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The dovish Federal Reserve lit a fire under gold and its miners’ stocks this week. As universally expected the FOMC hiked rates for the 9th time in this cycle. But it also lowered its 2019 rate-hike outlook bowing to the stock-market selloff. Traders dumped gold initially thinking that wasn’t dovish enough. But market reactions to the FOMC formed over a couple days, and gold surged overnight. Its post-Fed rally has great potential.

Gold-futures speculators dominate gold’s short-term trading action. They punch way above their weight in capital terms thanks to the extreme leverage inherent in gold futures. This week, the minimum margin for trading each 100-ounce contract controlling $125,000 worth of gold at $1250 was just $3400! These traders can run crazy maximum leverage as high as 36.8x, compared to the stock markets’ legal limit of 2x.

At 10x, 20x, or 30x leverage, every dollar of capital deployed in gold futures has 10x, 20x, or 30x more price impact on gold than a dollar invested outright. Further compounding speculators’ hegemony over gold prices, gold’s world reference price derives directly from US gold-futures trading. Naturally extreme leverage means extreme risk. At 37x a mere 2.7% gold move against positions wipes out 100% of capital risked!

In order to survive, gold-futures traders are forced to have an ultra-short-term focus. Their time horizons are measured in hours, days, and maybe weeks instead of months and years. And there is nothing that motivates them to trade aggressively like meetings of the Fed’s Federal Open Market Committee. Gold volatility often surges in their wakes, as speculators watch the U.S. dollar’s reaction and do the opposite in gold.

Gold-futures speculators are convinced Fed rate hikes are bearish for gold because they are bullish for the US dollar. They logically reason that the higher prevailing US interest rates, the more attractive the US dollar becomes relative to other currencies. And a stronger dollar usually means weaker gold since they are competing currencies. That all sounds rational, but the big problem is history doesn’t bear this out.

The FOMC started today’s rate-hike cycle way back in mid-December 2015, raising the federal-funds rate for the first time in 9.5 years. Gold-futures speculators fled leading into that, ultimately crushing gold to a deep 6.1-year secular low of $1051 the day after. But that oversold extreme marked the birth of a new bull market that would catapult gold 29.9% higher over the next 6.7 months! That same bull persists today.

In the 3.0 years since which includes this week’s 9th Fed rate hike of this cycle, gold is still up 18.1% and the US Dollar Index is down 2.1%. That’s no anomaly either. This is actually the Fed’s 12th rate-hike cycle since the early 1970s. During the exact spans of the prior 11, gold averaged strong gains of 26.9%! That was an order of magnitude higher than the stock markets’ 2.8% average gains per the flagship S&P 500.

Gold-futures speculators either don’t know market history or their extreme leverage forces them to run as a herd no matter how irrational that stampede is. They can’t afford to be wrong for long or risk suffering catastrophic losses. This week they apparently expected the FOMC to prove even more dovish on future rate hikes than it was. That led to volatile gold action surrounding this latest critical Fed decision on rates.

The FOMC meets 8 times per year, about every 6 weeks. But up until now, only every other meeting was accompanied by a Summary of Economic Projections and followed by the Fed chairman holding a press conference. That meant the Fed was only “live”, likely to hike rates, once a quarter at that every-other meeting. Incidentally Jerome Powell will start holding press conferences after every meeting starting in January.

That decision was made in mid-June, it had nothing to do with the recent stock-market volatility. Since the Fed doesn’t want to spook traders and ignite selloffs, rate hikes are well-telegraphed in advance. 3 weeks after each FOMC meeting, its full minutes are released. They are long and detailed, offering all kinds of clues about whether top Fed officials are thinking about hiking rates at the next FOMC meeting.

Market-implied Fed-rate-hike odds are always available through federal-funds futures trading. The big wildcard at each live FOMC meeting is a part of the SEP known as the “dot plot”. It collates where each individual top Fed official personally expects the federal funds rate to be in each of the next several years and beyond. It’s literally a bunch of dots plotted on a table, hence the name. It can really move gold futures.

Though Powell and other FOMC members stress the dot plot is not an official rate-hike forecast or outlook by the Fed, traders universally use it as such. A hawkish dot plot implies more future rate hikes than the previous one, and dovish less. Gold, currency, and stock-index futures speculators trade aggressively based on the quarterly changes in the dot plot. FOMC statements and press conferences also play roles.

