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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:

Are You Prepared?

It has taken a few weeks to play out but our warning of a correction in precious metals (first on August 18) is coming to pass.

Last week Gold, Silver and GDX all formed big bearish reversals at multi-year resistance levels. Yes, these resistance levels (Gold $1550, Silver $18.50, GDX 31) date back to 2013.

Bonds and precious metals have benefitted from the shift in Fed policy as well as fears of recession and growth in negative interest rate bonds.

These drivers could pause or shift temporarily and that would be supportive of stocks and not precious metals. Let me explain.

First, the fears of recession are driven by the inversion of the yield curve. But the problem is the timing.

There is a lag between the inversion and the peak in the stock market, and stocks tend to perform well during that lag period. The data below shows an average gain of 13% and an average lag time of 10 months.

The U.S. stock market has held up very well despite growing recession fears and persistent bearish sentiment. In the chart below we plot the S&P 500 along with two sentiment indicators.

In recent weeks, the number of AAII Bears and the put-call ratio together hit their third highest level in nearly the past seven years. Despite that sentiment, the S&P appears to be emerging from its recent lows in the manner it did in 2012 and 2016.

A sustained rally in the stock market is going to allay some recession fears and suck some capital out of bonds thereby leading to higher yields.

This will cause precious metals to correct but that is no surprise given what the charts are already showing us. How much and how long of a correction will depend on Fed policy.

If the Fed continues to cut rates well into 2020 then that is bullish for precious metals even if the long end of the yield curve is rising. If the Fed cuts in September and stands pat until March 2020 then precious metals will continue to correct and digest recent gains.

Ultimately, the mix of a stronger dollar, inverted yield curve and political pressure is more likely than not to lead to continued rate cuts over the next 15 months.

Therefore if you missed the recent run in precious metals, don’t panic. It’s best to be patient and let this correction run its course. Better value and new opportunities will emerge. To learn the stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

by Jordan Roy-Byrne CMT, MFTA

September 10, 2019

The gold miners’ stocks have grown very overbought after soaring dramatically higher in recent months. Blasting really far really fast has left this sector really stretched technically and sentimentally. Excessive gains and greed always soon lead to major corrective selloffs, which are necessary to restore balance. All bull markets, even the most powerful, flow and ebb. Big uplegs are inevitably followed by corrections.

With gold and gold stocks plunging hard Thursday morning, the timing of this research thread is certainly lucky. My weekly-web-essay workflow is well-defined, this happens to be the 877th I’ve written. I have to decide on each week’s topic by early Wednesdays, to do the research and build necessary spreadsheets and charts that day.

Even before this latest bout of selling erupted, the serious downside risks facing overbought gold stocks were readily apparent. According to virtually every technical indicator out there, this sector was looking ever-more extreme in recent weeks. The longer and farther gold stocks surged, the greater the odds for a selloff. I warned about this Saturday morning in the conclusion to our latest monthly newsletter for subscribers.

Before the selling hit I wrote, “Gold is overextended, due for a healthy bull-market correction over the near-term. Its technicals are way too overbought, and its sentiment way too greedy. Too many buyers have flooded in too quickly, exhausting gold’s near-term upside potential. My best guess is a 6%-to-12% gold selloff, which the major gold stocks will leverage like usual by 2x to 3x.” That works out to 12% to 36%!

Stock prices can’t soar higher without material interruptions indefinitely. Even strong uplegs eventually burn themselves out, attracting in all interested buyers over the near-term. They rush to buy to ride the upside momentum, basking in the warm greed. But once their capital firepower is exhausted, price gains stall and peak. That leaves nothing but sellers, and their resulting downside momentum feeds on itself.

The massive gains gold miners’ stocks enjoyed in recent months have truly been extraordinary, stoking widespread greed. This first chart is a seasonal one, rendering this sector’s price action in like indexed terms during every summer in modern bull-market years. Normally gold and gold stocks face seasonal drifts to slumps in market summers, the dreaded summer doldrums. This summer’s monster rally defied that.

Traders use two major benchmarks to measure gold-stock prices, the popular GDX VanEck Vectors Gold Miners ETF and the venerable HUI NYSE Arca Gold BUGS Index. Both of these track the major gold miners’ stocks. While GDX has gradually usurped the HUI in prominence, it remains too young for long-term studies. GDX was born in May 2006, roughly halfway through the last secular gold and gold-stock bull.

So the HUI has to be used to distill all gold-stock summer action from 2001 to 2012 and 2016 to 2019, the modern gold-bull-market years excluding intervening bear years. Every summer is individually indexed to its final May close, which is set at 100. Then its June, July, and August price action is recast from that common baseline. All these individual-summer indexes averaged together show the summer-doldrums drift.

The center-mass trend of this spilled-spaghetti chart is a sideways grind, within 10% either direction of the final May close. This summer’s breakout gold-stock rally is rendered in dark blue, and it proved an utter monster. By the end of August, the HUI had skyrocketed 45.3% higher during the three calendar months of the market summer! The seasonal average in modern gold-bull-market years before 2019 was a 3.2% gain.

The gold miners just soared to their best summer performance in recent decades! The only comparable year was 2016, making its example important for gaming today’s overboughtness. The gold stocks spent the last few months racing higher neck-and-neck with the summer of 2016, trading the lead back and forth multiple times. It wasn’t until the last couple weeks that 2019 injected the nitrous and screamed past.

By the end of July 2016, the HUI had soared 36.3% summer-to-date compared to 2019’s considerably-smaller 26.9% gains in that same span. But by the end of August 2016, those had collapsed back down to +10.1% over that entire summer. This summer’s strong finish after a powerful multi-month rally is truly in a league of its own. Only 2003 rivaled it with 36.9% summer gains, but those started well later mid-summer.

Overboughtness is a relative thing, it can’t be defined absolutely since prevailing price levels gradually change over time. But the biggest summer gold-stock rally in modern history certainly raises concerns of running too far too fast. Gold stocks soaring by about half in several months is a huge move even by their wild standards! This mighty gold-stock surge looks even more extreme considered in longer-term context.

This next chart encompasses the current gold-stock bull since early 2016, which was driven by gold’s own parallel secular bull. Professional institutional investors have often gamed this bull with that leading and dominant GDX ETF, so it is used here rather than the older HUI. While the gold miners’ stocks achieved much technically this summer, there’s no doubt they soared to super-overextended levels which is ominous.

As of this past Wednesday’s close, the data cutoff for this essay, GDX had powered up 76.2% in 11.8 months. Interestingly that’s right in line with the last secular gold-stock bull’s average upleg gain. From November 2000 to September 2011, the HUI skyrocketed 1664.4% higher over 10.8 years! Those gains accrued in 12 separate uplegs. Excluding an anomalous post-stock-panic-recovery one, they averaged 80.7% gains.

It’s hard to believe now, but back in early May GDX languished at $20.17 and you could hardly give away gold stocks! Traders didn’t want anything to do with them when they were universally despised and easy to buy incredibly low. I was pounding the table on buying the dirt-cheap gold stocks last spring, when this sector still had massive near-term upside potential. Near-record gold-futures shorting portended a major upleg.

Near the end of April in an essay on gold futures, I explained why. “Speculators’ big bearish shift in gold-futures positioning will have to be normalized, resulting in big buying that will push gold higher. That upside momentum could really grow… The biggest gains as gold mean reverts back higher will come in the stocks of its miners. They’ve proven resilient as gold swooned, and are poised to surge again.”

The out-of-favor gold stocks ground along near demoralizing lows for most of May, giving traders plenty of opportunities to buy relatively low before they ran again. We took advantage of that then to aggressively load up on fundamentally-superior gold miners and silver miners in our subscription newsletters. Trump of all things proved the catalyst to awaken gold and thus its miners’ stocks. That happened at the end of May.

Gold and gold stocks started surging after Trump threatened Mexico with tariffs, in an attempt to force it to stem the flood of illegal immigration into the U.S. Tying trade tariffs to other issues stunned traders, which unleashed safe-haven buying in gold. That helped the gold stocks rally strongly though much of June, with bullish momentum. But they really didn’t start soaring until late that month on a momentous gold milestone.

While gold technically remained in a bull market, it hadn’t made a new bull-market high since right after this bull’s maiden upleg way back in early July 2016. After 2.9 years with zero new highs, traders had long since lost interest in this sector. But in late June after the Fed shifted its future-rate-hike outlook from hiking to cutting, gold finally staged a decisive bull-market breakout. That changed everything psychologically.

The best gold levels seen in 5.8 years lit a fire under gold stocks, which kept rallying sharply in July when they are usually forgotten. They were getting overbought by mid-July, so momentum flagged heading into month-end. They were starting to roll over into what would’ve likely been a pullback until Trump surprised again, hiking tariffs on China as August dawned. That ignited gold stocks’ latest surge earlier last month.

That too soon started to fade since the gold stocks were so overbought. Smart traders who’ve dedicated many years to studying and understanding market cycles realized a corrective selloff was increasingly likely after such a big and fast surge. But yet again in late August Trump surprised with still another hike on Chinese tariffs! That sparked and fueled another gold and gold-stock rally that persisted into this week.

The result of these three catalyzing Trump-tariff-hike announcements in recent months is the near-vertical gold-stock surge seen in these charts. GDX blasted to its best levels in 3.1 years. That’s not necessarily high absolutely, but it is certainly high relatively. When prices surge really far really fast on major buying as sentiment turns greedy, overboughtness always results. Such blistering rallies inevitably lead to selloffs.

While traders chasing the herd to buy in high later in uplegs practically panic when major selloffs hit, they are actually very healthy. They are essential and necessary to rebalance sentiment, eradicating the out-of-control greed after excessive gains. They force prices lower until technicals grow oversold as popular psychology waxes bearish. That leaves gold stocks relatively low again, a great opportunity to buy back in.

These inexorable upleg-correction cycles are what enable shrewd traders to multiply their wealth in bull markets. The goal is to buy relatively low after the corrections, then sell relatively high after the uplegs. This can only be achieved by doing what’s unpopular, fighting the crowd to do the opposite. When other traders are scared and selling is when to buy low, then when they are excited and buying is when to sell high.

The challenge is defining relatively low and relatively high, seeing oversold and overbought conditions in real-time when they can be capitalized upon. While there are many technical indicators, one of the best is among the simplest. It just looks at prevailing price levels relative to their 200-day moving averages. I call this Relatively Trading, and started developing this system over 15 years ago. It has proven really profitable.

There’s no gold-stock level that can be considered high absolutely across different years and toppings. In early August 2016, GDX peaked at $31.32. From there it would plummet 39.4% over the next 4.4 months in a colossal selloff! That was considered a correction instead of a bear market since gold-stock bull-and-bear cycles are defined by gold’s own. But GDX peaked at $66.63 in September 2011 with gold’s last bull.

Is GDX high at $31, which it again challenged this week, or does it have to get to $67 to be high? Gold stocks’ absolute price levels are irrelevant, as what is exceptionally high or low gradually changes over time. So some kind of reference point is needed to identify overboughtness and oversoldness right as they happen, but that too needs to slowly evolve. I’ve found gold stocks’ 200dma acts as an ideal metric for this.

200dmas aren’t static, they gradually adjust to different prevailing gold-stock price levels. At the same time, they have enough inertia to lag extreme short-term price moves. Calendar months average about 21 trading days, so a 200dma digests the past 9.5 months of price action. Exceptional gold-stock moves stretch current prices far away from their trailing 200dmas. That distance is easily quantifiable to trade upon.

Relativity Trading simply divides daily price closes by their 200dmas and charts the resulting multiples over time. With a sufficiently-long span, especially in trending markets, horizontal trading ranges of these multiples form. After much study and trial and error, I settled with the last 5 calendar years to define Relativity trading bands. Seeing where 200dma multiples trade comparatively offers good buy and sell signals.

Again GDX is much newer than the HUI with a far-shorter price history. And all my years of work applying Relativity to trading gold stocks has used the HUI as their benchmark index. So I’m going to shift back to the HUI for this final chart on gold-stock overboughtness. The Relative HUI indicator, or rHUI, currently has a trading range of 0.80x to 1.50x. This is rendered in this chart with the green and red shaded zones.

Visually a Relativity chart effectively flattens a 200dma, straightening it to 1.00x. Then a price’s multiple to that 200dma oscillates around it over time, in perfectly-comparable percentage terms regardless of the prevailing price levels. No matter where gold stocks are trading, when the rHUI hits 0.80x or 1.50x the actual HUI is trading at 80% or 150% of its current 200-day moving average. Here is this gold-stock bull’s chart.

Thanks to the gold stocks’ blistering rally this summer, the rHUI shot up as high as 1.362x last week. On Wednesday as this upleg’s latest high was hit, the rHUI still ran 1.354x. In other words, the major gold stocks as a sector are stretched 35% to 36% above their 200dma! That is very overbought, and doesn’t happen very often. Gold-stock uplegs usually only deviate from their 200dmas so greatly when they go terminal.

Bull-market uplegs usually start gradually, with not many traders interested in buying relatively low after major corrections. But as uplegs gather steam and gains mount, traders get excited about the upside momentum and want to buy in. The higher prices climb, the more greed grows and the greater the allure of chasing the herd. Thus upleg gains tend to be back-loaded, the majority accruing quickly as uplegs mature.

So really-overbought readings generally only happen late in uplegs. Actual gold-stock topping levels in rHUI terms still vary greatly though. Back in this bull market’s mighty maiden upleg peaking in summer 2016, the rHUI soared as high as 1.70x before drifting back to 1.62x when gold stocks actually crested in early August. But anytime the major gold stocks stretch 25%+ above their 200dmas, traders need to be wary.

Since there’s so much variability in upleg toppings, I generally haven’t sold trading positions outright. My strategy is usually to ratchet up trailing stop losses as prices get more overbought. That effectively locks in more of our upleg gains, while preserving upside potential if the upleg persists even longer. Although stop losses have their own challenges as they can be whipsawed into tripping early, they help manage risk.

I also consider gold-stock overboughtness in rHUI-multiple terms against the backdrop of how speculators are currently positioned in gold futures. Gold stocks are effectively leveraged plays on gold, and the gold-futures traders dominate gold’s short-term price action. I last explained this in depth in a mid-July essay. For our purposes today, realize gold’s own selloffs driving gold stocks’ are almost always governed by futures.

In the latest weekly data, speculators held their second-highest levels of gold-futures long contracts on record! That left their total longs running 97% up into their gold-bull-market trading range since mid-December 2015, which was topped by July 2016’s all-time-record high. When specs are effectively all-in gold-futures longs, all they can do is sell. Excessive long positions precede major corrections in gold.

After that only time spec longs were slightly higher in mid-2016, gold plunged 17.3% over the next 5.3 months which hammered the gold stocks 39.4% lower per GDX! And on the short side of gold futures, in the latest weekly read specs’ total contracts were running just 11% up into their own gold-bull-market trading range. That means they also have little room to buy gold futures to cover shorts, but lots of room to sell.

The most-bearish-possible near-term outlook for gold happens when total spec longs and shorts swing to 100% and 0% up into their bull-market trading ranges. The latest 97% and 11% as of last Tuesday’s close is getting pretty darned close! Since gold stocks will tank with gold regardless of how overbought they get, their downside risks are high. A major correction is far more likely than additional material rallying.

Rather amusingly, warning of overboughtness and impending selloffs after powerful uplegs always gets people riled up. After these 877 weekly essays, I know my e-mail inbox will be full of people telling me what a fool I am Monday morning. How could gold stocks not soar to the moon? This time is different because… The irony is traders should welcome corrective selloffs as they create new buy-low opportunities.

I opened with the first third of my conclusion from our brand-new monthly newsletter, and here’s the rest. “That will rebalance sentiment, paving the way for far-bigger future gains. There’s no sense redeploying capital high before that inevitable selloff arrives. Don’t let that short-term bearishness cloud the big picture. Gold’s powerful surge higher in the last several months changes everything going forward.”

“It confirms gold is indeed in a secular bull market! That was ignored and disputed for years since gold failed to break out to new bull highs. Gold’s decisive breakout and rallying since ballooned interest in it. So future gold and gold-stock uplegs are going to attract way more capital from way more traders around the world, growing them to much-larger sizes.” This latest upleg was fun, but bigger and better are coming.

To profitably trade high-potential gold stocks, you need to stay informed about the broader market cycles that drive gold. Our newsletters are a great way, easy to read and affordable. 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 sale! Get onboard now so you can mirror our coming trades for the next upleg as they are deployed in real-time.

The bottom line is gold stocks are very overbought. The powerful counter-seasonal rally in recent months catapulted gold-stock benchmarks far beyond their 200-day moving averages. Such stretched technicals coupled with very-bullish popular sentiment are a warning this recent upleg is maturing. It is likely to roll over into a healthy correction soon to restore balance, driven by gold-futures selling from spec extremes.

All bull markets flow and ebb, with big uplegs followed by major corrections. Fighting the latter is utterly pointless. Ride the bull-market waves rather than drowning in them. Buy relatively low near the troughs, then sell relatively high near the crests. That means buying when everyone else is scared, before selling when everyone else is greedy. After enjoying a great and very-profitable upleg, we can cash out for the next one.

Adam Hamilton, CPA

September 9, 2019

Royal Road Minerals has released results from its recently completed diamond drilling program at the Luna Roja gold project in Nicaragua.

The Luna Roja project is part of a strategic alliance agreement with Hemco Mineros Nicaragua and is located in the highly prospective Golden Triangle region of northeastern Nicaragua. Mines in the region have been operating since the early 1900s.

The first drilling program to be completed on the project returned significant intersections including, 40.65 meters at 2.5 grams per tonne, 23.5 meters at 5.1 grams per tonne, 12.0 meters at 7.1 grams per tonne and 5.5 meters at 12.2 grams per tonne gold.

The drilling results indicate that gold mineralization remains open at depth (down to 150m vertical depth) and management believe that potential exists for further gold mineralization in a downthrown block concealed structurally below mapped marbles and skarnoids to the southeast.

Samples of the drill core have been shipped to Bureau Veritas Vancouver for preliminary metallurgical testing.

“These drilling results are a great start at Luna Roja,” said Royal Road president and CEO Dr. Tim Coughlin. “This discovery is a product of great teamwork and of an exemplary collaboration with our partners, Hemco Mineros Nicaragua. The possibility of extensions to gold mineralization at depth and under faulted cover to the southeast at Luna Roja is enticing. We are also excited to have established our first Designated Project Area and look forward to advancing the Luna Roja project with our partners Hemco Mineros Nicaragua and with the local community, local authorities and other valuable regional stakeholders.”

In 2019, the age-old aphorism, ‘All that glitters’ certainly holds true for gold. For the year-to-date, the world’s most treasured safe-haven asset has appreciated from a steady level of $1300 per troy ounce in January to its current trading levels of over $1500. In percentage terms, this translates into a 15% appreciation, at a time where tremendous uncertainty has engulfed global equities markets.

Extrapolating further out, the move to gold is abundantly clear. Over the past 1 year, gold has gained approximately $300 per ounce, and over the past 3 years it reached a nadir of $1127 per ounce. Clearly, this precious metal is on the ascendancy thanks in no small part to the volatility in equities and currencies markets. Equally notable are futures markets prospects for this precious metal. The gold futures markets are bullish over the next 12 to 21 months, with pricing between $1560 per ounce through $1600 per ounce.

The long-term trends for gold bullion have clearly priced in the possibility of increased political tensions between global powers such as the U.S., Russia, North Korea and China, notwithstanding the trade relations between the US and China, the new trade pact between the US and Japan, and a possible new trade treaty between the US and the UK.

