits. The gold stocks are radically undervalued today compared to their actual underlying fundamentals. In Q4’17 gold averaged about $1276 per ounce, but the major gold miners of the leading GDX VanEck Vectors Gold Miners ETF reported average all-in sustaining costs of just $858 per ounce!
So they were already collectively earning fat operating profits of $418 per ounce. And these are going to soar in Q1’18, because the average gold price surged 4.1% quarter-on-quarter to $1329. Since mining costs are largely fixed, all-in sustaining costs will likely stay flat from Q4. That means major gold miners’ operating profits are likely to rocket 12.7% QoQ to $471 per ounce! That will delight contrarian investors.
The gold miners will be releasing these latest Q1 results between now and mid-May, right when gold is powering higher in its seasonal spring rally. So the gold stocks are certainly set up for an outsized spring rally this year! The potent combination of absurdly-cheap gold-stock prices, surging earnings forcing their valuations even lower, and higher gold prices attracting financial-media attention should really stoke traders’ interest.
This last chart breaks down gold-stock seasonality into even-more-granular monthly form. Each calendar month between 2001 to 2012 and 2016 to 2017 is individually indexed to 100 as of the previous month’s final close, then all like calendar months’ indexes are averaged together. Slicing up seasonal tendencies this way shows May has averaged the second-strongest monthly gold-stock gains in modern bull-market years.
During these 14 Aprils in modern gold bull-market years, the gold stocks as measured by the HUI saw average gains of 1.6%. But the lion’s share of the spring-rally gains came in May, where average gains more than tripled to 5.0%! For decades if not longer, May has been one of the best and most-important months to be heavily long gold miners’ stocks. Only February proved better seasonally at a +5.4% average.
The key to gold stocks’ spring rally is to get your capital deployed in mid-March, when gold stocks swoon to their spring-rally bottoming. In intra-month terms the initial gains are often fast in late March as gold stocks rebound out of oversold lows. But then the spring rally tends to slow down in April, discouraging impatient and short-sighted traders. The real gains come in May, and next month’s setup is exceptionally bullish.
Of course the standard seasonality caveat applies that these are mere tendencies, not primary drivers of gold or gold stocks. Seasonal tailwinds can be easily drowned out by bearish sentiment, technicals, and fundamentals. Seasonality doesn’t always work, especially when it doesn’t align with the primary drivers of sentiment, technicals, and fundamentals in that order. Thankfully that certainly isn’t the case this year.
The gold miners’ stocks aren’t entering their second-strongest month of the year overbought after a big rally. Quite the contrary, they have really underperformed year-to-date on excessive bearishness. This week the HUI was actually still down 6.0% so far in 2018, far behind gold’s modest 1.6% gain! Since gold-mining profits amplify gold price moves, gold-stock prices tend to leverage gold by 2x to 3x much of the time.
Thus spring rally aside the HUI should already be up 3.1% to 4.7% year-to-date, or trading between 198.3 to 201.4 compared to this week’s anomalously-low 180.8. That’s another 9.6% to 11.3% higher from here even if gold merely stays near $1325. The gold stocks are overdue to mean revert higher no matter what gold does! Gold’s spring rally will simply hasten and enlarge gold stocks’ long-delayed next upleg.
The farther gold rallies in May in one of its strongest spans of the year seasonally, the closer it will get to major breakouts and new highs. The higher gold climbs, the more attention it will get from the financial media, investors, and speculators. As their sentiment turns bullish again, capital will flood back into the beaten-down gold stocks. The gold miners’ coming surging earnings in their Q1 results are icing on the cake.
While investors and speculators alike can certainly play gold stocks’ coming spring rally with the major ETFs like GDX, the best gains by far will be won in individual gold stocks with superior fundamentals. Their upside will trounce the ETFs’, which are burdened by over-diversification and underperforming gold stocks. A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation.
At Zeal we’ve literally spent tens of thousands of hours researching individual gold stocks and markets, so we can better decide what to trade and when. As of the end of Q4, this has resulted in 983 stock trades recommended in real-time to our newsletter subscribers since 2001. Fighting the crowd to buy low and sell high is very profitable, as all these trades averaged stellar annualized realized gains of +20.2%!