At the FOMC’s previous meeting accompanied by a dot plot in late September, those forecasts implied top Fed officials expected this week’s rate hike, another 3 in 2019, and 1 final one in 2020. But market conditions were way different then. That decision came just 4 trading days after all-time record highs in the lofty euphoria-drenched U.S. stock markets. Top Fed officials are boldly hawkish when stocks look awesome.

In early October Powell doubled down on this hawkishness, saying in an evening speech that the federal-funds rate was “a long way from neutral at this point, probably” and that “We may go past neutral.” The very next day the stock markets started sliding and haven’t looked back since. By this Monday that selloff had gradually mushroomed into a moderate 13.1% correction in the S&P 500. Many blame it on Fed hawkishness.

Facing withering criticism led by president Trump himself, Powell tried to walk back his own many-more-rate-hikes-to-come outlook in late November after the S&P 500 had passed the 10% correction threshold. Powell said “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy…” Stock selling was softening the Fed.

While traders fully expected the rate hike of this cycle Wednesday, they were sure the dot-plot outlook of future rate hikes would be far more dovish than late September’s 5 including this week’s. Gold rallied nicely in anticipation, climbing from $1214 before Powell’s second speech to $1249 the day before this latest FOMC meeting. In the hours before this new dot plot’s release, gold was bid to a new upleg high of $1261.

Market expectations were for just 1 rate hike in 2019 compared to the previous 3 implied, followed by an actual rate cut in 2020! That seemed excessive, so I figured top Fed officials would kill one of the hikes next year leaving 2 in 2019 and remove 2020’s lone hike as well. While this latest dot plot was indeed dovish as expected, it wasn’t dovish enough. 2019’s outlook shrunk to 2 more hikes, and 2020’s kept that final one.

So instead of going from 4 future hikes down to 1 or 2 as hoped, the dot plot only retreated from 4 to 3. Both dollar-futures and gold-futures speculators expected more dovishness, leading to moderate gold selling after the dot plot. Gold fell from $1251 just before its release to $1242 a couple hours later, and closed 0.6% lower on the day. Stock markets fared worse, the S&P 500 falling 1.5% to a new correction low!

But the impact of FOMC decisions usually takes a day or two to settle out. They are released at 2pm New York time when Asian and European markets are closed. So until foreign traders get their chances to react to the Fed, the market outcome isn’t known. Even American traders have to get past their initial kneejerk reactions, so the next trading day following the FOMC is crucial as actual implications sink in.

Gold was slowly bid heading into Thursday in Asian markets, heading back up near $1248 by the time Europe was opening. And then gold quickly surged to $1256, a new closing upleg high. In U.S. afternoon trading the day after this FOMC decision, gold surged as high as $1266! Top Fed officials’ future rate-hike outlook falling from 4 to 3 might not have been dovish enough, but it was still certainly dovish absolutely.

Seeing the Fed waver on future rate hikes in response to the mounting stock-market selloff this quarter is super-bullish for gold and its miners’ stocks going forward. Both gold-futures speculators and normal investors remain way under-deployed in gold, with vast room to buy. Odds are this week’s dovish FOMC will accelerate major gold and gold-stock uplegs. That’s happened after past Fed rate hikes in this cycle too.

This first chart superimposes gold prices over the total gold-futures long and short contracts speculators hold, which are rendered in green and red respectively. All 9 Fed rate hikes of this cycle are highlighted in blue. Gold has often surged strongly on gold-futures buying in recent years following FOMC rate-hiking decisions, or more precisely dot-plot changes in the future rate-hike outlook. Gold is set up to surge again.

Again, this entire gold bull was born the day after the Fed’s first rate hike of this cycle, resulting in that big initial 29.9% gold upleg over 6.7 months in essentially H1’16. That left gold overbought so it started to correct like normal. But that was greatly exacerbated by Trump’s surprise election victory which ignited a monster stock-market rally on hopes for big tax cuts soon. Investors aggressively fled gold to chase stocks.