Both Russia and the US are engaging in sabre rattling, with Russia conducting ballistic missile testing (possibly nuclear missile testing) since the US withdrew from an accord with Russia that would limit nuclear proliferation. Gold takes its cues from investors, traders, and speculators. The geopolitical tensions are one component driving the overall demand for gold.

What Impacts Demand for Gold?

Commodity price trading focuses on the commodity price against a currency. By trading lots with buy or sell orders, clients can participate in trading deals with gold contracts. Derivatives markets allow profits to be generated regardless of the price movement of the commodity. Conventional wisdom states that gold profits are earned through appreciation of the underlying commodity’s price, but this is simply not true.

A myriad of factors comes into play when investors consider the prospects of gold. Foremost among them are monetary policy matters vis-a-vis the Fed. The Federal Reserve Bank has a big part to play in the drive to gold. The higher the interest rate the greater the opportunity cost of holding gold. In other words, there is more to be gained by investing your money in high interest-yielding investments than in gold which has a 0% return.

Truth be told, gold is largely considered a store of value with long-term growth prospects. When the Fed decides to cut interest rates, this helps traders and investors to shift their resources to appreciating investments (this is at least the perception) which often takes the form of gold, the Japanese yen, the Swiss franc, and other hedge-style commodities.

From a purely economic perspective, the general performance of the world’s biggest economies plays a big part in gold demand. For example, poor manufacturing data, slow GDP growth rates, and weak jobs reports can drive traders and investors away from stock markets to gold. When bearish reports are released, there is a tendency to pull money out of the Dow Jones Industrial Average, the New York Stock Exchange, the S&P 500 index, and other global markets and protect investment portfolios by investing in gold stocks, gold funds, and possibly even in physical stores of gold bullion. Gold does not generate any interest for those who hold it; it appreciates when economic sentiment sounds.

Gold prices tend to rise when weak economic data is released, and gold prices tend to fall when strong economic data drives investment in financial markets. Another important determinant of demand and pricing is gold usage. Whether it’s jewelry, electronics, or simple demand by reserve banks around the world, the demand for gold has a direct correlation on the price of gold. With falling supply and the increasing costs of extracting gold from mines, even a steady demand for gold will lead to a substantial rise in the price of this precious metal. For example, South Africa was once the world’s biggest gold producing nation. It now struggles to extract gold ore from its mines given rising costs, and problems with union workers, et al.

It is simply unproductive at current levels to extract gold from mines given the current gold price, but with enough momentum that could change. This takes the discussion to another important determinant of gold prices: the strength of the USD. Gold is a dollar-denominated commodity. In other words, it is priced in USD. When the USD strengthens relative to other currencies (evident through the DXY), it takes more per-unit foreign currency to buy the equivalent ounce of gold. This tends to dampen demand for gold. When the USD depreciates relative to other currencies, those currencies can buy more gold per unit currency than before. This increases the price of gold through its impact on gold demand.

Viewed in perspective the demand for gold and other precious metals is impacted by multiple interrelated and unrelated market forces. The notion that only appreciating assets are profitable has long since been debunked through CFD trading and Futures markets, with much to be gained from correctly anticipating price movements.

Brett Chatz

September 2, 2019

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects.
Read more at https://www.business2community.com/author/brett-chatz

Back during the bear market years (it’s nice to be able to write that now), I regularly would compare the declines in Gold, Silver and gold stocks to their past history. It gave us a visual representation of just how bad the forever bear market was and helped us decipher when it might end.

Thankfully that is all behind us.

Now it’s time to compare recent bullish moves to past iterations.

First is Silver.

The recent low in Silver has several good comparisons, which include the lows in 1986, 1993 and 2003. We also included the 2008 low.

If Silver’s rebound were simply an average of the four rebounds shown then it would reach nearly $24 by the end of March 2020.

Gold is tricky because there is not an obvious bull comparison. Its major lows were essentially in 1970, 1985 and 1999 to 2001.

However, when we consider the preceding bear market, the best comparison to the recent bear and current bull is the late 1990s and early 2000s.

Mind you, we aren’t forecasting or predicting that 2003 to 2006 will be duplicated over the next three years. It’s possible, but we are simply arguing that the 2012 to 2019 period most resembles 1996 to 2003.

Turning to the gold stocks and specifically the junior gold stocks, here is how the 2016 bottom compares to the bottoms in 2001 and 2008.

Note that the basket of 20 stocks we used is quite strong compared to GDXJ. In other words, we erred on the side of positive performance.

In our new book (available at TheDailyGold.com), we argue that the 2016 low in gold stocks was very similar to the 1957 low.

There are numerous similarities between today and the early to mid 1960s. That includes the gold stocks and their incredible long-term value at the start of a major inflationary cycle.

Below we compare the 1957 and 2016 lows with data from the Barron’s Gold Mining Index, which appreciated over 40-fold from its 1957 low to the peak in 1980.

As you can see, if Gold remains in a real bull market then significant upside potential remains in place across the precious metals complex.

Fundamentally, Gold could remain in a bullish trend until the next economic recovery gains traction. That could be anywhere from a few to four years away.

If gold continues to follow the pattern of the early 2000s then it could reach $3000/oz by the start of 2023.

Jordan Roy-Byrne CMT, MFTA

August 28, 2019

A year ago, I predicted that any U.S. stock market sell-off would be accompanied by a dramatic surge in the price of GDX an GDXJ.
That’s exactly what happened; the stock market tanked and key gold stocks soared.
This year, I’m predicting that any major U.S. stock market crash will again be accompanied by the soaring price of the gold producers…
But I’m also predicting that most CDNX-listed junior explorers are set to soar too!
Please click here now. America’s top money printing cheerleader (President Trump) brags that his government essentially has the Chinese government cowering in a corner. He claims they are ready to throw in the white towel in the trade war. Reality check:
It’s obvious that major money managers are becoming very concerned about these tariff taxes.
Please click here now. Double-click to enlarge this horrifying U.S. stock market chart.
On the one hand, private enterprise must be respected. Great companies exist and prosper in the socialist nations of Europe and in China. They will continue to prosper.
The drive of entrepreneurs must never be underestimated, even in the harshest conditions.
On the other hand, when governments unveil growth-negative policies like tariff taxes and money printing, stock markets can experience dramatic declines. These declines are usually temporary, but they are very painful.
Please click here now. Double-click to enlarge this important gold stocks versus gold chart.
I call it the “Just buy” chart, because there really isn’t much else to do here except buy, buy, and buy!
That’s especially true for core position enthusiasts. Gold stocks are incredibly cheap compared to gold bullion.
Also, I believe investors can make the most money in the market buying when their analysis has gone awry. On that note, please click here now. Double-click to enlarge my “Golden Beeline” chart.
Many gold analysts have tried to “top call” gold since the rally from about $1167 began. This has been a mistake and I believe it will continue to be a mistake in the months ahead.
A gargantuan bull continuation pattern is forming on the weekly gold chart. It’s an inverse H&S pattern with a potential neckline in the $2000 area.
This is not a time to sell gold or top call it. It’s a time to buy, sit back, and watch those positions fly! Here’s why:
Institutional money managers are adding gold to their portfolios. These are not highly leveraged hedge funds gambling on the COMEX.
They are unleveraged institutions. They are serious players who understand the destructive nature of the Trump tariff taxes. These taxes are being implemented as the business cycle peaks and with relentless ramp-up of U.S. government spending and debt.
This horrifying scenario has superstar managers like Ray Dalio predicting serious inflation and potential rioting in the streets.
Please click here now: Top money managers are concerned that stagflation is emerging as the Fed is forced to print money and cut rates to offset the taxes. They are not buying gold, silver, and the miners for a “quick flip”. This is long-term allocation.
Please click here now. Double-click to enlarge this fabulous GDX chart.
Profit-lock enthusiasts can buy a breakout over $30 and place a stoploss at $27.50. A move above $30 opens the door for a violent surge to $37-$39.
From there, core positions can be added on a pullback to about $30. Nervous investors can buy put options to manage their emotions, but everyone else should be in “Buy & Fly!” mode alongside the institutional money managers. Today’s Superman is a man of gold and looking at GDX today, I believe he would say… Up, up, and away!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Golden Junior Rockets!” report. I highlight junior miners trading under $2/share that are beginning to soar, with key buy and sell prices for each stock.

Thanks,

Stewart Thomson

Graceland Updates

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The mid-tier gold miners’ stocks have soared in recent months on gold’s decisive bull-market breakout. They are this sector’s sweet spot for stock-price upside potential, with room for strong production growth which investors love. That’s an attractive contrast to the stagnating major gold miners. The mid-tiers’ recently-reported Q2’19 results reveal whether their fundamentals justify their strong surge this summer.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by the U.S. Securities and Exchange Commission, these 10-Qs and 10-Ks contain the best fundamental data available to traders. They dispel all the sentiment distortions inevitably surrounding prevailing stock-price levels, revealing corporations’ underlying hard fundamental realities.

The global nature of the gold-mining industry complicates efforts to gather this important data. Many mid-tier gold miners trade in Australia, Canada, South Africa, the United Kingdom, and other countries with quite-different reporting requirements. These include half-year reporting rather than quarterly, long 90-day filing deadlines after year-ends, and very-dissimilar presentations of operating and financial results.

The definitive list of mid-tier gold miners to analyze comes from the GDXJ VanEck Vectors Junior Gold Miners ETF. Despite its misleading name, GDXJ is totally dominated by mid-tier gold miners and not juniors. GDXJ is the world’s second-largest gold-stock ETF, with $4.5b of net assets this week. That is only behind its big-brother GDX VanEck Vectors Gold Miners ETF that includes the major gold miners.

Major gold miners are those that produce over 1m ounces of gold annually. The mid-tier gold miners are smaller, producing between 300k to 1m ounces each year. Below 300k is the junior realm. Translated into quarterly terms, majors mine 250k+ ounces, mid-tiers 75k to 250k, and juniors less than 75k. GDXJ was originally launched as a real junior-gold-stock ETF as its name implies, but it was forced to change its mission.

Gold stocks soared in price and popularity in the first half of 2016, ignited by a new bull market in gold. The metal itself awoke from deep secular lows and surged 29.9% higher in just 6.7 months. GDXJ and GDX skyrocketed 202.5% and 151.2% higher in roughly that same span, greatly leveraging gold’s gains! As capital flooded into GDXJ to own junior miners, this ETF risked running afoul of Canadian securities laws.

Canada is the center of the junior-gold universe, where most juniors trade. Once any investor including an ETF buys up a 20%+ stake in a Canadian stock, it is legally deemed a takeover offer. This may have been relevant to a single corporate buyer amassing 20%+, but GDXJ’s legions of investors certainly weren’t trying to take over small gold miners. GDXJ diversified away from juniors to comply with that archaic rule.

Smaller juniors by market capitalization were abandoned entirely, cutting them off from the sizable flows of ETF capital. Larger juniors were kept, but with their weightings within GDXJ greatly demoted. Most of its ranks were filled with mid-tier gold miners, as well as a handful of smaller majors. That was frustrating, but ultimately beneficial. Mid-tier gold miners are in the sweet spot for stock-price-appreciation potential!

For years major gold miners have struggled with declining production, they can’t find or buy enough new gold to offset their depletion. And the stock-price inertia from their large market capitalizations is hard to overcome. The mid-tiers can and are boosting their gold output, which fuels growth in operating cash flows and profitability. With much-lower market caps, capital inflows drive their stock prices higher much faster.

Every quarter I dive into the latest results from the top 34 GDXJ components. That’s simply an arbitrary number that fits neatly into the tables below, but a commanding sample. These companies represented 83.2% of GDXJ’s total weighting this week, even though it contained a whopping 70 stocks! 3 of the top 34 were majors mining 250k+ ounces, 24 mid-tiers at 75k to 250k, 5 “juniors” under 75k, and 2 explorers with zero.

These majors accounted for 12.8% of GDXJ’s total weighting, and really have no place in a “Junior Gold Miners ETF” when they could instead be exclusively in GDX. These mid-tiers weighed in at 60.9% of GDXJ. The “juniors” among the top 34 represented just 6.6% of GDXJ’s total. But only 1 of them at a mere 0.9% of GDXJ is a true junior, meaning it derives over half its revenues from actually mining gold.

The rest include 2 primary silver miners, a gold-royalty company, and a gold streamer. GDXJ is actually a full-on mid-tier gold miners ETF, with modest major and tiny junior exposure. Traders need to realize it is not a junior-gold investment vehicle as advertised. GDXJ also has major overlap with GDX. Fully 29 of these top 34 GDXJ gold miners are included in GDX too, with 23 of them also among GDX’s top 34 stocks.

The GDXJ top 34 accounting for 83.2% of its total weighting also represent 39.8% of GDX’s own total weighting! The GDXJ top 34 mostly clustered between the 10th- to 40th-highest weightings in GDX. Thus nearly 5/6ths of GDXJ is made up by almost 4/10ths of GDX. But GDXJ is far superior, excluding the large gold majors struggling with production growth. GDXJ gives much-higher weightings to better mid-tier miners.

The average Q2’19 gold production among GDXJ’s top 34 was 157k ounces, a bit over half as big as the GDX top 34’s 299k average. Despite these two ETFs’ extensive common holdings, GDXJ is increasingly outperforming GDX. GDXJ holds many of the world’s best mid-tier gold miners with big upside potential as gold’s own bull continues powering higher. Thus it is important to analyze GDXJ miners’ latest results.

So after each quarterly earnings season I wade through all available operational and financial reports and dump key data into a big spreadsheet for analysis. Some highlights make it into these tables. Any blank fields mean a company hadn’t reported that data as of this Wednesday. The first couple columns show each GDXJ component’s symbol and weighting within this ETF as of this week. Not all are U.S. symbols.

19 of the GDXJ top 34 primarily trade in the U.S., 5 in Australia, 8 in Canada, and 2 in the U.K. So some symbols are listings from companies’ main foreign stock exchanges. That’s followed by each gold miner’s Q2’19 production in ounces, which is mostly in pure-gold terms excluding byproducts often found in gold ore like silver and base metals. Then production’s absolute year-over-year change from Q2’18 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 drive 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. In cases where foreign GDXJ components only released half-year data, I used that and split it in half where appropriate. That offers a decent approximation of Q2 results.

Symbols highlighted in light blue newly climbed into the ranks of GDXJ’s top 34 over this past year. And symbols highlighted in yellow show the rare GDXJ-top-34 components that aren’t also in GDX. If both conditions are true, blue-yellow checkerboarding is used. Production bold-faced in blue shows any rare junior gold miners in GDXJ’s higher ranks, under 75k ounces quarterly with over half of sales from gold.

This whole valuable dataset compared with past quarters offers a fantastic high-level read on how mid-tier gold miners are faring fundamentally as an industry. This last quarter was interesting, as gold’s awesome breakout surge to major new secular highs didn’t get underway until just before quarter-end. So the mid-tier gold miners had to contend with flat gold prices, with Q2’19’s average of $1309 merely 0.2% higher YoY.

The shuffling in the ranks of GDXJ’s top 34 components continued over this past year, with major gold miner Kinross Gold added. It, Gold Fields, and Harmony Gold really should be shifted exclusively into GDX since their production is way into major-dom. Gold miners of that scale just defeat the purpose of a “Junior Gold Miners ETF”, retarding its upside potential and eroding traders’ confidence in its managers’ competence.

Most of the other new additions are good though, including mid-tiers Buenaventura, Alacer Gold, and Torex Gold. While Hochschild Mining was technically a junior last quarter, it will likely soon grow into a mid-tier mining 75k+ ounces of gold quarterly. But there’s one GDXJ component that reported such an extreme quarter that it skews most of the year-over-year comparisons. That is South Africa’s Sibanye-Stillwater.

SBGL is actually a primary platinum-group-metals miner, which drove nearly two-thirds of its implied revenue based on average metals prices in Q2! Its shrinking South African gold operations are a total mess, just emerging from a 5-month-long strike organized by a violent Marxist union. That crippled its gold mines, and left at least 9 people dead! Sibanye-Stillwater also has to fight South Africa’s absurdly-corrupt government.

Even though that hellish strike ended in mid-April, very early in Q2, SBGL’s gold production plummeted a catastrophic 47.9% YoY last quarter! That catapulted its all-in sustaining costs to a ridiculous $2110 per ounce, up an extreme 60.5% YoY from already-high levels. This shocking anomaly needs to be excluded in GDXJ comparisons. I wouldn’t invest in this company if it was the last miner on earth, it is a nightmare.

Production has always been the lifeblood of the gold-mining industry. Gold miners have no control over prevailing gold prices, their product sells for whatever the markets offer. Thus growing production is the only manageable way to boost revenues, leading to amplified gains in operating cash flows and profits. Higher production generates more capital to invest in expanding existing mines and building or buying new ones.

Thus gold-stock investors have long prized production growth above everything else, as it is inexorably linked to company growth and thus stock-price-appreciation potential. In Q2’19 these GDXJ-top-34 gold miners collectively produced 5.0m ounces of gold. That was actually down 1.2% YoY, which is worse than the 0.7% shrinkage the top 34 GDX majors reported last quarter after being adjusted for mega-mergers.

But excluding SBGL’s mayhem, the rest of the GDXJ top 34 actually managed to grow their total output by an impressive 1.7% YoY to 4.9m ounces! That not only trounced the majors, but narrowly bested the world’s aggregate production growth in Q2. According to gold’s leading fundamental authority, the World Gold Council, total world output grew 1.6% YoY last quarter to 28.4m ounces. The mid-tiers are thriving.

The GDXJ mid-tiers were able to enjoy strong production growth because this ETF isn’t burdened with many struggling major gold miners that dominate GDX. Again GDXJ’s components start at the 10th-highest weighting in GDX. The 9 above it averaged colossal Q2 production of 585k ounces, which is 3.7x bigger than the GDXJ top 34’s average! Gold mining’s inherent geological limitations make it very difficult to scale.

The more gold miners produce, the harder it is to even keep up with relentless depletion let alone grow their output consistently. Large economically-viable gold deposits are getting increasingly difficult to find and ever-more-expensive to develop, with low-hanging fruit long since exploited. But with much-smaller production bases, mine expansions and new mine builds generate big output growth for mid-tier golds.

The majors don’t only face that large-base growth problem with their production scales, but also with their stocks’ market capitalizations. The GDXJ top 34 companies averaged $2.5b in the middle of this week, compared to $6.9b in the GDX top 34 when I analyzed their Q2 results last week. With the mid-tiers generally around a third as big as the majors, their stock prices have much less inertia restraining them.

With gold returning to favor since late June’s awesome decisive bull-market breakout, the mid-tier-filled GDXJ is already outperforming the major-dominated GDX. Since its year-to-date low in late May, GDXJ surged as much as 52.1% higher by early August! That was considerably better than GDX’s 46.2% rally in the same timeframe. The longer gold-bull uplegs persist, the bigger the mid-tier outperformance grows.

The mid-tier gold miners continue to prove all-important production growth is achievable off smaller bases. With a handful of mines or less to operate, mid-tiers can focus on expanding them or building a new mine to boost their output beyond depletion. But the majors are increasingly failing to do this from the super-high production bases they operate at. As long as majors are struggling, it is prudent to avoid them.

Also interesting on the mid-tier production front was silver. Last quarter the GDXJ-top-34 miners’ silver output blasted 42.8% higher YoY to 28.2m ounces! Some of these companies indeed saw exploding silver production, led by Yamana Gold’s rocketing up 65.8% YoY to 2.2m ounces and SSR Mining’s soaring a similar 55.8% YoY to 1.5m ounces. But new GDXJ-top-34 components drove most of the silver growth.