The key to this success is staying informed and being contrarian. That means buying low before others figure it out, before undervalued gold stocks soar much higher. An easy way to keep abreast is through our acclaimed weekly and monthly newsletters. They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. For only $12 per issue, you can learn to think, trade, and thrive like contrarians. Subscribe today, and get deployed in the great gold and silver stocks in our full trading books!
The bottom line is gold stocks experience a strong spring rally seasonally. This is driven by gold’s own seasonality, where outsized investment demand arises at certain times during the calendar year. Gold usually enjoys a strong spring rally likely driven by the universal optimism this season brings. And since gold drives gold miners’ profitability, their stock prices naturally follow it higher while amplifying its gains.
And gold stocks’ already-strong spring rally is likely to prove exceptional this year. Gold stocks have really lagged gold so far in 2018, despite fat earnings rapidly growing with higher gold prices. Once gold nears breakouts, traders are going to remember the gold miners and be amazed by their dirt-cheap stock prices wildly disconnected from fundamentals. They will flood back into this small sector catapulting it higher.
Adam Hamilton, CPA
April 27, 2018
Copyright 2000 – 2018 Zeal LLC (www.ZealLLC.com)
It was an interesting week in the precious metals complex. There appeared to be the start of a short squeeze in Silver (hedge funds were heavily short) but it ceased at an important resistance. Meanwhile, Gold closed the week on a weak note, losing $1340-$1350. The gold stocks, like silver closed the week below technical resistance. The price action in the complex continues to suggest that a breakout in Gold is the key to unleashing strong outperformance from Silver and the gold stocks.
While Silver has very supportive sentiment, it has not broken out from its downtrend yet. The net speculative position was at 1.1% a few weeks ago, an all time low. That won’t spring Silver by itself unless Silver can surpass critical resistance in the mid $18s. And that may not happen until Gold breaks $1360-$1370. Silver has strong support in the low to mid $16s.
Silver & Silver Net Speculative Position
Moving to Gold, the daily chart below shows Gold losing $1340-$1350 after rejection again at $1360. Immediate support for Gold lies at $1325 which if broken would lead to a test of $1300-$1310 and the 200-day moving average.
Gold Daily Candles
We have a few observations to share with respect to the gold stocks. First, GDXJ has pulled back from trendline resistance around $34. Second, breadth indicators for GDX such as the advance decline line (A/D) and the bullish percentage index (BPI) are showing a positive divergence. The BPI has reached a 52-week high while the A/D line is not far from its January peak when GDX nearly hit $25. So while GDX has been relatively weak, its internals are showing more strength.
Silver and the gold stocks have yet to break important resistance as Gold once again was turned back at major resistance. If the US Dollar, which closed at 90.07, rallies up to its 200-day moving average at 92, Gold would likely test $1300-$1310. Should Silver and the gold stocks hold up well in that scenario (which could be suggested by current breadth) then it would imply a good rebound from the sector back to resistance points. Lower prices in the juniors would be a welcome sign and another opportunity to accumulate ahead of a major breakout in the not too distant future. In anticipation of that breakout, we have been accumulating the juniors with 300% to 500% upside potential over the next 18-24 months. To follow our guidance and learn our favorite juniors, consider learning more about our premium service.
Gold remains largely forgotten, off the radars of most investors. But that’s likely to change soon as this leading alternative investment is nearing a major bull breakout. Once gold climbs to decisive new bull-market highs, sentiment will turn and investors’ interest will surge. Their resulting buying will rapidly drive gold higher, attracting in more capital inflows. Gold is only a couple modest up days away from that key breakout.
Universally in all markets, traders’ psychology is completely dependent on price action and levels. When prices are high and rising, speculators and investors alike eagerly buy in. They love chasing winners, so buying begets buying. This creates powerful self-reinforcing virtuous circles, with rising prices helping to entice in ever-more traders. In recent years this dynamic catapulted the market-darling FANG stocks higher.