But gold bottomed in mid-December 2016 the day after this cycle’s second rate hike, and soon started surging sharply higher. Yet gold-futures speculators didn’t learn their lesson, and continued to dump gold heading into FOMC decisions with expected rate hikes. Gold rallied strongly immediately out of the 3rd, 5th, and 6th hikes of this cycle, and soon after the 4th and 8th. Rate hikes have definitely proven bullish for gold!

The 7th rate hike in mid-June 2018 was a major exception. Gold fell sharply in subsequent days as gold-futures speculators lapsed into a stunning extreme record orgy of short selling. Initially sparked by a U.S. dollar rally, that epic gold-futures shorting soon took on a life of its own driving total short contracts to their highest levels ever by far! That ultimately blasted gold to a deep and unsustainable 19.3-month low in mid-August.

Most of that shorting spree has been covered since, fueling most of gold’s young upleg since. But the long-side gold-futures speculators who control much more capital than short-side guys have barely started to buy. Short covering is legally mandated to repay the debts incurred by borrowing to short sell. But long buying is totally voluntary, speculators have to believe gold is heading higher to make leveraged bets on it.

At the end of November the day before Powell’s about-face on how far rates were from neutral, the total gold-futures longs held by speculators had crumbled to just 204.9k contracts. That was a serious 2.9-year low, levels last seen in late January 2016 just as this gold bull was starting to march higher. So gold-futures speculators are nearly as under-deployed in gold as they were near the end of its last secular bear!

That leaves vast room for them to buy to reestablish normal positions. Back in essentially the first half of 2016, speculators added 249.2k longs while covering 82.8k shorts to help catapult gold 30% higher. It’s amazing to see similar long-buying potential today, with speculators’ total longs running just 7% up into their past year’s trading range. We’re nearing the tipping point where short covering ignites far-bigger long buying.

Gold bull uplegs have 3 distinct stages that trigger and unfold in telescoping fashion. They all start out of major lows with that mandatory gold-futures short covering, the first stage. That eventually pushes gold high enough for long enough to entice long-side gold-futures speculators to return, the second stage. I suspect this week’s dovish FOMC meeting could prove the catalyst that ignites big stage-two gold buying.

This latest dot plot may not have been dovish enough for traders, but Fed dovishness will snowball with stock-market weakness. The lower the stock markets slide, whether or not Fed hawkishness is really to blame, the more pressure on the FOMC to slow or even stop its future-rate-hike tempo. Gold-futures speculators will crowd into gold to chase its upside momentum with their feared rate-hike boogeyman fading.

But all the stage-one and stage-two gold-futures buying that fuels young gold uplegs is just the prelude to far-larger stage-three investment buying. After gold’s upleg grows large enough and lasts long enough to spawn investor interest, their capital inflows soon dwarf anything the gold-futures speculators could ever manage. There’s also precedent in this cycle for Fed rate hikes soon leading to surging gold investment demand.

A great high-resolution proxy for gold investment-demand trends is the amount of physical gold bullion held in trust by the dominant GLD SPDR Gold Shares gold ETF. It effectively acts as a conduit for the vast pools of American stock-market capital to slosh into and out of gold. Just a couple weeks ago I wrote an essay on how GLD works and why it is critically important to gold prices, especially during stock selloffs.

This next chart looks at GLD’s holdings superimposed over the gold price, with all 9 Fed rate hikes of this cycle highlighted. While gold-futures trading usually dominates gold prices, it is still easily overpowered by material flows of American stock-market capital into or out of gold via GLD. Investors have started to return to gold again on the stock-market selloff, and this prudent reallocation should accelerate on Fed dovishness.

The last time American stock investors were worried enough about stock-market selloffs to redeploy into gold for refuge was that first half of 2016. Since gold is a rare counter-moving asset that tends to rally as stock markets weaken, investment demand soars when the S&P 500 slides long enough to ignite serious concerns. We’re certainly getting to that point again, as worries are mounting about this latest major selloff.

Gold went from being left for dead in mid-December 2015 to surging 29.9% higher in just 6.7 months solely on American stock investors returning! This is no generalization, the hard numbers prove it without a doubt. The world’s best gold fundamental supply-and-demand data comes from the venerable World Gold Council. It releases fantastic quarterly reports detailing the global buying and selling happening in gold.