Buenaventura and Hochschild Mining produced 5.5m and 4.3m ounces of silver last quarter, and they weren’t in GDXJ’s top 34 in Q2’18. Excluding them, the rest of these mid-tier gold miners actually saw their total silver output slump 5.1% YoY. I’ll discuss the serious challenges silver mining faces in next week’s essay, which will wade through the results of the top silver miners of the leading silver miners’ ETF.

In gold mining, production and costs are generally inversely related. Gold-mining costs are largely fixed quarter after quarter, with actual mining requiring about the same levels of infrastructure, equipment, and employees. So the higher production, the more ounces to spread mining’s big fixed costs across. Thus Q2’19’s solid production growth among the GDXJ top 34 ex-SBGL should’ve yielded proportionally-lower 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 Q2’19 these top-34-GDXJ-component gold miners that reported cash costs averaged $672 per ounce. That actually rose a sharp 6.6% YoY, and was worse than the GDX-top-34 majors’ $641 mean.

Sibanye-Stillwater didn’t report Q2 cash costs, so that wasn’t a factor. But a couple of other anomalous situations dragged up this average. Buenaventura has been struggling with weaker production, resulting in extreme $930 cash costs last quarter. And Harmony Gold, a South African miner facing that country’s miserable operating environment, had even-worse $965 cash costs in Q2’19! Those are crazy-high.

Excluding them, the rest of the GDXJ top 34 averaged $650. That’s towards the lower end of the GDXJ-top-34 average range of $612 to $730 in the 13 quarters I’ve been advancing this deep-quarterly-results research thread. As long as cash costs remain far below prevailing gold prices, which was certainly true in Q2, the gold miners face no existential threat. Gold returning to favor is really widening that key survival gap.

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 companies’ true operating profitability.

The GDXJ-top-34 AISC picture in Q2’19 looked much like the cash-cost one, with average AISCs surging 6.1% YoY to $941 per ounce. That was on the higher side of the past 13 quarters’ range from $855 to $1002, but way below Q2’s average gold price of $1309. That implies GDXJ’s mid-tier gold miners were already earning sizable $368 profits last quarter. But this AISC read was heavily skewed by SBGL’s mess.

Again that cursed gold miner’s AISCs skyrocketed 60.5% YoY to an unbelievable $2110! That was as high as I’ve ever seen, and SBGL tried to bury this deep in its Q2 reporting. The strike was blamed, even though it ended in early Q2. But remove that wild outlier from the pool, and the rest of the GDXJ-top-34 gold miners averaged AISCs of $896 per ounce. That’s actually right in line with the GDX top 34’s $895.

With gold rocketing back over $1500 earlier this month to hit 6.3-year secular highs, it is easy to assume the gold miners must be thriving fundamentally. And they likely are. But realize the lion’s share of the recent huge gold gains didn’t start until late June when gold decisively broke out to new bull-market highs. So these Q2 results don’t yet reflect these new higher gold prices. But Q3’s are on track to look spectacular.

Gold’s lofty $1446 average price so far this quarter is a whopping 10.5% higher quarter-on-quarter than Q2’s! So the current likely profitability of the gold miners post-gold-breakout is far higher than seen last quarter. Assuming the GDXJ top 34’s average all-in sustaining costs hold flat near $941 this quarter, that implies Q3 profits running $505 per ounce. That’s up a massive 37.2% QoQ from what was seen in Q2!

This incredible profits leverage to gold is what makes gold stocks so alluring during major gold uplegs. Their earnings grow so darned fast, 3.5x gold’s advance in this example, that big stock-price gains are usually fundamentally-justified. In Q2’19, GDXJ averaged $30.46 per share. That’s when you should’ve been buying gold stocks, when they were low and out of favor. I explained their bullish outlook in early April.

So far in Q3 which is more than half over, GDX has averaged $38.43 which is 26.2% higher QoQ. That is still lagging big expected profits growth among mid-tier gold miners this quarter given the much-higher prevailing gold prices. So gold stocks’ strong gains in recent months are fundamentally-righteous, supported by underlying earnings growth and sustainable as long as gold holds over $1446 into quarter-end.

The mid-tier gold miners reported good accounting results last quarter even before gold reignited. The GDXJ top 34’s total revenues soared 23.0% YoY to $6.6b! While that is certainly overstated given the new inclusion of major gold miner Kinross Gold, without it the rest of these companies still saw strong 7.3% YoY growth. That’s impressive given Q2’19’s dead-flat average gold price, up a trivial 0.2% YoY.

These strong operations drove exploding operating-cashflow generation, with the GDXJ top 34’s total blasting 44.2% higher YoY to $2.3b! Even without KGC they still rose 23.6% YoY. And these elite mid-tier gold miners were investing some of this new capital in expanding their mines, which investors always like to see. Their collective cash hoards sunk 12.6% YoY to $6.0b, which remains healthy given mid-tiers’ sizes.

The GDXJ top 34’s profits under Generally Accepted Accounting Principles radically improved as well. Together they earned $291m last quarter, which was a colossal improvement from Q2’18’s $410m loss. Even though $384m of that resulted from an impairment charge by a single component miner that quarter, the mid-tiers’ profits picture still greatly improved. And that was even with last quarter’s still-anemic $1309 gold.

Imagine how awesome these numbers will look in this current quarter given all the gold fireworks since the end of Q2! The mid-tier gold miners generally report their results 4 to 6 weeks after quarter-ends, so Q3’19 fundamental performance will be revealed in the first half of November. As long as gold sentiment remains decent, these Q3 results should really impress and attract in legions of new investors to this sector.

That being said, gold and gold stocks have soared really far really fast this quarter. Sentiment quickly grew greedy as really-overbought levels were reached. Couple that with today’s menacing overhang of huge potential gold-futures selling, and a healthy bull-market correction is likely. But now is the time to do your homework before buying lower later, to ferret out the high-potential gold miners with superior fundamentals.

All portfolios need a 10% allocation in gold and its miners’ stocks! This is more important than ever with gold finally waking up from its long slumber while lofty central-bank-goosed stock markets are looking increasingly precarious. The better mid-tier gold miners are the place to be. Unlike the majors, they are actually growing their production and have far-higher upside coming from lower-market-capitalization bases.

To profitably trade high-potential gold stocks, you need to stay informed about the broader market cycles that drive gold. Our newsletters are a great way, easy to read and affordable. 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! The biggest gains are won by traders diligently staying abreast so they can ride entire uplegs.

The bottom line is the mid-tier gold miners are thriving fundamentally. Their Q2 results were good, even before gold’s powerful bull-market breakout. They are growing production while holding the line on costs. That means their earnings will soar as gold powers higher on balance in its resurgent bull market. That will support much-higher gold-stock prices in the future, and attract traders back to this long-neglected sector.

Gold’s bull market will flow and ebb as always, so gold-stock positions should be accumulated relatively low in post-selloff troughs. There’s no need to buy high at crests when everyone is excited. But you have to prepare in advance, monitoring the markets and researching the gold miners to be ready to pounce at opportune times. Capital allocations should be focused on mid-tier gold miners with superior fundamentals.

Adam Hamilton, CPA

August 26, 2019

More powerful money managers are stepping forward to recommend gold in a negative real rates environment.
Please click here now. The focus of these elite money managers and analysts is mainly on bullion.
Many of the more speculative junior miners that trade on the CDNX have yet to participate in this gigantic rally, but that may indicate that the rally is only in the earliest stages.
Please click here now. Double-click to enlarge this daily chart. Numerous bull flags have been forming on the charts for gold, silver, and ETFs like GDX and GOAU.
Please click here now. Double-click to enlarge this USD vs Chinese yuan chart. It’s almost comical that since the US government launched a “trade war” against China in early 2018, the dollar has rallied relentlessly against the yuan.
Instead of working to reduce the dollar-yuan price, the American government has launched a tidal wave of tariff taxes. That has pushed the dollar higher.
This policy has increased the Chinese trade surplus with America and the US government’s silly response has been to threaten to impose even more tariff taxes on all Chinese exports to America.
Money managers are very concerned and flocking to gold!
In India it could be argued that the Modi government has essentially taken over the central bank and is forcing the bank to begin a long-term rate cutting policy. That policy is designed to reduce the growth-destructive actions of tariff taxes on gold and demonetization.
I believe the US government plans to follow the Indian populist government’s lead and take it to another level. I’m predicting that in the next downturn, QE and zero-level interest rates will not boost growth at all. The US government is simply too big and carries too much debt.
Roosevelt launched a socialist “New Deal” policy, purportedly to manage the negative effects of the Great Depression. A “New Deal 2.0” could involve the US government launching a new form of QE that involves student loans, credit card debt, and UBI (universal basic income).
Money would be printed but the central bank would be ordered to buy consumer debt with the money, in addition to buying government debt.
Gold would skyrocket but the stock market could also do well if the Fed follows the lead of the Swiss central bank and buys a lot of US stocks with some of the printed money.
This would sow the seeds of hyperinflation, but I don’t think it will become a real concern until the use of the dollar in global financial transactions falls under 40%. It’s still about 60%.
What about Jackson Hole? Well, from Thursday to Sunday the world’s central bankers gather there to discuss the global economy and markets. Could key statements from these power brokers trigger a significant reaction in gold?
Please click here now. Double-click to enlarge this monthly gold chart.
Fundamental news like tariff tax relief or positive statements from power brokers at Jackson Hole could cause a reaction from the $1500 resistance zone, but that’s a possibility and not a guarantee. Here’s why:
Central bankers are very concerned about the refusal of governments (especially the American government) to reduce their footprint in the global economy. This is likely why central banks continue to claim that 1% euro zone and 2% American GDP growth is “robust”. It’s not robust, but claiming it is allows the banks to make a case for not cutting rates or renewing QE.
The central bankers know that higher rates would incentivize commercial banks to lend and force debt-obsessed governments and citizens to reduce their debt loads. That would allow GDP growth to rise over the long-term in a sustained manner.
Unfortunately, most Western governments want lower rates so they can “borrow to infinity” while claiming that lower rates and QE are helping the common man.
Regardless, lower rates and QE are not going away and may soon become part of fiscal policy, targeting consumer debt. All roads obviously lead to gold!
Please click here now. Double-click to enlarge. GDX has pulled back to some minor support. Is there cause for concern? I don’t think so. Money managers are excited but not greedy. That should instill confidence in all amateur gold stock investors.
Please click here now. Double-click to enlarge. For investors who are unsure of what comes next for gold stocks, one approach is to use my guswinger.com signals to trade ETFs like NUGT and DUST with limited drawdowns. We booked some nice profits yesterday and we’re ready for anything that Jackson Hole brings!
Another approach for eager gold stock investors would be to buy the $28-$26 range for GDX, with an optional stoploss placed just under $26. If gold does pullback from $1500 on Jackson Hole or tariff tax news, money managers will be buyers of both bullion and gold stocks. It’s a healthy market!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Safehavenization of Gold Stocks” report. I highlight key gold stocks that are becoming safe havens for money managers in a negative rates environment that appears to be here to stay! I include money making tactics to reduce drawdowns and enhance gains.

Thanks,

Cheers

Stewart Thomson

Graceland Updates

Email:

Risks, Disclaimers, Legal

Are You Prepared?

Last week we wrote that near-term risk in precious metals (Gold and GDX especially) was rising and a correction could begin soon.

As Gold nearly reached major resistance at $1550/oz, the miners already began to correct. That negative divergence is an ominous signal for the sector in the short term.

However, the good news is, at least at present, Gold remains very strong in real and intermarket terms.

The first example of that is Gold’s strength against foreign currencies (Gold/FC). Gold/FC made a new all time high a few weeks ago and is now 4% above the previous all time high.

In the chart below we mark the points when Gold/FC made a new high first in blue and Gold’s new highs in black. Note that when Gold/FC makes a new high first, Gold tends to follow.

Also, we should note that Gold’s false new high in 1996 and cyclical bull market from 1985 to 1987 were never confirmed by Gold/FC, which showed a negative divergence both instances.

Elsewhere, Gold is very strong against global equity markets and has reached important resistance relative to the S&P 500.

In all of these charts, including Gold against the S&P 500, the market is well above long-term moving averages and support. We do expect Gold to correct soon in both nominal and real terms but it does have plenty of breathing room.

Unlike in 2016, Gold against foreign currencies is at an all time high and the Federal Reserve has started a new cycle of rate cuts.

However, be advised that even within primary uptrends Gold and gold stocks have often consolidated and corrected for several months.

If you missed the recent run, then it is best to be patient, buy value and wait for weakness in the high quality juniors that appear extended. The best time to buy the leaders is during a correction. New opportunities will also emerge. To learn the stocks we own and intend to buy during this weakness that have 3x to 5x potential, consider learning more about our premium service.

The major gold miners’ stocks have soared in recent months, fueled by gold’s decisive breakout to new bull-market highs. Nothing motivates traders like performance, so interest in this long-neglected sector has exploded. While gold stocks’ technicals and sentiment have greatly strengthened, their just-reported Q2’19 results reveal whether their underlying fundamentals support their powerful surge and further upside.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by the US Securities and Exchange Commission, these 10-Qs and 10-Ks contain the best fundamental data available to traders. They dispel all the sentiment distortions inevitably surrounding prevailing stock-price levels, revealing corporations’ underlying hard fundamental realities.

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. Launched way back in May 2006, it has an insurmountable first-mover lead. GDX’s net assets running $11.8b this week were a staggering 44.0x larger than the next-biggest 1x-long major-gold-miners ETF! GDX is effectively this sector’s blue-chip index.

It currently includes 44 component stocks, which are weighted in proportion to their market capitalizations. This list is dominated by the world’s largest gold miners, and their collective importance to this industry cannot be overstated. Every quarter I dive into the latest operating and financial results from GDX’s top 34 companies. That’s simply an arbitrary number that fits neatly into the tables below, but a commanding sample.

As of this week these elite gold miners accounted for fully 94.5% of GDX’s total weighting. Last quarter they combined to mine 297.6 metric tons of gold. That was 33.7% of the aggregate world total in Q2’19 according to the World Gold Council, which publishes comprehensive global gold supply-and-demand data quarterly. So for anyone deploying capital in gold or its miners’ stocks, watching GDX miners is essential.

The major gold miners dominating GDX’s ranks are scattered around the world. 20 of the top 34 mainly trade in US stock markets, 6 in Australia, 5 in Canada, 2 in China, and 1 in the United Kingdom. GDX’s geopolitical diversity is excellent for investors, but makes it more difficult to analyze and compare the larger gold miners’ results. Financial-reporting requirements vary considerably from country to country.

In Australia, South Africa, and the UK, companies report in half-year increments instead of quarterly. The big gold miners often publish quarterly updates, but their data is limited. In cases where half-year data is all that was made available, I split it in half for a Q2 approximation. While Canada has quarterly reporting, the deadlines are looser than in the States. Some Canadian gold miners drag their feet in getting results out.

While it is challenging bringing all the quarterly data together for the diverse GDX-top-34 gold miners, analyzing it in the aggregate is essential to see how they are doing. So each quarter I wade through all available operational and financial reports and dump the data into a big spreadsheet for analysis. The highlights make it into these tables. Blank fields mean a company hadn’t reported that data as of this Wednesday.

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 Q2’19 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 expenses of gold mining, lowering per-ounce costs and thus raising overall profitability. In cases where companies didn’t separate out gold but lumped all production into gold-equivalent ounces, those GEOs are included instead. Then production’s absolute year-over-year change from Q2’18 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. Companies with symbols highlighted in light-blue have newly climbed into the elite ranks of GDX’s top 34 over this past year. This entire dataset together is quite valuable.

It offers a fantastic high-level read on how the major gold miners are faring fundamentally as an industry. In Q2’19 the world’s larger gold miners continued their longstanding struggle against declining production. Last quarter was another major transition one with this past year’s gold-stock mega-mergers finally settled out. They’ve considerably altered major gold miners’ global landscape, ramping concentration risks in GDX.

Since Q2’19 was effectively the first quarter with those gold-stock mega-mergers complete, we have to start with them. In late September 2018, the world’s second-largest gold miner Barrick Gold rocked this small contrarian sector. It declared it was buying competitor Randgold in an all-stock acquisition worth $6.5b! That deal was to make Barrick the world’s largest gold miner, and was finalized in early January 2019.

But Barrick’s arch-rival Newmont wasn’t willing to lose the pole position, so within weeks it responded with a bigger salvo. In mid-January it announced it was buying its own major gold miner Goldcorp, which was about twice as large as Randgold in gold-output terms! Size does matter for elite gold-mining executives. This massive $10.0b all-stock deal wasn’t consummated until mid-April, encompassing most of Q2’19.

So last quarter was the first one where these new bigger and badder gold-mining behemoths dominated this sector and therefore GDX. Understanding these mega-mergers and their implications is essential for gold-stock traders. Back in mid-February I wrote a comprehensive essay explaining these deals and why they were done. They were desperate and expensive attempts to mask flagging production at both giants.

By the end of 2018, Barrick had suffered colossal annual production declines in 7 of the last 9 quarters averaging 12.4% year-over-year! It had proven incapable of growing its own operations organically, and thus had to resort to buying more. While Newmont had done a far-better job of maintaining its massive gold output, that too shrunk by an average of 5.9% YoY in 2018’s first three quarters. That trend was concerning.

I doubt Newmont’s managers would’ve bought Goldcorp if Barrick hadn’t forced their hand. But seeing their largest competitor gobble up a major gold miner was a shrill wake-up call. New gold deposits that are large enough to support operations at these giants’ huge scales are almost impossible to find, and take over a decade to develop. So buying production is the only way they can maintain their mining tempos.

But sadly for Barrick and Newmont shareholders, these mega-mergers look like an epic boondoggle! Both Randgold and Goldcorp were also suffering shrinking production as I outlined in that mega-merger essay. Combining two sets of major gold miners where all four already struggled to maintain their outputs wouldn’t fix this intractable problem. The mergers just mask it, and only for the first four quarters post-deals.

Narrowly the world’s largest gold miner by market cap, Barrick Gold reported its Q2’19 results on August 12th. Its mega-merger was trumpeted as “building a business that would be a model of value creation for the mining industry.” Barrick’s Q2 gold production rocketed 26.8% higher YoY. But if Randgold’s from Q2’18 is added in to those comparable results, the combined giant actually saw a 2.0% YoY decline in output!

The inexorable depletion-driven shrinkage continues, which will become glaringly apparent when Q1’20 rolls around after 2019’s four quarters of pre-merger to post-merger comparisons. Barrick sure looks to have squandered $6.5b of shareholders’ capital on four quarters of production growth! They should have been furious. If Barrick failed to grow its own output for years, how can it grow that from Randgold’s mines?

So in these tables the year-over-year comparisons show the new post-merger Barrick versus the smaller pre-merger Barrick and Randgold combined in Q2’18. I did the same thing for Newmont and Goldcorp, comparing the newly-merged giant’s Q2’19 results with the total of both its predecessors in Q2’18. It is really important investors and speculators understand that these gold-mining behemoths are not growing.

The new Newmont Goldcorp released its Q2 results on July 25, touting its mega-merger as having “positioned Newmont Goldcorp as the world’s leading gold business for decades to come.” And not surprisingly Newmont’s quarterly gold production soaring 36.6% YoY looked amazing. With gold stocks surging with gold in the month or so before that release, the financial media celebrated Newmont’s huge growth.

Yet shockingly when this post-merger giant’s Q2’19 production is compared to both its predecessors’ from Q2’18, it actually plunged 8.4% YoY! One-upping Barrick, Newmont’s managers apparently blew $10.0b of their investors’ holdings to show four quarters of big trans-merger production growth through Q1’20. But once Q2’20 arrives, all the comparisons will be post-merger and the shrinkage will again become apparent.