With capital inflows following performance, investments that aren’t high and rallying naturally see waning popularity. That’s the story of gold over the past couple years or so. Gold’s last new bull-market high came way back in early July 2016, when it hit $1365. That was 21.3 months ago, which may as well be an eternity in terms of sentiment. In most traders’ minds, gold has effectively been dead and buried ever since.
While contrarian investors always follow gold, most mainstream investors don’t. They only get interested when gold is powering up to major new highs. This psychology holds true everywhere in the markets, it’s certainly not unique to gold. A handful of mega-cap tech stocks have soared since Trump’s election win in November 2016, but other mega-cap tech stocks have lagged far behind. Traders always pursue performance.
This first chart looks at gold’s technical price action over the past couple years or so. A mighty new bull market erupted out of deep despair, blasting higher with steep gains. But the gold-investment-driving force behind it soon reversed, so this young bull stalled out. Gold hasn’t been able to best those initial bull highs ever since. So with no new highs to spark excitement, gold has slipped off investors’ radars.
Gold prices are heavily influenced by gold-futures speculators. The extreme leverage inherent in futures trading enables these traders to punch way above their weight in bullying the gold price around. There is nothing these guys fear more than Fed rate hikes, even though history proves that’s absolutely irrational. So heading into the Fed’s first hike of this cycle in December 2015, gold slumped to ugly 6.1-year secular lows.
But such extreme bearishness made no sense, as gold has thrived in past Fed-rate-hike cycles. So once that initial rate hike came and gold didn’t plunge, speculators rushed to buy back in to gold futures after that $1051 low. They were soon joined by investors with their huge pools of capital. They were spooked by the first stock-market corrections in 3.6 years, which boost gold demand to diversify stock-heavy portfolios.
Thus gold soared 29.9% higher in just 6.7 months in essentially the first half of 2016, easily crossing that classic +20% new-bull-market threshold. Gold’s $1365 bull peak in early July 2016 was closely tied to stock-market fortunes, coming the very day before the flagship US S&P 500 stock index achieved its first new record close in 13.7 months. With stock markets off to the races again, gold investment demand waned.
Gold had been very overbought after such a blistering rally, and speculators had record long positions in gold futures which is a contrarian indicator. But gold still consolidated high in the summer of 2016 until it was hit by two anomalous events. First gold-futures stops were run as gold fell below $1300, driving a sharp drop to its 200-day moving average. Gold recovered quickly from that until Trump’s surprise win.
Very few traders expected Trump to stage a colossal underdog upset and win the presidential election in early November 2016. It was an extreme contrarian position, seen as madness. Interestingly as I wrote the very weekend before that voting, a powerful stock-market indicator predicted Trump would indeed win! That soon came to pass, shocking speculators and investors into greatly reevaluating their outlooks.
With Republicans soon to control the presidency and both chambers of Congress, traders’ euphoria flared to eye-searing brilliance. They were captivated by hopes for big tax cuts soon, and rushed to buy stocks with reckless abandon. As the stock markets surged first on Trumphoria and later taxphoria, gold fell deeply out of favor. Investors abandoned it since they felt no need to prudently diversify their soaring portfolios.
Thus a normal healthy gold correction after a strong upleg cascaded into a 17.3% plunge over 5.3 months ending in December 2016. Such sharp losses naturally devastated gold psychology among traders. The bull market was still alive and well technically, as gold didn’t cross that -20% new-bear trigger. But gold was still left for dead as the levitating stock markets sucked in most capital. Traders had largely moved on.
But gold still looked really bullish in mid-December 2016, as I explained within days of that correction low. Investors were radically underinvested in gold after fleeing in the election’s wake. And the truly incredible psychology unleashed by the Republican sweep wasn’t sustainable or repeatable. It’s pretty rare where nearly everyone gets presidential and congressional elections so wrong! So gold was overdue for some buying.
Ever since that post-election anomaly it has indeed powered higher on balance in the solid uptrend you can see in this chart above. Gold has been relentlessly carving a series of higher lows and higher highs, which made for a 20.4% upleg over the next 13.3 months. That’s actually big enough to qualify as a new bull market, but again gold never entered a bear. Such strong price action should’ve improved sentiment.