Gold blasted higher on stock weakness in Q1’16 and Q2’16. According to the latest data from the WGC, total world gold demand climbed 188.1 and 123.5 metric tons year-over-year in those key quarters. That was up 17.1% and 13.2% YoY respectively! But the real stunner is exactly where those major demand boosts came from. It wasn’t from jewelry buying, central-bank buying, or even physical bar-and-coin investment.

In Q1’16 and Q2’16, GLD’s holdings alone soared 176.9t and 130.8t higher on American stock investors redeploying into gold after back-to-back S&P 500 corrections. Incredibly this one leading gold ETF accounted for a staggering 94% of overall global gold demand growth in Q1’16 and 106% in Q2’16! So there’s no doubt without American stock investors fleeing into gold via GLD this gold bull never would’ve been born.

Gold was holding those sharp gains throughout 2016 until Trump’s surprise presidential victory unleashed a monster stock-market run on hopes for big tax cuts soon. Gold was pummeled in Q4’16 as American stock investors pulled capital back out to chase the newly-soaring S&P 500. That quarter total global gold demand per the WGC fell 103.4t YoY or 9.0%. GLD’s 125.8t Q4’16 holdings draw accounted for 122% of that!

Fast-forward to summer 2018, and investors again started shifting out of gold to chase euphoric U.S. stock markets nearing new record highs. That forced GLD’s holdings to a deep 2.6-year low, investors hadn’t been so underinvested in gold since early in this bull market when they started flooding back in helping to catapult gold sharply higher. That gives them massive room to buy back in since their allocations are so low.

This mass exodus of American stock-market capital out of gold via GLD ended in mid-October the exact day the S&P 500 started plunging in what’s grown into this newest correction-grade selloff! Ever since GLD’s holdings have continued recovering on more capital inflows, helping to drive gold higher. This trend should only accelerate as stage-two gold-futures long buying on Fed dovishness further lifts gold prices.

Investors are often as momentum-driven as futures speculators, but over much-longer time horizons. So as this young gold upleg grows, gold is going to look much more attractive to them. Their desire to chase its upside performance is really intensified by material stock-market weakness. That makes gold stand out as not just a safe-haven capital-preservation hedge, but a way to grow wealth while everything else burns.

And as goes gold, so go the stocks of its miners. Last week I wrote a whole essay detailing the imminent major upside triple breakout in gold stocks likely to be triggered by a dovish FOMC. That indeed started to happen this week before the Fed, as this updated GDX chart shows! The GDX VanEck Vectors Gold Miners ETF is the leading gold-stock investment vehicle and benchmark, and remains poised for massive gains.

Three major resistance zones have converged at GDX $21. They include its 200-day moving average, past-year descending-triangle overhead resistance, and the old consolidation basing trend’s support. In anticipation of a gold rally on a dovish Fed, GDX closed above $21 on Tuesday. And in the hours before that FOMC decision Wednesday, it hit $21.47 intraday which was very-bullish decisive-breakout territory.

But when futures speculators bid the U.S. dollar higher and pushed gold lower on this latest dot-plot rate-hike outlook not being dovish enough, the gold stocks reversed hard. GDX plummeted a staggering 7.3% intraday across that FOMC decision! It closed 5.4% lower, making for absurd 9.0x downside leverage to gold’s small 0.6% Fed Day loss. That was a wildly-irrational downside anomaly that never should’ve happened.

In trying to figure out why after Wednesday’s close, I waded through dozens of gold stocks to see if there was some adverse news besides a not-dovish-enough FOMC. There was nothing. But provocatively in after-hours trading soon after the U.S. stock-market close, many if not most of the gold stocks had already regained 2/3rds to 3/4ths of that day’s crazy losses! So traders realized that kneejerk selloff wasn’t righteous.

Indeed right out of the gates Thursday GDX surged 4.1% higher erasing over 7/10ths of the extreme Fed Day losses. Remember market reactions to FOMC decisions usually aren’t fully apparent until the entire next trading day, after the implications have sunk in and overseas traders have reacted. Gold stocks’ major-upside-breakout thesis portending a powerful new upleg remains intact, the Fed likely accelerated it.