These new gold-mining giants are dominating and really distorting their sector. This week Newmont and Barrick commanded a total market capitalization of $63.4b, or 28.7% of the GDX top 34’s total! In terms of GDX weighting, they now account for 21.2% together. That compares to 16.4% in Q2’18 for just the two acquiring companies, and 26.1% for all four major gold miners. GDX is very concentrated in these giants.

Together Barrick and Newmont controlled 30.7% of the total Q2’19 gold production of the GDX top 34. If either of these colossi stumble in coming quarters hurting their stock prices, GDX will get dragged down with them. Traders need to realize GDX is more risky and less diversified than it was before these gold-stock mega-mergers. If you have doubts that Barrick and Newmont can grow, be wary of owning GDX!

Prior to last quarter, the primary theme of the major gold miners was inexorably declining production. I’ve discussed it extensively in earlier essays in this series, including the ones on Q1’19’s and Q4’18’s results from the GDX top 34. The gist of their core problem is large economically-viable gold deposits are getting ever-harder to find, and increasingly-expensive and time-consuming to exploit. Gold’s scarcity is mounting.

The world has been scoured for gold for centuries, with the low-hanging fruit long since picked. Really compounding these challenges, the low gold-stock prices in recent years left these companies largely starved of capital. So their exploration budgets cratered, further pinching their pipelines of new deposits to develop into new mines to replace current depleting ones. Thus Q2’s production growth looked amazing.

Together these elite top-34 GDX majors reported mining 9.6m ounces in Q2’19, which was up a big 5.6% YoY! If we could celebrate this as the potential start of a new production-growth trend, these latest results would have a very different tone. Unfortunately this higher collective gold output is another distortion from the mega-mergers. They combined four Q2’18 GDX component stocks into two, making room for two more.

One of the replacement GDX-top-34 components that climbed into these ranks is Harmony Gold, South Africa’s third-largest gold miner. It shot from being GDX’s 44th-largest holding a year earlier to 33rd this week. Harmony produced 357k ozs of gold in Q2’19 now included in the GDX-top-34 total, while none of its was in Q2’18’s. Excluding it alone collapses the GDX top 34’s output growth to 1.7% YoY, relatively flat.

The silver miners First Majestic Silver and SSR Mining were also newly included, producing 34k and 81k ozs of gold in Q2’19. Another traditional major silver miner Pan American Silver diversified heavily into gold over this past year, buying Tahoe Resources. So Tahoe’s former gold output not included in the GDX top 34’s in Q2’18 was added to Pan American’s in Q2’19, which nearly tripled it to 155k ozs last quarter.

Adjust for these new inclusions into GDX’s top-34 ranks, and their total Q2’19 gold production among the comparable companies actually shrunk a modest 0.7% YoY! The major gold miners’ long-vexing growth problems certainly haven’t gone away. And gold-stock investors have long prized production growth above everything else, as it is inexorably linked to company growth and thus stock-price-appreciation potential.

Sooner or later global peak-gold production will be reached, after which it starts declining on balance as major gold miners fail to find enough new deposits to replace depleting ones. That will leave smaller mid-tier gold miners able to consistently grow their output far more attractive for investors than the stagnating larger majors. So the major-dominated GDX isn’t the best way to deploy investment capital in this sector.

The production-cost front in Q2’19 highlighted the majors’ challenges. Gold-mining costs are mostly fixed quarter after quarter, with production generally requiring the same levels of infrastructure, equipment, and employees. These big fixed costs are largely determined during mine-planning stages, when engineers and geologists decide which gold-bearing ores to mine, how to dig to them, and how to recover their gold.

Because these ongoing mining costs are spread across quarterly production, gold output and unit costs are usually inversely proportional. The richer the gold ores fed through fixed-capacity mills, the more gold produced. The more gold produced, the more ounces to bear mining costs which lowers per-ounce costs and thus increases profitability. Q2’19’s slightly-lower gold output should’ve led to slightly-higher costs.

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 Q2’19 these top-34-GDX-component gold miners that reported cash costs averaged $641 per ounce. Bucking the production trend, this was actually up a sharp 5.2% YoY from Q2’18’s read!

Neither of the new mega-miners helped, with Barrick and Newmont seeing cash costs climb by 7.6% and 1.1% YoY to $651 and $759 respectively. Dragging the average higher was Peru’s Buenaventura, which continues to struggle with production issues. Its gold mined in Q2’19 plunged 22.0% YoY, forcing cash costs up 16.7% to an extreme $930! Excluding that wild outlier, the rest of GDX’s top 34 averaged $630.

These GDX-top-34 gold miners reported average AISCs of $895 per ounce in Q2’19, surging 4.6% higher YoY despite slightly-lower production! Those were relatively high absolutely too, the highest seen out of all 13 quarters since Q2’16 when I started this deep-quarterly-results research thread. Plenty of major gold miners are seeing their own costs rise as their production declines, ratcheting up the industry average.

$895 certainly isn’t a problem with gold prices averaging $1309 in Q2’19, enabling hefty profit margins around $414 per ounce. But the trend of rising production costs among the majors leaves them relatively less attractive going forward compared to their smaller peers gradually lowering their costs through higher outputs. This rising-cost trend needs to be watched, as it will retard the majors’ profits growth if it persists.

With gold rocketing back over $1500 in the last couple weeks to hit 6.3-year secular highs, it is easy to assume the gold miners must be thriving fundamentally. And they likely are. But realize the lion’s share of the recent huge gold gains didn’t start until late June when gold decisively broke out to new bull-market highs. So these Q2 results don’t yet reflect these new higher gold prices. That will come in Q3’s results.

Gold’s lofty $1436 average price so far this quarter is a whopping 9.7% higher quarter-on-quarter than Q2’s! So the current potential profitability of the gold miners post-gold-breakout is far higher than seen last quarter. Assuming the GDX top 34’s average all-in sustaining costs hold flat near $895 this quarter, that implies Q3 profits running $541 per ounce. That’s up a massive 30.7% QoQ from what was seen in Q2!

This incredible profits leverage to gold is what makes gold stocks so alluring during major gold uplegs. Their earnings grow so darned fast, 3.2x gold’s advance in this example, that big stock-price gains are usually fundamentally-justified. In Q2’19, GDX averaged $22.03 per share. That’s when you should’ve been buying gold stocks, when they were low and out of favor. I explained their bullish outlook in early April.

So far in Q3’19 which is about half over, GDX has averaged $27.32 which is 24.0% higher QoQ. That is right in line with expected profits growth among the major gold miners this quarter given the much-higher prevailing gold prices. So gold stocks’ strong gains in recent months are likely fundamentally-righteous, supported by underlying earnings growth and sustainable as long as gold holds over $1436 into quarter-end.

The GDX top 34’s accounting results in Q2’19 didn’t match their slight production decline when adjusted for the mega-mergers. Interestingly their total revenues of $11.0b were dead flat compared to Q2’18’s, despite average gold prices being 0.2% better. A material factor in the relatively-weak sales was silver, with the GDX top 34 mining 11.3% less than they did in Q2’18. Miners are increasingly diversifying out of silver.

With its price languishing at miserable lows compared to gold for years now, it has been nowhere near as profitable to mine as gold. Silver recently started outperforming again after gold’s bull-market breakout, which began to improve precious-metals sentiment. But silver’s upside will have to exceed gold’s on balance for years to convince gold miners to invest in gold deposits with significant silver byproducts again.

Those $11.0b of sales the GDX-top-34 gold miners did yielded hard GAAP earnings of $621m in Q2, for a pathetic 5.7% profits margin. Some impairment charges contributed, led by Wheaton Precious Metals writing down $166m on a streaming agreement it overpaid for. Hedging was also a factor, as some of these major gold miners lock in future selling prices. That’s going to kill their profits in Q3 after gold’s surge.

The new monster gold miners had divergent earnings pictures last quarter. Barrick reported $223m in net profits, 35.9% of the entire GDX top 34’s! That was without any unusual gains either, clean operating results after its second merged quarter. Its $869 AISCs contributed, which were a long way below the average gold price in Q2. That was a vast improvement from Q2’18, when Barrick and Randgold lost $18m.

The newly-merged Newmont on the other hand reported a $25m loss last quarter, which was also clean with no unusual charges. Probably thanks to that $10.0b buyout of Goldcorp, expenses skyrocketed 55.1% YoY despite the flat gold prices! Shareholders should be getting out the torches and pitchforks. In Q2’18, together Newmont and Goldcorp reported decent profits of $161m. Did the merger impair that potential?

The operating-cash-flow front looked much better, with the GDX top 34’s total climbing 10.5% YoY to $3.2b in Q2’19. Strong OCF generation is essential to funding future growth, both expanding existing gold mines and adding new ones. Every single GDX-top-34 component reporting OCFs had positive ones, with 18 of those 29 seeing growth despite the flat gold prices. That’s an encouraging sign for the majors.

These elite gold miners collectively reported $10.1b of cash in their coffers at the end of Q2. While that was down 20.0% YoY, it is still a healthy treasury. The gold miners tap into their cash hoards when they are building or buying mines, so declines in overall cash balances suggest more investment in growing future production. They desperately need to do that to slow their depletion inexorably shrinking their output.

Overall the major gold miners of GDX reported a solid Q2’19, which again was mostly before gold surged in its powerful breakout rally of recent months. Unless gold collapses in the next 6 weeks, Q3’19 results should prove radically better. While the risks of a normal healthy short-term gold correction are high due to gold-futures speculators’ excessively-bullish positioning, gold-stock fundamentals support higher prices.

A quarter ago when I published my GDX Q1’19 results essay, GDX had slumped 1.6% year-to-date and no one wanted to buy gold stocks low despite their huge opportunities. That has sure changed as I forecast it would, with GDX soaring to 34.7% YTD gains as of the middle of this week! Since traders love chasing winners, gold stocks are way more popular. GDX definitely isn’t the best way to own this sector though.

This ETF’s potential upside is really retarded by large gold miners struggling to grow their production. So the smart investment capital will seek out the smaller mid-tier and junior gold miners actually able to increase their outputs. Investing in excellent individual miners with superior fundamentals has far-greater upside potential. While some are included in GDX, their relatively-low weightings seriously dilute their gains.

To profitably trade high-potential gold stocks, you need to stay informed about the broader market cycles that drive gold. Our newsletters are a great way, easy to read and affordable. 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! The biggest gains are won by traders diligently staying abreast so they can ride entire uplegs.

The bottom line is the major gold miners’ just-reported Q2’19 earnings season was solid. Gold didn’t take off until late June, so they hadn’t yet materially benefitted from its breakout surge. With the recent mega-mergers finally settling out, gold stocks saw slightly-lower production at materially-higher costs. That hit accounting profits, but operating-cash-flow generation was strong. Higher gold will greatly improve Q3 results.

That being said, the major gold miners are still struggling to grow their production. The mega-mergers will help mask that for one year, but the intractable underlying problem persists. That leaves smaller mid-tier gold miners with superior fundamentals much more attractive for future upside potential. That is where investors should focus their capital allocations to gold stocks, which should approach 10% in all portfolios.

Adam Hamilton, CPA

August 19, 2019

Corrections are inevitable, but current conditions support a prolonged rally in the gold market, TD Securities says in an equity research report.

“Before we restate our bullish thesis for precious metals, we should acknowledge that positioning in the gold market is at extreme levels, with Comex net longs near all-time highs and trading volumes at near double the averages of last year,” the report says.

This type of market posture, with everyone enthusiastically lined up in one direction, often precedes a reversal and a gold correction now could be exacerbated by the magnitude of the move required to restore normalcy to the market, TD says.

Of course, the macro picture is anything but normal. TD notes that there is now broad consensus around the idea that the deteriorating U.S. and global economic outlook will mean that Fed Chair Powell’s ‘mid-cycle adjustment’ in July will turn into an extended cutting cycle, with the bond market pricing in 25-50 bps of cuts by year-end.

TD Global Rates, which called for cuts ahead of the market, is calling for 50 bps of additional easing in 2019, followed by an additional 75 bps of easing in 2020. In many countries, real rates are already negative, and the discussion is around tiering (allowing more deeply-negative yields), QE, and the potential for competitive currency devaluation, TD says,

Despite Rally, Gold Equities Undervalued vs. Gold

The GDX (large-cap) index has rallied around 35% YTD, while the GDXJ (small-cap) is up only about 31% despite having outperformed its larger brother since the beginning of June. Gold, for reference, is up around 19% YTD.

Despite this, gold equities as measured by the S&P/TSX Gold Index are lagging their historical relationship to gold, both when compared with the most recent peak in 2016 and with the peak of the last bull market in 2011, TD notes.

Rotations Key to Maximizing Returns in Prolonged Rally

In a note published in June, TD called the technical breakouts of both gold and silver from their downtrends (corrections within the bull market that began in early 2016). Both metals rallied strongly from that point, with gold up 15% and silver up 16% since then.

TD had also forecast at that time that silver will lag and then outperform gold on a continuation of the rally. Indeed, we saw the gold/silver ratio climb to multi-decade highs above 93 in mid-July before falling to 86 and since then partially retracing that move.

TD’s preferred name for high beta and liquidity, which was highlighted in the June note, was First Majestic Silver, which has rallied approximately 59% since then, strongly outperforming its peers.

TD will publish more on the gold/silver ratio when the retracement/consolidation pattern is complete as TD analysts ultimately expect much stronger gains in silver before the precious metals bull market is over.

Please click here now. Double-click to enlarge this chart.
Another glorious day for gold investors is underway.
Please click here now. Double-click to enlarge.
The only better-looking chart than gold right now is… silver!
Years ago, I coined the term “flagification” to describe the formation of multiple flags on the gold and silver charts.
This technical action is rare and outrageously bullish.
Because it happens with technical indicators overbought and the commercial traders adding seemingly overwhelming short positions on the COMEX, even the best top callers need to use caution in this type of market.
I’ve described the current events in America as resembling a hybrid of what occurred in 1929, 1937, 1968, and 2008.
Stagflation, tariff taxes, US-China empire transition, populist worship of debt-obsessed politicians, and a peaking global business cycle all appear to be in play… at the same time.
Please click here now. Double-click to enlarge this horrifying US stock market chart.
Flagification may soon be in play, but not in a good way! A huge bear flag has already formed on this short-term hourly chart.
I always recommend that US stock market investors go to the sidelines at the start of August with some of their capital. As the business cycle matures, the danger of a crash in September or October increases exponentially.
Please click here now. Double-click to enlarge. The weekly chart action of the Dow is ominous, while gold and silver accelerate their upside action.
What’s happening now in both gold and the stock market is reminiscent of the late 1960s when American stagflation began.
Please click here now. Double-click to enlarge.
The gold stocks versus gold monthly ratio chart probably is the best illustration of the emerging stagflation theme.
In 2007 gold stocks were at a high price in relation to gold. Now they are very low and basing.
Mainstream analysts have suggested different interest rates that would represent “normalization”. Likewise, some gold stock analysts have suggested that GDX would be “normalized” at a price of about $40.
I would agree with that number if deflation was still the theme rather than emerging stagflation and empire transition. Looking at the long-term ratio chart, a case can be made that GDX would now only be “normalized” at a price somewhere between $100 and $300 a share.
Even after the huge rally in 2019, GDX is still trading below its 2008 lows on the GDX versus gold ratio chart. The bottom line:
In a stagflationary environment, the upside potential for gold is fabulous and for gold stocks versus gold it is mind boggling.
Please click here now. Double-click to enlarge this key GDX daily chart.
The stoploss is set at $28 but if GDX moves above $30 (and it could happen today) eager accumulators can add to positions and raise the stop to about $27.70.
In a powerful market featuring such events as “flagification” and a US President who engages in regular QE worship, there’s no point in setting any target price at this early stage in the upside game. My suggestion is just to move stoplosses higher and higher as GDX makes one fresh and glorious minor trend high after another!

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Graceland Updates

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Risks, Disclaimers, Legal

Are You Prepared?

Last week was another strong one for the precious metals sector.

Gold gained a whopping $51/oz or 3.5%. The gold stocks (GDX, GDXJ) advanced by roughly 6%. Silver gained 4%.

Momentum in the sector began to build once Gold surpassed resistance at $1420-$1425/oz. We had noted the lack of resistance from $1425 to $1525-$1550/oz.

Gold has not reached $1550/oz yet but as it inches higher, some technical and sentiment indicators are urging caution.

Gold’s net speculative position of 54% is very close to the peaks of 55% to 60% seen since 2000. It’s possible the commercial hedgers will start covering at some point like they did in 2006 and 2010 but for now we have to assume they won’t if $1550/oz holds as resistance.

In the next chart we plot Gold’s net speculative position (51%) and the 21-day average of the daily sentiment index (DSI) from 2002 to 2011 (84%).

During that strong 10-year period, those figures of 51% and 84% were reached seven times. Five of those seven times Gold corrected or consolidated for at least a few months.

Turning to the gold stocks (and GDX specifically), we find a fairly overbought condition while the market approaches multi-year resistance at $31-$32.

The bullish percentage index (BPGDM) and a 20-day moving average of new highs in GDX are approaching the levels they peaked at in July 2016.

The trend in precious metals is strong and the fundamentals are bullish but there can obviously be corrections and consolidations within strong trends.

Sentiment indicators are becoming a concern and Gold and gold stocks (GDX) are approaching obvious resistance levels at $1550/oz and $31-$32.

This is not the time to be placing aggressive bets on Gold or the senior gold stocks. If there is a sector correction, those areas figure to be hit harder than Silver or junior mining stocks which are not as extended.

If you missed the recent run then it is best to be patient, buy value and wait for weakness in anything that is strong but too extended. New opportunities will emerge. To learn the stocks we own and intend to buy during the next correction that have 3x to 5x potential, consider learning more about our premium service.

By Jordan Roy-Byrne CMT, MFTA

August 14, 2019

After a major trend change, it can be difficult for the majority of investors and market watchers to shift and adjust accordingly to the new trend.

It’s no different in the current case of precious metals which, other than a huge rally in the first half of 2016 have been dead money for the majority of the current decade. Despite the newfound bullish fundamentals and bullish technical action, plenty of worry remains that the breakout in Gold could fail.

Conventional wisdom argues the sector has run too far too fast and needs to correct. Technical and sentiment indicators are showing extremes (but only when judged against recent, bear market years).

While we do not want to outright chase this strength we also don’t want to wait for a big reset that may not materialize.

After grinding around $1420-$1425/oz for five weeks, Gold closed the week near $1500/oz. This suggests it has surpassed resistance at $1425/oz and should continue towards resistance at $1525 to $1550/oz.

Speculators are increasing their exposure, but the net speculative position is not quite yet at an extreme.

Although gold has pushed higher, the gold stocks have remained in a correction which began 11 days ago. So the much anticipated correction or snapback in the miners is already taking place and Thursday’s low could mark the worst of it.

The miners could have more backing and filling ahead but the path of least resistance remains higher. GDX could test $31 and GDXJ could surpass $42.50 as gold establishes another, higher floor.

On the fundamental side, the Fed cut the funds rate down to 2.25% but the market continues to expect more. The 2-year yield closed the week at 1.72%, which implies an additional two rate cuts.

At some point the precious metals sector will endure a sustained correction. That point does not appear to be imminent.

Take advantage of the current pause in gold stocks to buy weakness and look for fresh opportunities and value plays that are not so extended. To learn the stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

By Jordan Roy-Byrne CMT, MFTA

August 12, 2019

The gold miners’ stocks have surged dramatically this summer, catapulted higher by gold’s major bull-market breakout. That atypical strength bucking the normal summer-doldrums slump has carried this sector right back to its traditional strong season. That begins with a robust autumn rally starting in late summers. This year’s autumn-rally setup is very unusual, but investment buying could still fuel further gains.