But it really didn’t. The extreme taxphoria last year made 2017 one of the most-extraordinary years on record for the US stock markets. The S&P 500 ceaselessly levitated to a massive 19.4% gain in the first year of the Trump Administration, accompanied by record-low volatility. With big US stocks powering higher so dramatically and painlessly, who needed gold? It tends to rally when stock markets are selling off.
While contrarians were rightfully impressed with gold’s strong bull-market uptrend since those anomalous post-election lows, mainstream investors didn’t know or care. Everything was rainbows and unicorns for them, despite dangerous bubble valuations in the stock markets. While gold’s 13.2% rally in 2017 would command attention normally, the 35% to 57% gains in the FANG stocks overshadowed it and stole the limelight.
There’s no doubt over a year of gold seeing higher lows and higher highs is very-bullish price action. All students of the markets would recognize this viewing gold charts. But climbing support and resistance lines are lost on the financial media and mainstream investors. Investments only start garnering talk and mindshare when major new highs are hit. Popular psychology is totally dependent on that one technical aspect.
Futures speculators view the horizontal $1350 line as key technical resistance. Gold has tried and failed to break out above it from several to nearly a dozen times since the summer of 2016 depending on how you slice such attempts. These guys need to see a decisive $1350 breakout to really motivate them to buy again. I define decisive as 1%+ beyond an old technical extreme, or about $1364 in gold’s case today.
That’s just a stone’s throw away, very close. Last week gold closed near $1352, and this week it was still up at $1349. All gold needs to see is a couple modest up days of 0.6% to push it back over $1365 for the first time in 21.3 months! That would work wonders for sentiment, rapidly turning it to bullish which would fuel much gold-futures buying. And the speculators currently have lots of room to buy gold futures.
As of the latest Commitments of Traders report before this essay was published, total spec gold-futures longs are only running 25% up into their past year’s trading range. That means 3/4ths of these traders’ likely capital firepower remains available to buy back in. Believe me, if they think gold is going to break out above $1350 resistance they will flood in with a vengeance. These elite traders follow charts by necessity.
Every gold-futures contract controls 100 troy ounces of gold, worth $134,900 this week. Yet these only require traders to keep $3,100 of cash per contract in their accounts. That works out to absurdly-extreme 43.5x maximum leverage! The legal limit in the stock markets has been 2x for decades. Traders running at that crazy limit would lose 100% of their capital risked if gold merely moves 2.3% against their futures bets.
At 20x leverage that risk is still suffocating, with a 5% adverse move necessary to wipe out capital risked. So when gold looks to be breaking out above $1350, these traders will rush to buy to cover shorts and add new longs. They are well aware gold has formed a giant ascending-triangle chart pattern over the past couple years or so. That’s defined as rising lower support compressing a price into horizontal upper resistance.
When ascending triangles resolve, it’s usually with a sharp-to-explosive upside breakout. Once that long-vexing overhead resistance fails, traders rush back in catapulting the price higher. When gold breaks out of such a massive ascending triangle, technically-oriented traders are going to get the heck out of the way if they are short and rush to ride the breakout on the long side. Futures speculators live and breathe technicals.
Their coming buying will fuel a far-more-important breakout. To the financial media and investors, new bull highs are the only thing that will draw their interest. Before July 2016’s $1365 bull-to-date peak, the last time gold closed over $1365 was way back in March 2014. So a $1365+ close right now would be a major new 4.1-year high. You better believe that will catch investors’ attention, getting gold back on radars!
A 1% decisive breakout above $1365 requires $1379 on close. That sounds lofty since it’s been so long since gold challenged $1400, but it is merely 2.2% above this week’s levels! When investors start getting excited about gold again, it takes months or even years to reestablish meaningful portfolio positions. The vastly-larger pools of capital they control overpower and dwarf whatever the futures speculators are doing.
As I explored a couple months ago, investors are radically underinvested in gold today. They will have to shift capital into gold for a long time to come to reverse this major anomaly. New gold bull-market highs all alone will prove a powerful motivator for them. But that will likely be amplified greatly by the ongoing stock-market correction. Stock selloffs ignite big investment demand for counter-moving gold to diversify portfolios.