The beaten-down gold miners’ stocks remain the last cheap sector in the entire stock markets, a coiled spring ready to soar as gold returns to favor. The more shorts covered and longs bought by gold-futures speculators, and the more capital investors allocate back into gold, the greater the upside the gold miners’ stocks have as gold powers higher. Their potential gains are enormous, dwarfing anything else in 2019.

Again the last time major stock-market weakness rekindled gold investment demand was essentially the first half of 2016, when gold powered 29.9% higher. That drove a parallel monster 151.2% gold-stock upleg per GDX, making for huge 5.1x upside leverage. The gains in major gold stocks generally amplify gold upside by 2x to 3x, and smaller mid-tier miners with superior fundamentals tend to do much better than that.

The key to riding any gold-stock bull to multiplying your fortune is staying informed, both about broader markets and individual stocks. That’s long been our specialty at Zeal. My decades of experience both intensely studying the markets and actively trading them as a contrarian is priceless and impossible to replicate. I share my vast experience, knowledge, wisdom, and ongoing research through our popular newsletters.

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The bottom line is this week’s FOMC decision is very bullish for gold and its miners’ stocks going forward. While only seeing 1 of 3 projected 2019 rate hikes axed wasn’t considered dovish enough, it still showed the Fed’s hawkish resolve is cracking. That dovishness will mount the longer stock markets remain weak, further shortening and shrinking this rate-hike cycle. That green lights capital returning to gold in a big way.

There is massive room to buy back in, with both speculators’ gold-futures longs and stock investors’ gold held via GLD just modestly above major multi-year lows. Dovish Fedspeak, weaker stock markets, and higher gold prices will really motivate them to reestablish normal gold positions and portfolio allocations. The gold miners’ stocks will be the major beneficiaries of higher gold prices, nicely leveraging gold’s gains.

Adam Hamilton, CPA

December 21, 2018

The U.S. stock market continues to implode. At the same time, precious metals, bitcoin, and the Indian stock market are acting as superb safe havens.
Please click here now. Double-click to enlarge this great short term gold chart.
Note the positive bounce from buy-side support at $1237, and the inverse H&S bottom pattern. A fresh rate hike from the Fed tomorrow could crush the stock market again, but if there’s no rate hike, that could also crash the stock market.
That’s because money managers would believe the Fed thinks the supposed “world growth leader” economy is too weak to handle even a 2.5% Fed funds rate!
This Fed meeting could be an important catalyst that makes institutional money managers start to get serious about viewing gold as a respected asset class… that is here to stay.
On that note, please click here now. While an overdue import duty cut remains elusive, the citizens of India (and China) are the clear leaders in the quest to make gold the world’s most respected asset class.
On the government side, the Chinese government has been a leader in building gold market infrastructure to move price discovery from the dingy trading rooms of the Western fear trade to the more positive love trade environment of the East.
The Indian government is beginning to play “catch-up”, and that’s very good news for gold investors around the world.
Please click here now. There are currently about 400 million Indians who have internet access, and that is expected to double to 800 million quite quickly.
The World Gold Council (WGC) estimates that 3 million Indians buy gold online, and they predict that number will soon quintuple to 15 million!
In 2014 I predicted a “gold bull era” was being born and it would be founded on a gargantuan ramp-up in Chindian online gold demand.
Indians can already get physical delivery from most of the online platforms when total purchases reach just one gram of online-purchased gold.
Warren Buffett is buying into one of the platforms (Paytm). This man is an elephant hunter!
Please click here now. Double-click to enlarge this magnificent big picture gold chart.
An almost surreal array of positive love trade and inflation trade price drivers are converging at the same time.
This is happening as gold bullion begins a majestic ascent from the right shoulder low of a gargantuan inverse head and shoulders bull continuation pattern.
Sadly, to view something much less than majestic, please click here now. Double-click to enlarge. My proprietary “Graceland Traffic Light” on the weekly Dow chart has just turned amber.
This is a rare and ominous event. U.S. stock market investors who ignore these major traffic light signals risk tremendous portfolio damage.
If the signal stays amber as of Friday’s close, I’ll consider it a full U.S. stock market sell signal, and any positions bought above the Dow 10,000 level should be sold.
In global stock market downturns like the current one, Canadian money managers will throw the junior mining stocks baby out with the stock market bathwater.
Most of the smaller junior miners trade on the Canadian CDNX exchange, so it’s very important for all gold market investors to be properly diversified in what is obviously the world’s greatest asset class. Junior mining stock investors should own some of the bigger miners to get that diversification.
Please click here now. Double-click to enlarge this spectacular GDX chart. GDX put in another day of strong upside action yesterday, and it did so as the Dow fell almost 500 points!
On Saturday I urged my gublockchain.com subscribers to buy bitcoin (and some “alts”)… right before the latest upside blast that I predicted would be “explosive”. It was explosive, and I have the excited investors in profit booking mode now.
I’ll boldly predict that a few more daily closes above $20.50 are going to produce an equally explosive price surge for GDX and a huge array of individual gold stocks!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Juniors With The Juice!” report. While most junior miners have a lot of hurdles to overcome, I highlight six that are likely poised for five bagger gains in 2019! I include daily chart buy and sell points for each stock.