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 see, as its mined supply remains relatively steady year-round. Instead gold’s major seasonality is demand-driven, with global investment demand varying considerably depending on the time in the calendar year.

This gold seasonality is fueled by well-known income-cycle and cultural drivers of outsized gold demand from around the world. Starting in late summers, Asian farmers begin to reap their harvests. As they figure out how much surplus income was generated from all their hard work during the growing season, they wisely plow some of their savings into gold. Asian harvest is followed by India’s famous wedding season.

Indians believe getting married during their autumn festivals is auspicious, increasing the likelihood of long, successful, happy, and even lucky marriages. And Indian parents outfit their brides with beautiful and intricate 22-karat gold jewelry, which they buy in vast quantities. That’s not only for adornment on their wedding days, but these dowries secure brides’ financial independence within their husbands’ families.

So during its bull-market years, gold has always tended to enjoy major autumn rallies driven by these sequential episodes of outsized demand. Naturally the gold stocks follow gold higher, amplifying its gains due to their profits leverage to the gold price. Today gold stocks are once again back at their most-bullish seasonal juncture, the transition between the usually-drifting summer doldrums and big autumn rallies.

Since it is gold’s own demand-driven seasonality that fuels 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 remains in a younger bull market. After falling to a 6.1-year secular low in mid-December 2015 as the Fed kicked off its latest rate-hike cycle, gold powered 29.9% higher over the next 6.7 months.

Crossing the +20% threshold in March 2016 confirmed a new bull market was underway. Gold corrected after that sharp initial upleg, but normal healthy selling was greatly exacerbated after 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 2016. But that remained shy of a new bear’s -20%.

Gold rebounded sharply from those anomalous severe-correction lows, nearly fully recovering by early September 2017. But gold failed to break out to new bull-market highs, then and several times since. That left gold’s bull increasingly doubted, until June 2019. Then gold surged to a major decisive breakout confirming its bull remains alive and well! Its total gains grew to 37.5% at best in mid-July, still small for gold.

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 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 2019. 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 younger bull today and bear-market action is quite dissimilar.

Prevailing gold prices varied radically throughout these modern bull-market years, running between $257 when gold’s last secular bull was born to $1894 when it peaked a decade later. All these years along with gold’s latest bull since 2016 have to first be rendered in like-percentage terms in order to make them perfectly comparable. Only then can they be averaged together to distill out gold’s bull-market seasonality.

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 chart averages the individually-indexed full-year gold performances in those bull-market years from 2001 to 2012 and 2016 to 2018. 2019 isn’t included yet since it remains a work in progress. This bull-market-seasonality methodology reveals that late summers are when gold’s long parade of big seasonal rallies gets underway. And that starts with the major autumn rally which is born in gold’s summer doldrums.

During these modern bull-market years, gold has enjoyed a strong and pronounced seasonal uptrend. From that prior-year-final-close 100 baseline, it has powered 14.8% higher on average by year-ends! These are major gains by any standard, well worth investing for. While this chart is rendered in calendar-year terms since these increments are easiest for us to grasp, gold’s seasonal year actually starts in the summers.

Remember this whole concept of seasonality relies on blending many years together, smoothing away outliers to reveal core underlying tendencies. Seasonally gold tends to bottom in mid-June, but then still largely drifts sideways in its summer doldrums until early July. Gold sure bucked its weakest season this year, blasting sharply higher in June to that huge decisive bull-market breakout! But seasonals remain relevant.

Tremendous buying was necessary to negate gold’s summer doldrums in the last couple months, which largely came from gold-futures speculators. But that nearly exhausted their capital firepower available to buy, leaving a high selloff risk. They could rapidly unwind their excessively-bullish bets if the right catalyst convinces them to exit. The resulting quickly-cascading gold-futures selling would kill gold’s autumn rally.

But gold’s bull-breakout momentum carrying it to its best levels in 6.2 years by mid-July could stave off the bearish mean reversion in spec gold futures. Seeing gold hold over $1400 again has unleashed new-high psychology, which powerfully motivates investors to buy. Investment capital inflows could grow and feed on themselves, amplifying gold’s upside during its autumn-rally span. We still have to consider these seasonals.

Interestingly at gold’s typical mid-June summer-doldrums lows that birth its major autumn rallies, it has still been 5.8% higher year-to-date on average. On that same trading day this year, gold had already been rallying but was still only up 4.6% YTD! So gold remained relatively low this summer compared to seasonal precedent when its autumn rallies normally get underway. There was lots of room for seasonal buying.

Gold’s autumn rallies generally start grinding higher in Julies, which have seen modest average gains of 0.5% in these modern bull-market years per this dataset indexed from prior-year closes. They accelerate considerably in Augusts, which is when that Asian harvest buying kicks into full swing. Gold averaged big 1.9% gains in Augusts, which is its 4th-best month seasonally! So traders need to be long gold by late Julies.

The upside momentum in gold’s strong autumn rallies only builds from there. From 2001 to 2012 and 2016 to 2018, Septembers enjoyed hefty additional average gains of 2.5%! That makes for gold’s 3rd best month of the year, only behind Januaries’ 3.1% and Novembers’ 2.7%. Gold’s autumn rallies generally running from mid-Junes to late Septembers have enjoyed sizable 5.7% average gains in these bull years!

That’s certainly a nice run higher in just 3.4 months. For comparison the US benchmark S&P 500 stock index has averaged 8% annual returns historically. So gold surging almost 3/4ths that much in just over 1/4th the time is impressive. And these autumn rallies are only the first third of gold’s strong season, which includes the much-larger winter rallies averaging big 9.3% gains and smaller spring rallies running 3.3%.

Together gold’s troika of autumn, winter, and spring rallies carve its strong seasonal uptrend rendered in this chart. These sequential seasonal rallies begin right after gold’s weakest time of the year, normally those summer doldrums which were short-circuited this year. Speculators and investors alike can ride gold’s strong bull-market seasonality in physical bullion or the leading GLD SPDR Gold Shares gold ETF.

But the gold miners’ stocks well outperform gold’s underlying seasonal gains, amplifying gold’s trio of big seasonal rallies. The gold stocks enjoy powerful sentimental and fundamental boosts when gold rallies materially. Higher gold prices shock traders out of their usual apathy for this small contrarian sector, restoring capital inflows. The resulting gold-stock gains start shifting sentiment back to bullish, fueling more buying.

And that is fundamentally-justified, as gold-mining profits really amplify underlying gold gains. The higher gold prices flow directly through to bottom lines, as production costs are largely fixed when mines are being planned. Gold miners’ profits leverage to gold is important to understand, illuminating why gold stocks are the best way to ride gold’s seasonal uptrend. The latest real-world data drives home this point.

The leading gold-stock investment vehicle is the GDX VanEck Vectors Gold Miners ETF. It includes the world’s biggest and best major gold miners. Every quarter I analyze the latest financial and operational results from GDX’s elite gold stocks. While this current Q2’19 earnings season is well underway, it won’t be finished until mid-August. So the latest full results available are still Q1’19’s, which proved quite robust.

The GDX gold miners reported average all-in sustaining costs of $893 per ounce, which is what it costs them to produce and replenish each ounce of gold. AISCs don’t change much regardless of prevailing gold prices, as mining still requires the same levels of infrastructure, equipment, and employees quarter after quarter. From Q2’18 to Q1’19, the GDX gold miners’ AISCs averaged $856, $877, $889, and $893.

That makes for $879 AISCs over the past year. Gold-mining profits are the difference between prevailing gold prices and AISCs. Q1’19’s $1303 average gold price and average AISCs yielded industry profits of $410 per ounce. So far in Q3’19, gold has averaged $1415 which is a hefty 8.5% higher! Assuming gold holds these levels and past-year AISCs persist like usual, gold miners are earning about $536 this quarter.

That is big 30.7% earnings growth on a mere 8.5% gold rally, making for 3.6x upside leverage! This core fundamental relationship between mining profits and gold prices is why major gold stocks tend to amplify gold’s gains by 2x to 3x. That leverage can grow much larger after gold stocks are really undervalued and out of favor. In roughly the first half of 2016, GDX skyrocketed 151.2% on a 29.9% gold upleg for 5.1x upside!

So gold stocks’ own strong bull-market seasonality is fully justified fundamentally. This next chart applies this same seasonal methodology to the flagship HUI NYSE Arca Gold BUGS Index. We can’t use GDX for this study since its price history is insufficient, it was only born in May 2006. But since GDX and the HUI hold most major gold miners in common, they closely mirror each other. Gold stocks see big autumn rallies.

During these same modern gold-bull-market years of 2001 to 2012 and 2016 to 2018, the gold stocks as measured by the HUI enjoyed average gains of 9.3% between late Julies to late Septembers. Augusts and Septembers are actually this sector’s second-strongest 2-month span, averaging big respective gains of 3.7% and 3.5%. Speculators and investors need to be fully deployed before Augusts, just like in gold.

The gold stocks’ 9.3% average autumn rally only leverages gold’s 5.7% one by 1.6x, behind the 2x to 3x expected. But that evens out over the winter and spring rallies, where gold stocks climb another 14.9% and 12.2%. That works out to 1.6x and 3.7x upside leverage to gold. In full-calendar-year terms, the gold stocks’ bull-market seasonal gains averaging 25.9% amplified gold’s 14.8% by 1.8x. That was still short of 2x to 3x.

Prior to this summer’s dazzling gold breakout, gold stocks had underperformed the metal they mine for years. With gold unable to hit new bull highs, investors largely forgot about it and its miners’ stocks. That has dragged down gold stocks’ average upside relative to gold. But it has picked up dramatically with gold’s decisive bull-market breakout starting to wake up traders. Recent gold-stock gains well outpaced gold’s.

At best in mid-July, GDX had rocketed 30.8% higher summer-to-date! That was 2.9x gold’s own 10.7% gain over that span. Gold stocks’ powerful counter-seasonal summer surge extended GDX’s upleg-to-date gains to 60.8% over 10.2 months by mid-July. That also proved 2.9x upside leverage to gold’s own 20.7% upleg over that same time frame. That’s at the high side of that historical 2x-to-3x outperformance range.

Since gold stocks mirror and amplify underlying moves in gold, their autumn-rally setup this year is very similar. Rather than drifting like usual in June and July, gold-stock prices soared higher on gold’s decisive bull-market breakout. That’s left them relatively high heading into their normal autumn-rally span. While that increases the risks of a counter-seasonal selloff slaughtering this year’s autumn rally, it all depends on gold.

Gold stocks will follow and leverage gold in the next couple months, whether the metal retreats or keeps rallying. Again gold faces a major selloff if gold-futures selling starts snowballing, rapidly unwinding the speculators’ excessively-bullish bets. But if investors entranced by the alluring new-high psychology keep buying, gold will continue powering higher. Gold stocks’ near-term fortunes depend on gold investment demand.

This final chart slices up gold-stock seasonals into calendar months instead of years. Each is indexed to 100 at the previous month’s final close, and then all like calendar months’ indexes are averaged together across these same modern bull-market years of 2001 to 2012 and 2016 to 2018. Again gold’s autumn rally makes Augusts and Septembers gold stocks’ second-best 2-month span after Januaries and Februaries.

There’s no doubt gold-stock seasonals are very favorable in these next couple months. Gold miners only enjoy strong back-to-back months a couple times a year, and this autumn-rally span is one of them. Late summers offer the best seasonal buying opportunities of the year to deploy capital in gold stocks. That’s when they transition from seasonally-weak summers to seasonally-strong autumns, winters, then springs.

That being said, seasonality reveals mere tendencies. The primary drivers of gold and its miners’ stocks are sentiment, technicals, and fundamentals. Seasonality reflects how these average out across calendar years over long spans, but they can easily override seasonals in any given year. This summer so far is a key case in point. The usual summer doldrums failed to materialize as gold surged on the Fed pivoting dovish.

This year’s autumn-rally setup is well on the bearish side with gold-futures speculators effectively all-in long upside bets and all-out short downside bets. Their buying firepower is nearing exhaustion, leaving vast room to sell and hammer gold and thus gold stocks lower. That remains a serious risk if the right catalyst arises to ignite cascading selling. But the power of new-high psychology to attract investors is strong.

Investment capital inflows can drive gold higher for many months or even years, regardless of what gold-futures speculators are doing. The higher gold rallies, the more investors want to own it. The more they buy, the higher gold climbs. Buying begets buying, and nothing fuels this virtuous circle like new secular highs. So while we need to remain wary entering the autumn rally relatively high, it could certainly still happen.

Exactly a year ago gold’s setup heading into its autumn-rally span was incredibly bullish. As I explained in last year’s essay updating this research thread, extreme gold-futures selling had pushed spec shorts to all-time-record highs. Spec longs were really low too, leaving lots of room to buy and push gold much higher. Yet what happened? Speculators kept on aggressively shorting anyway, battering gold even lower!

Gold was trading at $1302 in mid-June when its summer seasonal low tends to be hit. It fell hard from there, hitting $1224 at the end of July. Then it plunged even lower still to $1174 by mid-August, and only rebounded modestly to $1199 by late September when the autumn rally tends to end. Gold had terrible autumn-rally performance in 2018 despite the super-bullish setup. Strong momentum tends to build on itself.

Last year bearish psychology grew even more bearish in August and September, leading to even more selling beyond normal limits. This year we could see self-reinforcing bullish sentiment as gold’s best prices in years fuel greed. That new-high psychology motivating investors to return could gradually push gold higher as they buy. The resulting high resilient gold prices could retard the big overhang of gold-futures selling.

Regardless of what happens in August and September, gold and its miners’ stocks are entering their strong season which runs until late next spring. So material selloffs can be used to accumulate positions in gold and silver miners with superior fundamentals. But make sure to protect your capital with trailing stop losses, as speculators’ excessively-bullish gold-futures bets still have to normalize via selling sooner or later.

To multiply your capital in the markets, you have to trade like a contrarian. That means buying low when few others are willing, so you can later sell high when few others can. Earlier this year well before gold’s breakout, we recommended buying many fundamentally-superior gold and silver miners in our popular weekly and monthly newsletters. This week their unrealized gains ran as high as 130.2%, 122.6%, and 106.6%!

To profitably trade high-potential gold stocks, you need to stay informed about the broader market cycles that drive them. Our newsletters are a great way, easy to read and affordable. 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! The biggest gains are won by traders diligently staying abreast so they can ride entire uplegs.

The bottom line is gold and gold stocks are entering their strong season, starting with their autumn rally. In modern bull-market years, Augusts and Septembers have averaged out to the second-best couple-month span. This is normally fueled by Asian seasonal gold demand coming back online, driving this metal considerably higher. Gold stocks’ profits leverage to gold enables them to nicely amplify its gains.

This year’s autumn-rally setup is very unusual, as gold skipped its summer-doldrums slump after breaking out to major new bull-market highs. That was driven by massive gold-futures buying, leaving speculators’ positioning quite bearish. But rare new-high psychology is a powerful motivating force for investors to buy. Sustained capital inflows from them could easily overpower or retard gold-futures selling for months.

Adam Hamilton, CPA

August 2, 2019

Is gold finally due to swoon or can it continue to rally?
The naysayers point to overbought conditions on the weekly charts, COT reports showing a mammoth short position held by the commercial traders, and the upcoming stock market “crash season”.
The bulls point to a peaking US business cycle, inflationary and growth-destructive tariffs, a tight job market, an increasingly dovish Fed, strong central bank buying, de-dollarization, out of control government spending and debt, and Chinese investors buying more gold instead of investing in their weak stock market.
Please click here now. Double-click to enlarge this awesome weekly gold chart.
In the big picture, both fundamentally and technically, the bulls clearly have not just the edge, but a mighty wind at their backs.
What about the short-term picture? Well, please click here now. Double-click to enlarge this daily gold chart. Even in the short-term, I give the edge to the bulls!
There’s a rectangular drift in play, and per Edwards & Magee (writers of the technical analysis “bible”), rectangles have roughly a 67% chance of consolidating the existing trend, which is up.
Even if the price were to reverse on a disappointing Fed announcement, there’s great intermediate time frame support at $1360-$1275.
Institutional money managers are only going to become more enthusiastic about gold, silver, and the miners as the business cycle matures and the Fed becomes more dovish. Any pullback in the gold price now will be bought by their very strong hands.
What about the stock market? If there’s a crash in September or October, would gold stocks suffer?
Well, the CDNX index (where the “ultra-junior” miners trade) fell with the Dow during last year’s crash season swoon, but gold and most senior miners blasted higher!
Please click here now. Double-click to enlarge this spectacular GDX versus US stock market ratio chart.
From a performance perspective, gold stocks look poised to “destroy” the US stock market.
A massive inverse H&S bottom breakout is in play.
Please click here now. Double-click to enlarge this gold versus Nasdaq ETF chart (QQQ).
In 2011 the dollar began breaking out from a huge base pattern against the yen. Gold began to break down from a huge double top pattern against the Nasdaq. This told me a general risk-on theme was emerging and I suggested investors sell some gold and put the proceeds into the stock market.
Now, the opposite situation is beginning to take shape and investors should consider allocating some capital from the equity markets to gold, silver, and the miners now…
And with bigger size when there’s a breakout over 9 on the weekly gold versus Nasdaq chart.
Please click here now. Double-click to enlarge this GDX swing trade chart. I don’t see any reason for gold stock investors to be nervous, but for those who are, my swing trade service at https://guswinger.com/ is designed to wash those worries away.
Investors get solid performance and low drawdowns trading NUGT/DUST and SQQQ/TQQQ. I’ve introduced text alerts to investor cell phones as an optional means of sending the trade alerts to busy business people who like the swing trade action.
Please click here now. Double-click to enlarge this GDXJ chart. The GDXJ ETF is called a “junior miners” ETF, but in my professional opinion, it’s really more of an intermediate producer ETF now.
The current price action is truly exhilarating! An inverse H&S bottom and a marvellous bull pennant pattern both target the $45 price area. The $35-$36 zone is outstanding support.
Aggressive gamblers can “step up to the JNUG plate” and buy the JNUG ETF. It’s a a triple-leveraged version of GDXJ.
Whether JNUG, GDXJ, or individual component stocks of the ETFs are used, buyers of size can place a stoploss order under the pennant low to mitigate “Fed Day” announcement risk. Modest-size buyers don’t need stoploss orders. Just buy and prepare to watch GDXJ and its component stocks fly!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free report. “Wave My Golden Flags!” report. I highlight ten of the sweetest gold stocks staging massive bull flag and pennant action on the daily charts. I outline key tactics for investors who are ready to get richer!

Thanks

Stewart Thomson

Graceland Updates

Email:

Risks, Disclaimers, Legal

Are You Prepared?

The precious metals sector appears to have started a correction.

It was roaring higher until natural resistance kicked in and the U.S. Dollar grinded its way higher, towards its 2019 high. Factor in the Fed decision this week and it has created a natural “buy the rumor, sell the news” event.

We cannot know for certain what the Federal Reserve will do or even more importantly, how the market will react. But we can take note of key levels in these markets.

Gold has held above $1400/oz but has been unable to break past resistance at $1420-$1425/oz. A retest of $1385/oz is quite possible and so is a test of $1365/oz.

Silver has outperformed Gold since it broke above its 400-day moving average, which provided strong resistance dating back to the end of 2017.

Silver encountered resistance at $16.60-$16.70/oz and could test initial support at $16.20/oz. Below that is strong support at $15.95/oz.