If either speculators buy gold futures or investors buy gold and its major ETFs led by GLD SPDR Gold Shares in any significant quantities, gold will absolutely see these major breakouts. And there’s actually a good probability of that coming to pass in the next month or so. Gold tends to enjoy a major seasonal rally from late March to late May. That ought to be plenty big to drive gold decisively over $1350 and $1365.
This should really excite contrarian speculators and investors. While the gains in gold will be nice, they will be trounced by the accompanying surge in the gold miners’ stocks. This sector’s leading benchmark is the GDX VanEck Vectors Gold Miners ETF. Its technical price action over this same gold-bull span is shown in this second chart. While gold is nearing new bull highs, the gold stocks are lagging far behind.
With little interest in gold since Trump’s election victory, the gold miners’ stocks have been abandoned and left for dead. They’ve been drifting sideways in a vexing consolidation between $21 to $25 in GDX terms since late 2016. That’s despite their very-strong fundamentals. In their latest-reported quarter of Q4’17, these leading gold miners reported collective all-in sustaining costs averaging just $858 per ounce!
That’s far below prevailing gold prices, showing this industry is earning fat operating profits. In Q4’17 gold averaged about $1276 per ounce. In the latest Q1’18 which the gold miners will soon report on, that surged 4.1% quarter-on-quarter to a $1329 average. That implies profits of $471 per ounce, which is up 12.7% QoQ from Q4’17’s results! The gold miners are thriving which stock prices haven’t recognized yet.
In Q1’18 GDX’s average price of $22.57 was actually 0.8% lower than Q4’17’s $22.76! This highlights how deeply out of favor the gold miners are. But that psychology will reverse dramatically on that coming major gold breakout. Once gold starts hitting new highs again, traders will flock back to gold stocks since their mining profits leverage and amplify gold’s gains. That will drive a parallel big breakout in major gold stocks.
This week GDX was languishing near $23, dead-center in its 15.6-month-old consolidation between $21 support and $25 resistance. It would have to surge to $25.25 for a decisive breakout that would attract in a deluge of new capital. That’s 9.9% higher from this week’s levels, which actually isn’t much at all for this small volatile sector. Once gold stocks start rallying, they tend to move fast making for huge gains.
Since gold’s bull market began in mid-December 2015, GDX has actually seen 55 trading days with 3%+ gains! That’s nearly 1 out of every 10 trading days over that entire 2.3-year span. The gold stocks are truly less than a week of decent rallying away from a decisive breakout of their own. And once they start moving, traders will rush to buy back in to ride their explosive upside. When gold is in favor, this sector soars.
In roughly the same span of this gold bull’s first upleg in the first half of 2016, GDX skyrocketed 151.2% higher in 6.4 months on the parallel 29.9% gold upleg. That made for awesome wealth-multiplying 5.1x upside leverage to gold! While gold stocks are abandoned and forgotten when gold isn’t on traders’ radars, once they get interested again the gold stocks stage massive catch-up rallies. The next one is nearing.
The major gold miners’ early-2016 upleg wasn’t extreme at all considering the fundamentally-absurd prices gold stocks were trading at back then. GDX actually slumped to an all-time low, while the major gold stocks as measured by their HUI index were at a 13.5-year low. They were trading at levels last seen in July 2002 when gold was near $305. So they needed to soar to mean revert out of that crazy anomaly.
Another massive mean reversion higher is certainly needed today. Gold first hit this week’s $1350 levels in mid-October 2010. Since this metal was carving new all-time highs, investors were eager to buy in for the ride. Back then GDX was trading over $57, or 150% higher than today’s levels with these same prevailing gold prices! GDX’s bull-to-date peak in early August 2016 was $31.32, or just 36% higher from here.
So there’s a high chance the gold-stock upleg driven by the coming gold breakout will easily catapult the gold stocks to new bull highs too. During the last secular bull in gold stocks between November 2000 to September 2011, the HUI skyrocketed 1664% higher. There were 11 major uplegs during that span that averaged 81% gains over 7.9 months each! So seeing gold stocks rally 40% or 50% from here is nothing.