Stewart Thomson

Graceland Updates

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal

Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

Are You Prepared?

If we want to know where Gold is going we should follow Gold. Right?

How about following gold stocks? At times, they lead Gold.

What about the U.S. Dollar? Wrong!

In 2019, one market more than any other will impact Gold.

That is the stock market.

History argues (within the current context) that when the Federal Reserve ends its rate hikes, Gold’s downtrend will be over and when the Fed cuts rates, the bull market shall begin.

Fed policy is dictated by economic data and financial conditions which of course can be reflected by the stock market, which is also a reflection of corporate profits.

Extended weakness in the stock market should bring the Fed that much closer to rate cuts. However, if the stock market is able to mount a decent counter trend rally in 2019, it could raise the possibility of another hike. Right now, the market expects no hikes in 2019 and even half of a quarter point cut in 2020.

Other than the cyclical bull market of 1985 through 1987, Gold has never enjoyed a real bull market without outperforming the stock market.

Below we plot Gold and Gold against the broad stock market (NYSE). Gold is still trading below a confluence of resistance ($1260-$1270) and the Gold to stock market ratio, while trading above its 200-day moving average has not broken out of its downtrend yet.

As we pen this, the stock market is breaking lower but Gold is also down and remains below a confluence of resistance at $1260-$1270/oz.

Is our thesis wrong?

The current weakness in equities has not completely changed Fed policy yet. Sure, the weakness in the equity market definitely could cause the Fed to pause its rate hikes and the market has already discounted that for 2019.

However, for the bull market in Gold to be ignited the Fed needs to move from a pause to the start of rate cuts. The current talk is about a pause, not rate cuts.

Hence, Gold is catching a bid and starting to perform better in real terms but has not reached bull market status yet.

Until Gold proves its in a bull market (and the market begins pricing in a rate cut) it would not be wise to chase strength. There will be plenty of time to get into cheap juniors that can triple and quadruple once things really get going. To prepare yourself for an epic buying opportunity in junior gold and silver stocks in 2019, consider learning more about our premium service.

The beleaguered gold stocks are recovering from their late-summer capitulation, enjoying a solid young upleg as investors gradually return. Their buying has pushed the leading gold-stock ETF near a major triple breakout technically. That event should really boost capital inflows into this sector, accelerating the rally. A major gold and gold-stock buying catalyst is likely imminent too, a more-dovish Fed this week.

The gold miners’ stocks have always been a small contrarian sector, a little-watched corner of the stock markets. But they’ve been even more unpopular than usual in recent months. That pessimistic sentiment is driven by price action, which has mostly proven poor in 2018. That’s really evident in the performance of the flagship gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF which is struggling.

As of the middle of this week, GDX was down 12.0% year-to-date. That leveraged gold’s YTD decline of 4.4% by 2.7x, which is perfectly normal. Because gold-stock earnings are heavily dependent on prevailing gold levels, gold-stock prices tend to amplify gold’s moves by 2x to 3x. That’s a double-edged sword, really profitable when gold rallies but cutting deeply when it retreats. The drawdowns are challenging to weather.

But gold stocks’ inherent leverage to gold is starting to work again on the upside, portending big gains ahead. This first chart looks at the major gold stocks’ technicals through the lens of GDX over the past several years. This sector soared in a new bull market, plunged with gold after Trump’s surprise election win goosed the stock markets, consolidated sideways to base, and then suffered an extreme capitulation selloff.