Turning to the gold stocks, we find a clear setup between support and resistance.

GDX, the ETF for large gold producers has resistance at $28 but good support above $25.00, which was previous resistance for nearly three years. Look for initial support around $26.00.

GDXJ, the ETF for the “senior” junior companies, faces resistance at $40-$41. It has initial support around $37.50 with strong support at $36.00.

Regardless of what the Fed does or says, my expectation is precious metals will test these levels and ultimately hold them. The Fed and global central banks want to ease policy and this figures to be more than a one-off.

Precious metals became overbought and a correction is in order.

Investors who smartly positioned in recent months should continue to hold their winners. If the sector continues to correct then look to be a buyer at the aforementioned support levels.

Look to focus your capital on fresh opportunities and value plays that are not very overbought or extended. To learn the stocks we own and intend to buy on this weakness that have 3x to 5x potential, consider learning more about our premium service.

Jordan Roy-Byrne CMT, MFTA

July 30, 2019

Silver has blasted higher in the last couple weeks, far outperforming gold. This is certainly noteworthy, as silver has stunk up the precious-metals joint for years. This deeply-out-of-favor metal may be embarking on a sea-change sentiment shift, finally returning to amplifying gold’s upside. Silver is not only radically undervalued relative to gold, but investors are aggressively buying. Silver’s upside potential is massive.

Silver’s performance in recent years has been brutally bad, repelling all but the most fanatical contrarians. Historically silver prices have been mostly driven by gold, with the white metal amplifying moves in the yellow metal. Silver has generally leveraged gold by at least 2x in the past. And rarely silver skyrockets as higher prices and bullish sentiment feed on themselves in powerful virtuous circles fueling huge gains.

Silver’s legendary upside is largely the result of it being such a tiny market. Silver’s leading fundamental authority is the Silver Institute. In its latest World Silver Survey covering 2018, it reported that total world demand ran 1033.5m ounces last year. That was worth a mere $16.2b at 2018’s average silver prices, a rounding error in markets terms. That was just 1/11th the size of last year’s world gold demand worth $179.4b!

So when investors grow interested in silver again and start deploying capital, relatively-small inflows in absolute terms catapult silver far higher. This classic dynamic last worked in 2016. In roughly the first half of that year, silver rocketed 50.2% on the parallel 29.9% maiden upleg of this current gold bull. That made for 1.7x upside leverage to gold, remaining on the weaker side historically but still well worth riding.

Through gold suffered a severe correction in the second half of 2016, it still ended that year 8.5% higher. Silver’s 15.1% gain amplified that by 1.8x. The secret to gaming silver is it tends to act like a sentiment gauge for gold. When gold is relatively high and has been rallying, traders start assuming that will persist. And that’s when they want to buy silver. The white metal thrives mostly only when gold psychology is bullish.

In 2017 and 2018 gold fell deeper out of favor. The yellow metal wasn’t performing poorly, but it couldn’t break out to new bull-market highs. And contrarian investing was dying, with stock markets levitating to endless new record highs on hopes for big tax cuts soon and extreme Fed dovishness. With gold apathy stellar, silver didn’t stand a chance. Silver sentiment and thus price performance is totally controlled by gold.

Even though gold rallied a strong 13.2% in 2017, silver lagged at mere 6.4% gains. That 0.5x leverage to gold was terrible. The longer silver underperformed, the more traders capitulated on it and walked away. 2018 was even worse. Though gold only drifted 1.6% lower, silver plunged 8.6% making for horrendous 5.5x downside leverage. Silver wasn’t worth the big additional risk of its serious volatility compared to gold.

Thankfully silver’s dire fortunes started to change in early 2019, when I wrote my original essay on Silver Outperforming Gold. But unfortunately that was short-lived, as silver is slaved to gold. In mid-February the young gold upleg stalled out and reversed lower, after failing to break out to new bull-market highs. That kneecapped silver’s budding outperformance streak, casting it back to the underperformance wasteland.

By June 19th, silver was back to its recent miserable form. It was down 2.1% year-to-date despite gold enjoying a respectable 6.1% YTD rally. While we were taking advantage of the hellish sentiment to buy and recommend fundamentally-superior silver-mining stocks at crazy-low prices in our newsletters, it was hard to write about silver. Virtually no one was the least bit interested, with suffocating apathy universal.

But silver started awakening from its bearish haze on June 20th, kicked in the butt by an extraordinary watershed event. That day gold finally surged to its first new bull-market high since way back in early July 2016, when this bull’s maiden upleg peaked! Gold’s $1389 close was also its highest in 5.8 years, starting to unleash powerful new-high psychology. In the 5 weeks since, that has increasingly infected silver.

Silver didn’t respond immediately to gold’s decisive bull-market breakout. On breakout day it stuck to its languid ways, only rallying 1.8% on a major 2.1% gold up day. The silver price action actually stayed relatively weak for the next several weeks. By July 11th gold was 3.4% higher from the day before that major breakout, while silver slumped 0.3% lower. But something interesting was brewing behind the scenes.

Silver investment demand is notoriously difficult to monitor. The best fundamental data available for this white metal is again from the Silver Institute’s World Silver Survey. But as awesome as that is, it is only published once per year. There is a high-resolution proxy for silver investment demand available daily though, the physical-silver-bullion holdings of the world’s largest and dominant silver exchange-traded fund.

That is the American SLV iShares Silver Trust, which has a huge first-mover advantage after launching way back in April 2006. As of the end of 2018, the Silver Institute’s data showed SLV commanded fully 49% of all the silver held by all the world’s silver ETFs! SLV’s holdings are published daily, and when they climb it reveals American stock-market capital flowing into silver. This dynamic is important to understand.

SLV’s mission is to track the silver price, giving stock traders full silver exposure. But the SLV-share supply and demand is independent of silver’s own. If stock traders are buying SLV shares faster than silver itself is being bought, SLV’s price will decouple from silver’s to the upside. SLV’s managers prevent this by shunting that excess share demand back into physical silver itself. The mechanics are simple in concept.

When SLV prices are being bid up faster than silver, new SLV shares are issued to absorb that differential demand. The capital raised from selling those shares is then used to buy more physical silver bullion. This enables SLV to act as a conduit for stock-market capital to flow into and out of silver itself. When SLV shares are sold faster than silver, this process reverses. SLV holdings reveal silver investment trends!

While silver was drifting sideways to lower in the first half of July and looking unimpressive, American stock investors were starting to buy SLV. Between July 2nd and 9th, SLV enjoyed daily holdings builds averaging 0.7% in 4 out of 5 trading days! At the same time the leading gold ETF’s holdings, which is of course the GLD SPDR Gold Shares, were mostly draws. Silver was attracting investors while gold wasn’t.

With gold consolidating high and largely holding over $1400, precious-metals sentiment was improving. After long ignoring gold and silver, investors were starting to take another look. Silver had not only really lagged gold’s breakout rally since mid-June, but it was radically undervalued compared to its dominant primary driver gold. We’ll explore that shortly. So smart contrarians were starting to shift back into silver.

This didn’t first become evident in silver’s price action until July 15th, just a couple weeks ago. That day silver rallied 1.2% despite gold only edging 0.1% higher. That was peculiar and out of character for silver in recent years, so it could’ve been an anomaly. But it proved otherwise. As of this Wednesday’s data cutoff for this essay, silver has outperformed gold in a major way for 8 trading days in a row! That’s incredible.

On the 16th silver climbed 0.9% while gold fell 0.9%. On the 17th and 18th silver surged 2.6% and 2.3% on 1.5% and 1.4% gold up days. The 19th saw silver only retreat 0.7% as gold dropped 1.4%. Then on the 22nd and 23rd silver rallied 1.0% and 0.2% despite gold’s 0.1% and 0.5% declines. This Wednesday the 24th saw silver climb 1.1% outpacing gold’s 0.6%. Such a strong outperformance streak is important.

Thus in the past couple weeks or so, silver has blasted 9.7% higher despite a mere 1.3% gold rally! That makes for epic 7.4x upside leverage, the kind silver enthusiasts dream about. This outperformance stretch is even more impressive because it was driven by big capital inflows into SLV by American stock investors returning to silver. As of this Wednesday SLV saw strong holdings builds for 6 trading days in a row.

That started with a monster 2.6% SLV build on the 17th, which proved the biggest seen by far since way back in January 2013! Gold largely holding over $1400 rekindled American stock investors’ interest in silver in a way not seen in 6.5 years. Over the next 5 trading days ending Wednesday, SLV’s holdings grew another 0.8%, 1.0%, 2.6%, 0.5%, and 0.5%. This silver-investment-buying streak is pretty amazing.

While silver’s outperformance of gold has exploded only in the last couple weeks, it has totally changed how silver looks since gold’s decisive bull-market breakout on June 20th. As of Wednesday, silver has now rallied 9.3% over that 24-trading-day span compared to gold’s 4.8% gain. That’s right back up to that historical 2.0x-upside-leverage norm. SLV’s holdings enjoyed 13 build days, 11 flat days, and 0 draw days.

They have catapulted SLV’s holdings 12.6% higher since the day before gold’s breakout. Via this leading ETF, American stock investors are now holding 1/8th more silver in absolute-ounces terms in just 5 weeks. Over this same span GLD’s holdings only climbed 7.6%. And it only saw 8 holdings-build days, 5 flat days, and a whopping 11 draw days. Something special, major, and likely pivotal is underway in silver!

Nevertheless, silver remains in an ugly place compared to gold. YTD as of this Wednesday, silver was just up 7.1% compared to gold’s 11.1%. Gold’s $1445 upleg-to-date high achieved on July 18th was its best level seen in 6.2 years. Silver’s own upleg-to-date high of $16.55 this Wednesday was merely a 1.1-year one. So though silver has started to outperform gold again, it has a long way to go to look impressive.

There’s no sugarcoating it, the carnage in silver in recent years has been catastrophic. Thanos himself couldn’t have done worse with a fully-stoned Infinity Gauntlet! While there were a half-dozen silver charts I considered sharing this week, this one is the most telling. It shows the Silver/Gold Ratio over the past decade-and-a-half or so. This SGR is the best measure of whether silver prices are relatively high or low.

The SGR simply divides the daily silver close by the daily gold close, but yields hard-to-parse decimals like 0.0116 this Wednesday. So I prefer to use an inverted-axis Gold/Silver Ratio instead, which is the same thing but offers easier-to-understand numbers like 86.1 mid-week. Silver prices had almost never been lower relative to gold in modern history before recent weeks! Silver is climbing out of a stygian abyss.

Back in mid-June just before gold’s decisive bull-market breakout changed everything, the SGR had fallen to an absurd 90.4x. In other words it took 90.4 ounces of silver to equal the value of a single ounce of gold. That was wildly out of whack with historical precedent. From 2005 to just before 2008’s first stock panic in a century, the SGR averaged 54.9x. From 2009 to 2012 after that panic, it averaged a similar 56.9x.

The SGR had generally meandered in the mid-50s for decades, so miners had long used 55.0x as the leading proxy for calculating silver-equivalent or gold-equivalent ounces. The SGR also experienced great cycles, long secular periods of silver outperformance where the SGR generally fell followed by multi-year spans of silver underperformance where the SGR rose on balance. SGR extremes were short-lived.

As gold surged over this past month, the SGR spiraled higher still to a mind-boggling 93.5x on July 5th. That was an apocalyptic 26.8-year low, the worst silver levels relative to gold since October 1992. That is longer than the average investing lifespan of today’s traders, over a quarter century! And 93.5x isn’t much better than the worst SGR since 1970, 100.3x seen briefly in February 1991. Silver has just been slaughtered.

For an incredible 8.2 years the SGR had been rising on balance, showing chronic underperformance relative to gold. This secular cycle is far-overdue to turn, and after extreme lows historically silver has spent years mean reverting higher relative to gold. 2008’s extraordinary stock panic offers a fantastic recent example of how greatly silver can soar after being battered down to extreme lows relative to gold.

Back in November 2008 in that most-extreme market-fear event seen in our lifetimes, the SGR was crushed to 84.1x. Silver was radically undervalued relative to gold, investors wanted nothing to do with it. Such a great disconnect between silver and gold wasn’t sustainable given their relative market sizes and the ratio at which they are mined. So over the next 2.4 years into April 2011, silver skyrocketed 442.9% higher!

After SGR extremes silver doesn’t just revert to the mean, but overshoots proportionally towards the opposite extreme. The SGR fell as low as 31.7x when that silver bull peaked over $48 per ounce. Odds are the SGR will again overshoot and at least return to the 40s before silver’s next bull fully runs it course. With silver not far off its lowest levels compared to gold in modern times in early July, it has vast room to soar.

Gold’s current bull market was born in mid-December 2015, and is what has driven silver higher during gold-bull uplegs. Since then, the SGR has averaged just 77.8x. That is actually higher than during that wild stock-panic span in late 2008, incredibly extreme! Over the past several weeks or so, the SGR has already started mean reverting falling as low as 86.1x this week. Silver’s upside potential from here is epic.

At $1400 gold and this miserable gold-bull-average 77.8x SGR, silver would need to trade at $18.00. That’s another 9% higher from this week’s levels. But again mean reversions off extremes don’t just stop at the averages, but keep going like a pendulum. That yields an SGR target of 62.1x, implying $22.56 silver at $1400 gold. Silver would have to power another 36% higher to regain those still-pathetic SGR levels.

If gold’s young secular bull persists for years to come as it ought to based on historic precedent, silver is going to climb far higher greatly lowering the SGR. If it just mean reverts back to that longstanding 55.0x average with no overshoot, that means $25.45 silver at $1400 gold. These SGR-mean-reversion-and-overshoot silver-price targets grow far bigger at higher prevailing gold prices and proportional-overshoot SGR lows.

The point of all this is silver is so radically undervalued compared to its primary driver gold that it needs to soar vastly higher to reestablish normal relationships. While silver’s outperformance over the past couple weeks is impressive, it hardly even registers coming off such extreme lows. Digging out of such a deep hole relative to gold, silver needs to rally higher on balance for many months or even years to come!

While investment buying including via silver ETFs like SLV will be the primary driver, silver futures will also play a big role. A couple weeks ago I wrote about gold’s high short-term selloff risk due to how the gold-futures speculators are now positioned, with excessively-bullish bets that are actually very bearish over the near term. A healthy gold pullback or correction would certainly drag silver down with it for a spell.

The most-bullish situation possible for gold- and silver-futures is for speculators to be all-out long upside bets and all-in short downside bets. That leaves them nothing to do but buy. That is 0% longs and 100% shorts. In the latest weekly Commitments of Traders report, specs’ gold-futures bets were running 75% on the long side and 10% on the short side up into their entire bull-market trading ranges. That’s really bearish.

By bull-to-date precedent, gold-futures speculators had room to sell 347.4k contracts but only room to buy 80.5k. That made for an ominous 4.3x ratio of potential selling outweighing potential buying. I bring this up because speculators’ silver-futures positioning was nowhere near as menacing. They are running 66% on the long side and 44% on the short side up into their gold-bull-market trading ranges, much less bearish.

Speculators had room to sell 97.4k silver-futures contracts and buy 65.8k in the latest CoT report, for a way-more-moderate 1.5x ratio of potential selling to potential buying. The takeaway here is silver has a lot more near-term futures-buying-driven upside potential than gold does. Together silver investment buying and silver-futures buying are powerful forces to catapult silver higher. But it all depends on gold.

If gold continues to consolidate high above or near $1400, that will foster the bullish sentiment necessary for silver buying to persist. New-high psychology driving gold investment buying could make this happen. But if something spooks the gold-futures speculators, they have massive room to sell which would quickly cascade and hammer gold lower. That would suck in silver, driving both into healthy short-term corrections.

But once speculators’ excessively-bullish gold-futures bets normalize, gold and silver should be off to the races again with silver really outperforming. So any material weakness should be used to aggressively accumulate physical silver bullion, SLV shares, and stocks of fundamentally-superior silver miners. Their upside potential trounces silver’s because their profits growth really amplifies higher prevailing silver prices.

Again silver soared 50.2% higher in largely the first half of 2016. The leading SIL Global X Silver Miners ETF rocketed a colossal 247.8% higher in essentially that same span! That made for huge 4.9x leverage to silver’s gains. Every quarter I analyze the fundamentals of the major silver miners of SIL, with the latest essay covering Q1’19 results. Now is the time to do your homework before silver really starts running again.

To multiply your capital in the markets, you have to trade like a contrarian. That means buying low when few others are willing, so you can later sell high when few others can. In recent months well before gold’s breakout, we recommended buying many fundamentally-superior gold and silver miners in our popular weekly and monthly newsletters. Mid-week our unrealized silver-stock gains already ran as high as 113.8%!

To profitably trade high-potential gold and silver stocks, you need to stay informed about broader market cycles that drive them. Our newsletters are a great way, easy to read and affordable. 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! The biggest gains are won by traders diligently staying abreast, always learning.

The bottom line is silver really started outperforming gold again in the last couple weeks. Silver surged dramatically on heavy investment buying, as evidenced by big differential SLV-share demand. This looks like a sea-change sentiment shift getting underway in silver, especially after it was crushed to its lowest levels relative to gold in well over a quarter century. Silver is long overdue to mean revert vastly higher.

Silver effectively acts like a gold sentiment gauge, with investment demand dependent on gold’s fortunes. The longer gold consolidates high or grinds higher, the more silver will be bought. Coming out of such radically-undervalued levels, silver’s future bull-market upside should greatly exceed gold’s. But silver will also get sucked into periodic gold corrections, which can be used as lower entry points to add silver positions.