The gold stocks are truly a coiled spring today, ready to explode higher soon and trounce everything else. They are deeply out of favor, incredibly undervalued, and one of the only sectors that can rally sharply when general stock markets sell off. If you want to multiply your wealth this year by fighting the crowd to buy low then sell high, this small and forgotten contrarian sector is the place to be. Nothing else rivals it.
While investors and speculators alike can certainly play gold stocks’ coming powerful upleg with the major ETFs like GDX, the best gains by far will be won in individual gold stocks with superior fundamentals. Their upside will far exceed the ETFs, which are burdened by over-diversification and under-performing gold stocks. A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation.
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The bottom line is gold is nearing a major bull breakout above $1365. That will turn psychology bullish and bring traders back in droves. Gold is rallying ever closer to new bull-market highs as evidenced by its massive multi-year ascending-triangle chart pattern now nearing a bullish climax. Today gold is only a couple percent below that decisive breakout, which will finally blast it back onto the radars of investors.
That’s likely coming soon, with gold in the midst of its major spring seasonal rally. Speculators have lots of room to add gold-futures longs, while investors remain radically underinvested. And once gold comes back into favor, the abandoned gold miners’ stocks are going to soar. Their prices are far below where they ought to be based on their fundamentals and prevailing gold levels. Their upside from here is enormous.
Sales and profits growth for key Asian gold jewelers continues to set the stage for an imminent and massive mining stocks rally.
Please click here now. Double-click to enlarge this fabulous Chow Tai Fook chart.
A major breakout to the upside is in play, and where Chinese jewellers go on the price grid, Western miners are likely to follow.
Some of the GDX component stocks are beginning to join what I term the “bull era upside fun” even though bullion has yet to prove itself with a three-day close over $1370.
Please click here now. Double-click to enlarge this daily gold chart. Gold is coiled beautifully inside a drifting rectangle formation, and there’s already been one attempt to break out to the upside.
Most component stocks of the US stock market indexes look technically horrific. A move for gold up to the “promised land” of $1450+ is likely to be fueled by both love and fear trade factors.
That’s because the next rate hike and quantitative tightening ramp-up is likely to occur against a background of ever-stronger jewelry demand coming from both China and India.
Gold cycle expert Erik Hadik notes that many American wars and disasters have occurred around the date of April 19. It’s unknown if there will be any “blowback” from the latest US military adventurism in Syria, but from a cyclical perspective, it could happen.
Please click here now. The Indian gold market has largely recovered from the ludicrous government policy attacks, and demand is strengthening in what appears to be a permanent trend.
With both Chinese and Indian demand looking very solid, all gold needs now to move it towards $1450 is a tiny boost of investment demand from Western fear traders.
On that note, please click here now. I don’t think most analysts and media people are listening carefully enough to Bill Dudley and other key players at the Fed.
They are starting to talk about what could make the Fed go from quarterly to monthly decision making for rate hikes. Bill casually mentions that stronger than expected inflation could push the Fed to do five or six rates hikes this year. That inflation hasn’t happened yet, but the labour market is still tightening and inflationary tariffs from Trump are likely on the horizon.
It’s important for investors to understand that most of the US stock market’s gains have been fuelled by corporate stock buyback programs. Those programs were made possible by QE and ultra-low interest rates. Just two or three more hikes this year could be enough to end those buybacks.
That would essentially create a “lights out” moment for stock market investors. Many of them bought their stocks late in the business cycle. They ignored the cycle because they hoped Trump would somehow recreate the 1950s US economy for them, even though America’s demographics are now almost the exact opposite of what they were in the 1950s.
In India, the population is gargantuan and the demographics of that population are similar to that of 1950s America… with the added bonus being that these citizens are obsessed with gold.
A recession in India now is essentially defined as 6% real GDP growth and 8% interest rates. In America, 8% interest rates would probably create minus 10% GDP and send the Dow Jones Industrial Average crashing down to under 1000. The bottom line: There are 3 billion new sheriffs in town, and they are all living in China and India, eager to buy more gold!
Globally, there are literally trillions of dollars invested in government bonds that still have negative interest rates. A few more hikes and accelerated QT from the Fed could crush investors in these bonds and create a much bigger panic in the stock market than the one that has already occurred this year.