Adam Hamilton, CPA

July 29, 2019

At McDonald’s restaurant, customers can “supersize” their food orders. Can gold supersize its awesome 2019 price action?
Well, please click here now: https://gracelandjuniors.com/wordpress/wp-content/uploads/2019/07/2019jul23gold1.png Double-click to enlarge.
The technical action on this gold chart is spectacular!
Gold has formed a massive pennant formation. There’s no guarantee that it plays out, but if it does the technical target is in the $1560 area.
A $1560 gold price would turn most gold producers into gargantuan cash cows, and the near-vertical rally already in play in silver would likely become a textbook barn burner.
Please click here now: https://gracelandjuniors.com/wordpress/wp-content/uploads/2019/07/2019jul23si1.png Double-click to enlarge. A pattern like a double bottom is now in play on the weekly silver chart.
This pattern suggests the silver rally is just getting started and a breakout over the neckline would target the $18.50 area.
The Western fear trade for gold is now the “price driver in play” for all the precious metals upside action, but the love trade is also providing solid and consistent support for the market.
Interestingly, the Indian government tariff taxes of 12.5% have effectively revalued the price of the vast hoards of gold held by Indian citizens by 12.5%.
In America, real interest rates continue to decline as the business cycle peaks. Any uptick in inflation could create an institutional “feeding frenzy” in gold stocks and silver stocks.
Please click here now: https://gracelandjuniors.com/wordpress/wp-content/uploads/2019/07/2019jul23realrates1.png Many bond market analysts believe that rate cuts from the Fed could accelerate the issuance of negative-rate bonds… dramatically!
Please click here now: https://gracelandjuniors.com/wordpress/wp-content/uploads/2019/07/2019jul23gold2.png Double-click to enlarge. Some gold analysts worry about the “large” commercial short position in gold on the COMEX, but I predicted years ago that when gold broke out of the bull continuation pattern… the commercial short position could rise to millions of contracts, with the price still going higher!
That’s because there are so many institutional money managers getting involved with gold now. The bottom line: Cash pays nothing and has no upside, and a surge in inflation would destroy the bond market and potentially topple the US government.
In this environment, institutional stock market investors are embracing gold and gold stocks. They are beginning to embrace silver too. Because silver is such a small market, even modest institutional buying is producing vertical price action!
Another positive aspect to the arrival of institutional investors in gold, silver, and the miners may be of interest to conspiracy buffs who believe in price manipulation.
I say that because institutional investors have in-house investigators who monitor the market action. They are quick to alert regulators when market trades don’t make sense.
Whether serious gold price manipulation existed in the past is probably unknowable, but there’s no question that the current market feels “cleaner” and more stable than it did when hedge funds dominated the market.
The SPDR fund (GLD-NYSE) is now at 825 tons, and the SLV-NYSE silver fund is now at 11,070 tons. Institutions are buying steadily.
What happens if the Fed disappoints at next week’s key meeting? What happens if there’s no rate cut? Well, since 2014 I’ve talked about all Fed actions being positive for gold.
Gold rallied on QT and rate hikes and the stock market tanked because of the safe haven bid. Gold also rallied on the recent Fed pause… much more than the stock market did!
The bottom line: If the Fed doesn’t cut rates at next week’s key meeting the stock market will crash and gold will cash a huge safe haven bid. Everything the Fed does is now win-win for gold.
Please click here now: https://gracelandjuniors.com/wordpress/wp-content/uploads/2019/07/2019jul23gdx1.png Double-click to enlarge this fabulous GDX chart. I coined the term “flagification” to describe a market so powerful that numerous bull flags appear in succession. That’s happening with GDX and many gold miners now.
For a look at the important weekly chart for GDX, please click here now: https://gracelandjuniors.com/wordpress/wp-content/uploads/2019/07/2019jul23gdx2.png Double-click to enlarge. If the bull flag on the daily chart plays out, GDX is going to my $30-$32 target zone, and to $37-$40 if the “supersize” bull pennant on the gold bullion chart activates.
The breakout above $26 on the weekly chart has turned the entire $23-$26 area into a massive support zone, so any failure or churning in the flag/pennant formations is little more than an annoying bearish fly that should soon be swatted away by a growing army of excited institutional buyers.
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It was a huge week for the gold stocks. GDX gained nearly 7% while GDXJ surged over 10%.

Gold hit $1450/oz after Thursday before selling off Friday. Silver met the same fate on Friday but managed to close the week up over 6% and at a new 52-week high.

Let’s take a look at the current technicals.

Gold closed the week just below $1427/oz. If it remains above $1420-$1425, then it is likely to trend towards $1475/oz, which is the only resistance between $1425 and $1525.

If Gold trades back below $1420 then there is a risk it could test $1380 again.

Silver has taken out resistance at its 400-day moving average in convincing fashion but needs to surpass its February 2019 high. Its next major resistance target is the mid $18s.

Turning to the stocks, we start with GDX which is closing in on its 2016 high. Should Gold trend towards $1475/oz then GDX would likely retest that 2016 high at $31.

Breadth remains strong and so too is GDX’ relative strength. GDX relative to the S&P made a 21-month high and relative to Gold made a 2-year high.

Both GDXJ (juniors) and the HUI (miners only) still have room to go before reaching their 2016 highs.

In fact, both are facing some immediate overhead resistance. For GDXJ which closed at $39.50, that resistance is at $40-$41. For HUI which closed at 211, that resistance is at 220.

The support levels are $36 for GDXJ and 195 for the HUI.

If Gold and Silver maintain current levels, then the immediate bias remains higher and GDX could soon test its 2016 high.

GDXJ and HUI have roughly 30% upside to their 2016 highs. Such a move probably requires a move in Gold to at least $1525/oz.

However, if Friday was the start of a correction then GDX could test $26 and GDXJ could test $36.

For investors in the juniors and seniors, continue to hold winners. If the sector corrects, then look to take advantage of that weakness. If metals and shares maintain these levels then focus your capital on fresh opportunities and value plays that are not overbought or extended. To learn the stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

By Jordan Roy-Byrne CMT, MFTA

July 23, 2019

The gold miners’ stocks continue to rally on balance, after a major upside breakout extended their strong upleg. That’s driving mounting interest in this recently-forsaken sector. With the latest quarterly earnings season underway, traders will soon enjoy big fundamental updates from the gold miners. They are likely to report good Q2 results, with improving operational performances supporting further stock-price gains.

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 40 calendar days after quarter-ends. The gold miners generally release their quarterly reports in the latter half of that window. So Q2’19’s will arrive between late July to mid-August.

After spending decades intensely studying and actively trading this contrarian sector, there’s no gold-stock data I look forward to more than the miners’ quarterly financial and operational reports. They offer a true and clear snapshot of what’s really going on, shattering the misconceptions bred by ever-shifting winds of sentiment. Nearly all fundamental analysis is based off the data gold miners provide in quarterlies.

So for many years I’ve delved deeply into gold miners’ quarterly results. They are the dominant source of information I use to winnow down the universe of gold stocks to the fundamentally-superior ones with the greatest upside potential. Every quarter after their latest earnings season ends, I research and write essays discussing the newest results from the major gold miners, mid-tier gold miners, and silver miners.

Q2’19’s full analyses are coming starting in mid-August once that 40-day post-quarter reporting deadline has passed. But before that I eagerly dive into individual companies’ results as they’re reported, since there’s so much to digest. Even earlier soon after a quarter ends, I start thinking about what gold miners’ latest quarterly results are likely to show collectively. Their aggregate trends can be somewhat predicted.

In high-level fundamental terms, gold mining is a simple business. These companies painstakingly wrest gold from the bowels of the Earth, then generally sell all they can produce at prevailing market prices. So their profits are effectively the difference between current gold levels and operating costs. The former is easy to calculate once a quarter ends, and the latter can be reasonably estimated for this sector as a whole.

Gold’s dramatic bull-market breakout a month ago and high consolidation since have greatly improved sector psychology. But gold’s big surge came late in Q2, minimizing its full-quarter impact. The early quarter was rough, with gold slumping to a new year-to-date low near $1271 in early May. The average gold prices in April, May, and June were $1286, $1284, and $1361. Gold was mostly sucking wind last quarter.

Thus Q2’19’s overall average gold price of $1309 was just a meager 0.4% better than Q1’s $1303. So the gold miners’ latest quarterly results aren’t going to get much help from gold’s young surge. That will really change in the current Q3 if gold can hold these high levels. With Q3 about 1/5th over, gold has averaged an awesome $1407 so far! So the higher-gold boost to gold-stock earnings is coming, but not in Q2.

Gold stocks really leverage higher gold prices because their mining costs are largely fixed. Quarter after quarter mining operations generally require the same levels of infrastructure, equipment, and employees. The vast majority of any gold mine’s future cost structure is actually determined during its planning phase, when engineers decide which ore to mine, how to excavate it, and how to process it to recover the gold.

Every quarter after results I analyze the all-in-sustaining costs reported by the world’s gold miners. These are the best measure of what it really costs to produce an ounce of gold. Over the past four quarters, the major gold miners of the leading GDX VanEck Vectors Gold Miners ETF reported average AISCs of $856, $877, $889, and $893. That in turn yields a trailing-four-quarter mean of $879 per ounce, a key cost metric.

With $1309 average gold in Q2’19 and AISCs likely near $879, that implies the large gold miners as an industry likely earned $430 per ounce last quarter. That’s actually a decent improvement considering the flat quarterly gold prices. Though gold averaged a similar $1303 in Q1, the GDX miners’ average AISCs that quarter came in a bit higher at $893. That implied $410 profits, which Q2 results should easily exceed.

$430 is up 4.9% quarter-on-quarter despite the relatively-flat average gold price! This is really impressive sequential profits growth relative to the broader stock markets, where earnings are stalling out. But if that is all we could hope for, I would’ve written on a different topic this week. The gold miners’ Q2’19 earnings are likely to well exceed expectations for an entirely-different reason, portending even-higher gold-stock prices.

Most traders assume gold miners produce their yellow metal at fairly-steady rates year-round. That sure makes sense given how capital-intensive gold mining is, how individual mines’ capacities and throughputs to process ore are fixed, and how expanding mines’ outputs takes years of construction. But surprisingly global gold mine production actually varies considerably quarter-to-quarter! This should really boost Q2 earnings.

The best global gold fundamental data is published by the World Gold Council, also on a quarterly basis. These Gold Demand Trends reports are essential reading for all gold-stock speculators and investors, as these miners are ultimately just leveraged plays on gold. The latest GDT covering Q1’19 was released in early May, with Q2’s due out in early August. One key number GDTs report is world gold mine production.

That happened to run 852.4 metric tons in Q1, nearly a third of which came from the major gold miners of GDX. Analyzing global gold mine production each quarter since 2010 reveals some fascinating quarter-to-quarter output trends. Over the last 37 quarters, calendar Q1s have seen gold mined average a sharp 7.2% QoQ plunge from the immediately-preceding calendar Q4s! Not a single Q1 saw sequential output growth.

From 2010 to 2019 Q1 gold mined fell 7.2%, 6.9%, 7.6%, 11.2%, 8.8%, 3.3%, 8.7%, 5.7%, and 5.6% from the respective Q4s. These drops and their uniformity across radically-different gold-price environments is stunning. For some reason the world’s gold mines suffer universal declines in their outputs early in calendar years. Why? This curious industrywide Q1 production slump results from an interplay of several factors.

Most gold miners run their accounting on calendar years. So early in new years they have new capital budgets to spend on maintaining and enhancing their existing operations. If they temporarily shut down their mills for repairs or minor upgrades, Q1s are usually when they do it. Weather plays a role too, as the majority of the world’s gold mines are in the northern hemisphere with the majority of the world’s land masses.

Winter creates operational challenges for gold mines, ranging from extreme cold to heavy snow or rains depending on their latitudes and elevations. So in addition to short planned shutdowns to work on infrastructure, adverse weather can impair operational efficiencies. But the main reason global gold-mine outputs plunge in Q1s is due to ore-grade-management decisions made by mine managers to maximize bonuses.

Gold deposits are not homogeneous, ore grades vary widely within them. So managers must choose which ore to mine, when to run it through their mills, and how to mix it with ores from other locations. The mills that crush the gold-bearing rock into small-enough chunks to recover the metal have fixed capacities in tonnage-per-day terms. So the less gold contained in the ore processed, the less gold the mines recover.

Mine managers often choose to dig through lower-grade ores, or run lower-grade ores through their mills, in Q1s. They save the higher-grade ores for later in calendar years. They often claim these decisions are related to early-year capital budgets being spent to improve outputs later in years. But there’s probably more to it, since this happens so universally across the world’s gold mines. Incentives have to play a role.

Gold-mine managers are often partially compensated based on how their stock prices are faring. This is usually a big factor in annual bonuses calculated near year-ends. These bonuses are the most-variable part of compensation, and can greatly boost income. After long years of study and talking with some of these guys, I’m convinced they choose to take any gold-output hits early in years to engineer strong finishes.

Q1 results are reported by mid-Mays, a long way out from year-ends. That’s the least-beneficial time in bonus terms for strong output to boost stock prices. Q2 results released by mid-Augusts and Q3 results published by mid-Novembers are far-more important. So mine managers feed their fixed-capacity mills better-grade ore mixes in Q2s and Q3s, after early-year maintenance is finished and summer weather is favorable.

Thus in calendar Q2s since 2010, global gold mine output according to the World Gold Council surged an average of 5.4% sequentially from Q1s! Over the past 9 years Q2s have seen huge QoQ global-output gains of 6.7%, 7.7%, 6.3%, 7.1%, 6.1%, 5.7%, 0.7%, 4.9%, and 3.4%. There has not been a single down Q2 in this span despite wildly-different gold-price environments. Such uniformity reveals deliberate planning.

Over roughly the past decade, world gold mine production has averaged -7.2% QoQ in Q1s, +5.4% in Q2s, another hefty +5.3% in Q3s, then just +0.5% in Q4s. That Q4 stalling is pretty telling too, as those Q4 results are typically released by mid-Marches which doesn’t affect annual bonuses when those quarters were underway. The gold miners contrive their best output reporting from late Julies to mid-Novembers!

So in these upcoming Q2’19 results, the gold miners are likely to report production about 5% higher than Q1’s! That big sequential output boost really increases overall corporate earnings. And it has another key benefit of reducing all-in sustaining costs. AISCs are calculated by spreading the costs of gold mining across all ounces produced. So the more gold mined, the lower the unit costs of producing it that quarter.

A year ago in Q2’18, the GDX gold miners’ average AISCs dropped a big 3.2% sequentially from the prior quarter’s to $856 per ounce. So it is certainly reasonable to expect Q2’19’s AISCs to retreat 3% or so from Q1’s $893, which yields $866 per ounce. Subtract that from Q2’19’s average gold price of $1309, and it yields likely earnings of $443 per ounce. That is 8.0% higher quarter-on-quarter from Q1’s results!

That’s conservative too. As detailed in my essay on the GDX gold miners’ Q1’19 results, that quarter’s average AISCs were skewed higher by a single anomalous outlier. That company expects costs to greatly retreat in Q2. Excluding it, the GDX gold miners averaged considerably-lower $874 AISCs in Q1. A 3% reduction to that on higher Q2 output leaves an excellent $848 AISC target, implying big $461 profits!

That represents a major 12.4% quarter-on-quarter surge, which should excite traders anytime. And with gold-stock sentiment already growing far more bullish thanks to gold’s bull-market breakout, there’s a good chance Q2 earnings’ positive psychological impact will be amplified. As long as gold hangs in there and doesn’t sell off, the gold miners’ stocks have real potential to rally considerably on good Q2 results.

A couple charts offer some quick perspective. Gold’s breakout drove a major decisive upside breakout in gold stocks too as measured by their leading GDX benchmark. That dominant ETF is rendered in blue here, superimposed over its key technical lines. As of the Wednesday data cutoff for this essay, GDX had powered 54.2% higher in 10.2 months in its upleg to date. But gold-stock prices still remain relatively low.

Mid-week GDX hit $27.09 on close, its best levels in 2.8 years. But that remains well below gold stocks’ bull-to-date peak of $31.32 in early August 2016. The gold stocks ought to at least exceed those levels, which is another 15.6% higher from here. Good Q2 results interpreted through the lens of increasing sector bullishness should be enough to fuel a bull-market breakout. Gold argues for higher gold-stock levels.

Back in mid-2016 when GDX peaked at $31.32, gold merely hit $1365 at best. That was just after a quarter when the GDX gold miners’ AISCs averaged $886 per ounce. Gold was considerably higher this week, hitting $1425. And it has averaged $1408 for nearly a month since its bull-market breakout. So the higher prevailing gold prices this summer, and lower AISCs, should support much-higher gold-stock prices.

Showing just how strong gold stocks are and how unique today’s situation is, this last chart looks at gold stocks’ average performances in modern bull-market summers. I explained this indexed chart in depth in an essay on gold summer doldrums a couple weeks ago. The yellow lines show where the older HUI gold-stock index traded in past modern gold-bull-market summers, and the red line averages them together.

This year’s action is rendered in dark blue, revealing gold stocks’ best summer by far since 2016 after this gold bull’s massive maiden upleg! In the middle of this week the HUI rocketed 32.3% higher summer-to-date, literally off this seasonal chart I’ve gradually built up over the years. If there was ever a summer where gold stocks could punch out to new bull highs, this one is it. Their upside momentum is incredibly strong.

All this gold-stock bullishness aside, it is always wise to be wary when everyone else is getting excited. The potential for gold stocks to surge to new bull highs on good Q2 results is totally dependent on what gold does over the coming 6 weeks or so. While gold has shown awesome resilience in consolidating high and mostly holding $1400 over the past month, the gold selloff risk is high due to gold-futures positioning.

I wrote a whole essay last week explaining this in depth. In a nutshell, gold-futures speculators dominate short-term gold price action. Their current bets on gold are excessively-bullish, warning that their capital firepower to buy gold is nearing exhaustion. They are effectively all-in on long upside bets, and all-out on short downside bets. That leaves them vast room to sell hard on the right catalyst, pushing gold sharply lower.

There’s a chance new-high psychology can ignite enough investor gold buying to overpower and absorb any spec gold-futures selling. But realize gold-stock fortunes are still slaved to gold as always. Gold has to stay high to support new gold-stock highs. If gold materially falters and slumps into a healthy pullback or correction within an ongoing bull, the gold stocks will follow it lower regardless of how good Q2 results prove.

Buying high on strong upside momentum is always tempting, as that’s when traders feel the best about any sector. Bullishness and capital inflows soar as stocks power higher. But over time far-larger gains are won by instead buying low, adding positions when sectors are out of favor. The later you buy gold stocks in any upleg, the smaller their potential gains and the higher the odds a major selloff is looming.

To multiply your capital in the markets, you have to trade like a contrarian. That means buying low when few others are willing, so you can later sell high when few others can. In recent months well before gold’s breakout, we recommended buying many fundamentally-superior gold and silver miners in our popular weekly and monthly newsletters. Mid-week their unrealized gains ran as high as 123.9%, 123.5%, and 116.5%!

The bottom line is the gold miners’ just-starting Q2’19 earnings season should prove impressive. That’s no thanks to gold, as its awesome bull-market breakout came too late last quarter to push its average price significantly higher. But the gold miners are still likely to collectively report sharply-higher Q2 output, which is normal after Q1’s deep production slump. That will also naturally lead to proportionally-lower costs.

Growing production combined with lower costs at slightly-higher gold prices should yield big profits growth for the gold miners. Their Q2 results will be more closely watched and better received since psychology is shifting much more bullish in this sector. That should fuel big gold-stock buying as long as gold holds up. The yellow metal has proven resilient so far, but faces an ominous overhang of gold-futures selling pressure.

Adam Hamilton, CPA

July 22, 2019

Gold and gold stocks especially continue to shrug off bits and pieces of bad news.

No escalation in the trade war? The selloff lasted one day and the sector rebounded strongly the following day.

Strong headline jobs number? Again, the weakness was a buying opportunity.

This past week there was more.

The June CPI report came in hotter than expected, which could mitigate the degree the Fed eases in the future. Also, bond yields in the US have risen the entire week.

No dice.

Gold closed the week at $1412/oz while the gold stocks closed just inches from new highs on the daily charts.

Turning to the technicals of the gold stocks, we see both underlying and relative strength.

Nearly 95% of the large miners closed above the 200-day moving average. Meanwhile GDX relative to both the S&P 500 and Gold is above a rising 200-day moving average. The GDX to Gold ratio is at a 2-year high while the GDX to S&P 500 ratio is very close to a new 52-week high.

GDXJ is lagging GDX a bit but it is coming around.

90% of the ETF closed above the 200-day moving average. That is the highest reading in nearly three years.

GDXJ relative to the S&P and Gold has turned bullish and is holding above upward sloping 200-day moving averages.

The immediate upside targets for GDX and GDXJ are GDX $27.50 and GDXJ $37.50. The next level of targets would be GDX $30 and GDXJ $41.

Gold has endured some selling in the $1420-$1425/oz range but has remained bid around $1400/oz. A daily close above $1420/oz would remove much of the resistance from here to the low $1500s.

For investors in the juniors and seniors, continue to hold your winners and focus your capital on fresh opportunities and value plays that could move with the next leg higher. To learn which stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

Gold surged dramatically in recent weeks, powering higher to a decisive bull-market breakout. Gold’s first major secular highs in years have really improved sentiment, with bullishness mounting. But gold-futures buying fuel is largely exhausted, after the colossal amount expended to catapult gold back over $1400. That leaves this metal at high risk of suffering a major selloff, a healthy correction in an ongoing bull market.

Even the most-powerful bull markets flow and ebb, taking two steps forward before one step back. Gold is certainly no exception. At best in late June, its current bull extended to modest 35.4% gains over 3.5 years. Those weren’t linear, the path to gold’s recent breakout high was quite volatile. It included a 29.9% upleg, a 17.3% correction, a 20.4% upleg, a 13.6% correction, and today’s upleg running 21.2% at best.

This alternating repeating bull-market pattern is simple, uplegs are inevitably followed by material selloffs often extending into correction territory. Periodic corrections are essential to keep bulls healthy, working off the excessive greed that builds as uplegs peak. That risks sucking in too much capital too soon, prematurely burning out bulls. Corrections rebalance sentiment, bleeding away greed to extend bulls’ longevity.

Even though they are inevitable, normal corrections stress out the majority of traders. The selling taints their psychology and clouds their perspectives of longer-terms trends in play. They fret bulls are dying, and sell out too early and too low. Instead corrections should be embraced, as they offer the greatest opportunities to buy relatively low within ongoing bulls! Entering near correction lows amplifies gains.

While gold’s current bull clocked in at 35.4% total in late June, its three major uplegs added up to much-larger 71.5% gains. Traders had the potential to more than double gold’s headline gains by attempting to buy relatively low later in corrections and sell relatively high later in uplegs! Although impossible to game bull-market swings’ major lows and highs precisely in real-time, trading near them really boosts capital growth.

The reason gold faces high risk for its next major selloff today is speculators’ current positioning in gold futures. Unfortunately spec gold-futures trading has a wildly-disproportional influence over short-term gold price levels. The dominant reason is the extreme leverage inherent in gold futures, which greatly multiplies that capital’s impact on gold prices. This unfair reality has sorely vexed the gold market for decades.

When a normal investor buys gold outright, $1 of capital exerts $1 of buying pressure on the gold price. That’s the way markets are supposed to work. That can be extended with margin in the stock markets, which has had a hard legal limit of 2.0x since 1974. $1 of capital using maximum margin to buy shares in the leading GLD SPDR Gold Shares gold ETF can exert $2 of buying pressure on gold. That’s still reasonable.

But gold-futures trading is way out in its own extreme realm. Each gold-futures contract controls 100 troy ounces of gold. At this Wednesday’s data cutoff for this essay, gold closed at $1417. So each contract wields gold worth $141,700. An investor would have to put up $141,700 to control that much gold, or $70,850 using stock-market-legal-limit leverage on GLD shares. Futures speculators only need $4,000!

That’s no typo, this week the CME Group only requires traders to have $4,000 cash in their accounts for each gold-futures contract they want to trade. That is absurd, enabling extreme maximum leverage of 35.4x! That means a fully-margined gold-futures speculator can exert $35 of buying or selling pressure on gold with each $1 deployed. That temporarily outguns investors, even though they have vastly more capital.

The Federal Reserve has capped stock-market leverage at 2.0x for 45 years because extreme leverage has extreme risks. At 35.4x, a mere 2.8% gold move against speculators’ gold-futures bets would wipe out 100% of their capital risked! This constant threat of ruin forces these traders’ focus to an ultra-myopic short-term span, days or weeks at most. All they can do is ride gold’s immediate momentum, piling on.

As if arbitrarily declaring $1 of gold-futures capital should have up to 35x the influence on gold prices as $1 invested outright isn’t ridiculous enough, it gets worse. Unscrupulous traders can wield gold futures’ extreme leverage like a weapon to manipulate gold prices at key technical and sentimental junctures. One way is spoofing, slamming the market with huge gold-futures orders that are canceled before being executed.

This is not theoretical. In late June the U.S. Department of Justice levied $25m of criminal fines on Merrill Lynch Commodities for this very behavior! And that’s just the tip of the iceberg for gold futures’ extreme leverage being abused to defraud normal investors. This seriously needs to be legally capped at vastly-lower levels. The DoJ’s actual press release did a great job explaining how gold-futures spoofing works.

“…beginning by at least 2008 and continuing through 2014, precious metals traders employed by MLCI schemed to deceive other market participants by injecting materially false and misleading information into the precious metals futures market. They did so by placing fraudulent orders for precious metals futures contracts that, at the time the traders placed the orders, they intended to cancel before execution.”

“In doing so, the traders intended to “spoof” or manipulate the market by creating the false impression of increased supply or demand and, in turn, to fraudulently induce other market participants to buy and to sell futures contracts at quantities, prices and times that they otherwise likely would not have done so. Over the relevant period, the traders placed thousands of fraudulent orders.” These crooks should be in prison!

Compounding gold futures’ gold-price impact, the American gold-futures price is gold’s global reference one. So gold-futures trading moving the gold price heavily influences and sometimes totally controls the entire gold market’s psychology! Investors are motivated to buy and sell gold outright based on what is happening in gold futures. It’s impossible to understand and game gold without closely watching futures.

I had to break my chart into two parts today, lest it get too busy to parse. These superimpose gold’s price through its current bull market over speculators’ gold-futures positioning. Reported weekly by the CFTC in its famous Commitments of Traders reports, specs’ long contracts or upside bets on gold are shown in green while their short contracts or downside bets are rendered in red. They usually dominate gold action.

The wildly-disproportional influence on gold prices by speculators’ gold-futures trading is critical for all investors to understand. Let’s start with this gold bull itself, the cadence of its uplegs and corrections. Its maiden upleg erupted in mid-December 2015 out of deep 6.1-year secular lows in gold, and ultimately blasted up 29.9% in 6.7 months by early July 2016. Major selloffs inevitably follow major uplegs in any bull.

So gold plunged 17.3% over 5.3 months into mid-December 2016 in a severe correction. That was way bigger than normal, greatly exacerbated by Trump’s surprise election victory in early November that year. With Republicans controlling the presidency and both chambers of Congress, stock markets soared on hopes for big tax cuts soon. That crushed gold demand, as fully 5/8ths of that correction came after the election!

While ugly, gold remained in a bull market since that massive selloff didn’t cross the -20% threshold for a new bear market. Gold quickly rebounded from those deep lows and gradually powered to another nice bull-market upleg, up 20.4% over 13.3 months leading into late January 2018. This gold bull’s second major upleg was followed by its second major correction, a 13.6% drop over 6.7 months by mid-August 2018.

That birthed today’s third major upleg, which had extended to 21.2% at best over 10.3 months by late June. This past month saw gold get exciting again after decisively breaking out of its years-long giant ascending-triangle technical formation to surge to major new bull-market and secular highs. This bull’s pattern has been upleg, correction, upleg, correction, upleg. What comes next in this series is obvious.

Gold is at high risk for another major selloff, potentially a full-blown correction over 10% again, because of speculators’ gold-futures positioning. This next chart illuminates what the specs were doing during each of this gold bull’s uplegs and corrections including today’s newest one. These hyper-leveraged traders with their outsized impact on gold prices have effectively exhausted their near-term buying, threatening big selling!

This gold bull’s initial upleg in largely the first half of 2016 was massive, the biggest in this bull so far at 29.9%. That was partially fueled by gold-futures speculators buying a staggering 249.2k long contracts and buying to cover another 82.8k short ones! There are two kinds of buying and two kinds of selling in gold futures, and each set has the same price impact on gold. Thus they can be lumped together for analysis.

Specs can buy new gold-futures contracts to establish long positions, the normal way to buy. But they also buy to cover and close previously-established short positions. The upward pressure on gold from buying longs and covering shorts is identical. On the selling side they can sell their own existing longs, or effectively borrow gold-futures contracts they don’t own to short sell them. Both types hit gold the same way.

Speculators’ total gold-futures buying in this gold bull’s first upleg ran a mind-boggling 331.9k contracts! That’s the equivalent of 1032.4 metric tons of gold. For comparison, total global gold investment demand in the first half of 2016 ran 1091.6t per the World Gold Council’s latest fundamental data. That epic spec long buying catapulted their total upside bets to an all-time-record high of 440.4k contracts as that upleg peaked!

Keep these numbers in mind. This gold bull’s greatest upleg soared 29.9% higher on 331.9k contracts of total buying by gold-futures speculators. That forced their total longs to their highest levels ever seen of 440.4k contracts. As I’ll discuss shortly, today’s latest gold upleg is skating ever closer to those extreme levels. The ice gets pretty thin in that rarefied air of likely gold-futures buying being essentially exhausted.

This gold bull’s first major correction was largely driven by specs reversing that huge long build in largely the second half of 2016. Note the green spec-longs line above collapsed symmetrically to its massive surge in the preceding upleg. Specs dumped 164.5k long contracts and short sold 25.8k more over that severe correction’s exact span. That adds up to 190.3k contracts of total selling, the equivalent of 592.0t.

During gold-bull uplegs the green spec-longs line rises while the red spec-shorts line falls. Then in following corrections that reverses, the green line falling while the red one rises. Gold-futures buying and selling is heavily driving these major bull-market cycles in gold, and that’s not going to change until regulators wake up and radically curtail gold futures’ extreme inherent leverage. Gold’s second upleg straddled 2017.

That was somewhat peculiar, as the spec gold-futures long buying of 80.6k contracts and short covering of 4.1k only totaled 84.7k. That wasn’t much considering gold’s strong 20.4% upleg gains. But realize that gold upleg effectively topped much earlier in early September 2017. Its later upleg peak was marginal. As gold challenged its $1350 bull-market resistance, total spec longs soared as high as 400.1k contracts!

This gold bull’s second correction mostly unfolded during the first half of 2018, and was a textbook-perfect example of heavy spec gold-futures selling. Their green longs line plunged by 98.3k contracts, while their red shorts line rocketed an enormous 128.9k contracts higher. That correction bottomed last August as total spec shorts soared to their own all-time-record high of 256.7k contracts! That portended the next upleg.

Back in early September, I wrote an essay on the “Record Gold/Silver Shorts!”. Published when gold still languished way down at $1196, I concluded then “gold and silver soon soared on short-covering buying following all past episodes of excessive and record short selling. There’s nothing more bullish for gold and silver than extreme shorts! … Record futures shorts are the best gold and silver buy signals available.”

Speculators’ collective gold-futures positions provide both excellent buy signals near major gold lows and excellent sell signals near major gold highs. Smart contrarians get really bullish on gold when specs are really bearish as evidenced by relatively-low longs and relatively-high shorts. And it is just as prudent to get short-term bearish on gold when specs are excessively bullish with relatively-high longs and -low shorts.

This is exactly the situation we’re in today, and it’s growing ominously extreme. This gold bull’s third upleg powered 21.2% higher at best so far as of late June, propelling this metal to a new 6.1-year secular high of $1423. This awesome decisive-bull-breakout upleg was again fueled by enormous gold-futures buying by speculators. They added 99.4k long contracts, while buying to cover a staggering 153.4k short ones!

That adds up to total buying of 252.8k contracts as of gold’s latest peak in late June, or the equivalent of 786.3 metric tons of gold! That’s relevant because it is already 76% of the total gold-futures buying that unfolded during this gold bull’s huge maiden upleg in early 2016. Back then popular gold psychology was waxing really bullish, fostering that extreme gold-futures buying. Getting that high again today is a tall order.

The current gold-futures picture is even worse. While gold hit its latest interim high in late June, the gold-futures speculators kept on buying since. The weekly CoT reports are published late Friday afternoons current to the preceding Tuesdays. So the latest data available this week is current to last Tuesday July 2nd. That saw still more big spec buying, they added another 16.5k longs and covered another 10.2k shorts.

That extends this upleg’s total spec long buying to 115.9k contracts and short covering to 163.6k, making for a larger 279.5k total. Thus today’s upleg has already seen speculators buy 84% of the gold-futures contracts that they did during early 2016’s massive maiden upleg! That doesn’t leave much room to keep on adding more longs and covering more shorts to propel gold to major news highs in the coming weeks.

As of last Tuesday, total spec longs were already way up in nosebleed territory at 374.0k contracts! Out of the last 1070 CoT weeks since early 1999, only 2.2% saw spec longs higher. And that is getting closer to their all-time-record high of 440.4k in early July 2016. While they could conceivably go higher, that’s a hard ceiling until proven otherwise. Gold-futures speculators and their capital are finite, relatively small.

Out of all the world’s traders, only a tiny fraction are willing to run extreme 35x leverage and risk ruin on being slightly wrong on gold’s near-term direction. New gold highs really don’t mint sizable numbers of new gold-futures speculators either, as the risks are so crazy. And this small pool of gold-futures traders really don’t control much capital compared to broader markets. They’d be irrelevant without their extreme leverage.

So at some point gold-futures buying pressure literally exhausts itself. All the specs who want to be long gold have already bought in, expending all their available capital firepower. We can’t know in advance if it will happen at 375k longs, 400k, 425k, or 450k, but odds are it will be somewhere around there. Once the specs are all-in, all they can do is sell to start unwinding their excessively-bullish bets. That will hammer gold.

This relatively-young gold bull has seen three prior episodes where specs liquidated high longs, as seen in the falling green line above. Those were during this bull’s two corrections and a milder pullback in late 2018. Gold fell sharply each time, and this next episode of major spec long selling won’t prove different. At their latest 374.0k levels, spec longs are really high today with little room to buy and tons of room to sell!

The near-term gold risk is compounded by the fact spec shorts are also really low, just 87.2k contracts as of the last CoT report. That’s just a hair over the lowest levels of this entire bull market, 82.5k seen in late March 2018. So spec short-covering buying isn’t likely to go much lower, and in any case has a hard limit as these downside bets get closer to zero. Like spec long buying, spec short covering is largely exhausted.

Total spec gold-futures longs approaching bull-market and all-time-record highs, coupled with total spec gold-futures shorts just over bull-market lows, is very bearish for gold over the near-term! Remember by necessity these guys are short-term momentum followers, their extreme leverage will slaughter them if they are on the wrong side of gold for long. When gold noses over, their selling will intensify and cascade.

It certainly has the potential to snowball forcing another correction-grade gold selloff over 10%, which equates to a demoralizing sub-$1281 gold price. We might get lucky, the bullish new-high psychology could retard gold-futures selling. If the normalization of specs’ gold-futures bets is very slow, gold could see a milder pullback largely consolidating high. But we can’t bet on that based on all the bull-market precedent.

The greatest hope of gold evading a big selloff on gold-futures selling is investors returning in a big way. They control vastly more capital than the gold-futures speculators, so when they are buying aggressively that can easily absorb and overpower any gold-futures selling. But while new-high psychology has spawned some investment buying, it has only been sporadic so far with euphoric US stock markets near record highs.

Meanwhile traders should prepare for the next major gold selloff, possibly this gold bull’s third correction. That means tightening trailing stop losses on existing long positions in gold and the stocks of its miners. On stoppings, cash should be accumulated and not redeployed. It is simply too risky to add material new long positions in gold and gold stocks until speculators’ extreme gold-futures positioning considerably normalizes.

To multiply your capital in the markets, you have to trade like a contrarian. That means buying low when few others are willing, so you can later sell high when few others can. In recent months well before gold’s breakout, we recommended buying many fundamentally-superior gold and silver miners in our popular weekly and monthly newsletters. This week their unrealized gains ran as high as 112.8%, 105.0%, and 95.2%!

You need to stay informed about gold cycles and gold-futures positioning to profitably trade the high-potential gold stocks. Our newsletters are a great way, easy to read and affordable. 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! Then you’ll be ready to buy back in relatively low for gold’s next major upleg.

The bottom line is gold is at high risk for a major selloff today. Speculators’ gold-futures positioning has grown excessively-bullish, leaving their buying firepower largely exhausted. That leaves vast room for big selling to snowball on the right catalyst. This bull’s prior episodes where specs had similar really-high longs and really-low shorts heralded major gold corrections. Extreme bets must eventually be normalized.

Such corrections are normal and healthy within ongoing bull markets, rebalancing sentiment to ensure longer lives with greater ultimate gains. These corrections should be embraced, as they yield the very best opportunities to buy relatively low within powerful bulls. Gold’s current bull is likely to run for years yet, so gird yourself for a major selloff and be ready to buy back in aggressively once it has largely run its course.

Adam Hamilton, CPA

July 15, 2019

While some gold stocks (the South Africans in particular) continue to rally, bullion and most miners are staging a classic pullback after a major upside breakout.
Please click here now. Double-click to enlarge this important monthly gold chart. The bottom line:
Breakouts are fun. Pullbacks are not!
My advice to investors: Wait for the pain. Wait for emotional pain to begin before pressing the buy button on a pullback.
Please click here now. Double-click to enlarge. I’ve highlighted key support zones on this daily gold chart, and the bottom line is this:
The current pullback could end near $1380, $1360, or it could become quite a bit deeper before finally ending in the $1330-$1250 price zone.
I don’t believe most gold investors are really prepared to handle a deeper pullback. Nervous investors should buy put options, not so much as a financial hedge but as an emotional hedge.
A financial hedge is not required at this point in the U.S. business cycle, but any pullback can be emotionally troublesome. Investors need to do whatever it takes to handle the change in sentiment.
Please click here now. Double-click to enlarge. On this daily gold chart, note the large uptrend channel and Fibonacci retracement lines from the 2018 August low.
A “power uptrend” line has snapped and gold has only corrected down to the 76% retracement line area. A deeper correction is normal and healthy after the huge surge in the price after the monthly chart bull continuation breakout.
Please click here now. Double-click to enlarge this dollar versus yen chart.
The gold and the yen are risk-off currencies. The upside breakout in the dollar against the yen doesn’t guarantee a deeper correction for gold, but it does make it very likely.
What are the fundamentals behind the gold price pullback and strength in the dollar against the yen?
For the answer to that question, please click here now. I believe that both stock market and gold investors are over-estimating the Fed’s dovishness.
Most institutional money managers are predicting a series of rate cuts and more QE from the Fed, but that’s not what the Fed’s dot plot or its chairman are indicating lies ahead.
Friday’s U.S. employment report was strong and Trump has seemingly finally realized that his tariff tax tantrums are doing nothing but harm to global stock markets.
In this situation, it’s very hard to see the Fed doing anything at the July 31 meeting other than a single quarter point “insurance” cut.
While Poland’s central bank just bought almost 100 tons of physical gold, this is likely a “one-off” purchase and India’s fresh gold import tax hike came on the same day as the strong U.S. jobs report.
The tax hike caught bullish analysts by surprise and adds to short-term pressure on the gold price.
Investor tactics? Well, amateur investors should generally wait for a $100/ounce gold price sale before buying gold or silver. From the $1442 area highs, that would make the $1342 area a solid entry point. There’s not much else to do on the buy side until there is a $100/ounce price sale. It’s really that simple!
Please click here now. Double-click to enlarge this weekly GDX chart. I called the $23-$18 price zone an important accumulation zone for investors.
Those who took my strong buy recommendation can sell a small portion of their position now, but I recommend holding at least 70% of the position for an upside journey into my first target zone of $30-$32.
I would not do any serious selling until GDX arrives in my second target zone of $38-$40. The main driver of a rally to that target zone will be a concerning rise in inflation that occurs as US corporate earnings and GDP growth continue to soften. The bottom line: Fed doesn’t need to cut nominal rates to make real rates fall in that situation. All it needs to do is…nothing! That’s because a rise in inflation with no change in nominal rates is a cut in real rates.
The bottom line: I expect an institutional money manager stampede into GDX and key individual miners will occur later this year as stagflation rises to essentially become… a Grim Reaper made of gold!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Junior Champions In The Pullback Zone!” report. I highlight key junior miners that seem immune to the current gold price pullback and silver price gulag. They are blasting to fresh highs and I provide investors with key tactics to play the upside action!

Stewart Thomson

Graceland Updates

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