Inflationary tariffs from Trump, an end to corporate buybacks, and the tightest labour market in America since the 1970s are poised to end the Fed’s interest rate policy of gradualism.
I’m now predicting that within six months the Fed will begin re-evaluating its quarterly hiking policy and will almost certainly replace it with a month by month evaluation policy for 2019.
I’m also predicting the Fed will begin “hawk talk” about a fifty basis point hike then, and that Powell will stay the course on QT. These events and processes should combine to create a series of major stock and bond market declines in America.
The world’s only true safe havens are gold and silver bullion, and they will see their lustre restored. I’m also predicting that millions of Chinese and Indian gold market gamblers will begin betting on the demise of American markets and government as the Fed tightens ever-more aggressively. These gamblers will place their main bets by buying vast amounts of gold.
Bond market “supremo” and GDX ETF enthusiast Jeff Gundlach has talked about gold being poised for a “thousand-dollar rally”. I fully expect Chindian gamblers and an imminent hawkish ramp-up in Fed policy to make his predicted rally happen.
Please click here now. Double-click to enlarge. We can all dream of what a thousand-dollar rally to $2400 would do for GDX, and for its component stocks that most gold bugs own. For now, investors need to satisfy themselves with the solid staircase-style rally that is in play.
Gold is more vulnerable than GDX in the short term, and I’ve been an eager gold stocks buyer in the entire $23 to $18 GDX price area. I have enough stock and my focus now is call options. That’s because a three-day close above $1370 for gold now appears imminent. Holding 70% calls and 30% puts on gold stocks is probably an ideal way for gold market gamblers to get positioned. I don’t gamble a lot, but I do gamble, and this gamble appears to be a very good one! The puts can be covered if gold trades at $1320 – $1280 and more calls can be added there. Whether gold bugs are conservative, moderate, or aggressive, a major opportunity appears to be at hand in the precious metals markets, and it’s time for action!
Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Golden Home Runs” report. I highlight key stocks gold and silver stocks poised to stage “home run” rallies of 100% and more, as gold surges towards $1450! I also include a special update on Novo Resources, which has started a fresh surge higher!
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am.The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
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Gold has firmed above $1300 in recent days and is holding comfortably above $1300 for now. We think the market will break to the upside sometime this year. The question is when. Here are 3 things to watch that will tell us if Gold is on the cusp of that break-out soon or later.
First, keep your eye on Gold’s close at the end of next week. It’s not only the end of the week and month but also the end of the quarter. While Gold has traded above $1350 multiple times in the past two years, it has not made a quarterly close above $1330 since 2012. Since this is a quarterly time frame, we would need to see a close above $1340 or even $1345 to mark a significant breakout. If Gold can make such a close next Friday then the odds are good that it could break above $1375 fairly soon.
Gold Quarterly Chart
Second, (and I always beat this to death) Gold needs to break its downtrends relative to foreign currencies (FC) and equities. The Gold/equities ratio appears to be breaking out but needs follow through for confirmation. The 200-day moving average in that chart appears to have stopped declining. If the ratio can hold above the 200-day moving average then it’s obviously a bullish sign. Meanwhile, Gold/FC has work to do. Over the last 10 months, it has traded in a tighter and tighter range. That trendline resistance could go hand in hand with resistance at $1365-$1375.
Gold, Gold/Foreign Currencies, Gold/Stocks
Finally, on the equity side, we want to see if GDX and GDXJ can break above their “A” resistance levels which are roughly $23 for GDX and $34 for GDXJ. The miners have been relatively oversold and with improving breadth (discussed in our premium updates) they could reach the A targets, which are slightly above the 200-day moving averages. If the market is sensing a break-out in Gold then GDX and GDXJ should trend above the A targets while the 200-day moving averages would become support. A move up to the B targets over the next four to six weeks would be very bullish.
GDX, GDXJ (Daily Line Charts)
Of course, the price action in Gold itself will answer the question but these other charts can not only give an early hint but can also inform as to the sustainability of Gold’s strength. The first test will be the quarterly close next week. Then we can monitor if the Gold/equities ratio is holding its breakout and if Gold/FC is strengthening.
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