Investors and speculators often forget how explosive gold-stock upside is when gold is powering higher in an upleg. In largely the first half of 2016, GDX skyrocketed 151.2% higher in just 6.4 months! Capital just flooded back into the gold miners driven by a new gold bull’s parallel 29.9% upleg. That catapulted GDX to very-overbought levels and a 3.3-year high in mid-2016. So a normal correction got underway soon after.

GDX found support at its critical 200-day moving average, which is often the strongest support zone seen in ongoing bull markets. But that failed in November 2016 after an anomalous surprise. Trump defied the polling and odds to win the presidency while Republicans controlled both chambers of Congress. So the stock markets soared in that election’s wake on euphoric hopes for big tax cuts soon. Gold wilted on that rally.

So the gold stocks naturally followed it lower, again mirroring and amplifying its price action. After it had enjoyed stellar 5.1x upside leverage to gold in its powerful H1’16 upleg, GDX dropped 39.4% over the next 4.4 months. That leveraged gold’s own correction by 2.3x, relatively low in that usual 2x-to-3x range. GDX soon bounced sharply with gold and established a new consolidation trading range between $21 to $25.

The major gold stocks mostly meandered within that GDX range for 21.5 months. While it was vexing at times to see upside-breakout attempts fail, basing consolidations are very bullish. They provide time for bullish newer investors to acquire shares from bearish exiting ones, establishing new price norms well above previous bear-market lows. And the $23 midpoint of that GDX trading range proved relatively high.

This gold-stock bull was born out of fundamentally-absurd lows of GDX $12.47 in mid-January 2016. It peaked at $31.32 in early August that year. Oscillating around $23 on balance, GDX was basing 4/7ths up into its young bull’s entire range. The major gold stocks GDX holds were biding their time waiting for another major gold upleg to catapult them higher. They nearly broke out above $25 in early-September 2017.

But that attempt’s failure damaged psychology so traders gradually sold, this small contrarian sector left for dead. The subsequent lower highs over the next 10.4 months into mid-July 2018 formed a downward-sloping resistance line. Gold-stock prices were being compressed into a bearish descending triangle, as lower highs slumped ever closer to that major $21 support. This sector really needed a major gold rally.

Unfortunately the opposite happened this past summer, gold got hammered crushing the weakened gold stocks. The US stock markets were powering higher trying to regain record highs in July and August 2018, heavily retarding gold investment demand. On top of that the U.S. Dollar Index was surging too, both on expectations for more Fed rate hikes and an emerging-markets currency crisis led by the Turkish lira.

So gold-futures speculators started short selling gold at extreme record levels, blasting their aggregate downside bets far up into anomalous territory never before witnessed. Gold fell sharply on that record gold-futures shorting spree, dragging the struggling gold stocks down with it. So in early August GDX plunged and knifed through its longstanding $21 support. That major breakdown spawned self-feeding selling.

Gold stocks are an exceptionally-volatile sector not for the faint of heart. So it is essential to run loose trailing stop losses on gold-stock positions. While these protect investors from excessive losses, they greatly exacerbate selloffs. The lower gold stocks fell this past summer, the more stop losses were hit. These mechanical automatic sell orders then add to the downside pressure, pushing gold stocks lower still.

That vicious circle of selling begetting selling snowballed into an extreme capitulation in gold stocks, as GDX plummeted in August and early September. In just 5 weeks GDX collapsed 17.0%, far worse than gold stocks should’ve performed with gold merely slipping 1.4% lower in that span. That devastated already-shaky sentiment, leaving most investors and speculators to throw up their hands in disgust and flee.

But with GDX being pummeled to a deep 2.6-year low, the major gold stocks were wildly oversold. I explained all this in depth in an essay on gold stocks’ forced capitulation in mid-September. They were due to mean revert dramatically higher after that extreme selling anomaly. And that process has indeed been underway ever since. The gold stocks have been recovering, clawing their way out of those deep lows.

As usual gold stocks’ dominant primary driver has been gold, which has been grinding higher in its own young upleg as speculators cover their record gold-futures shorts. Investors started returning too when the lofty US stock markets began rolling over hard in mid-October. As of the middle of this week, GDX just hit a new upleg high of $20.45 on close. That extended gains since the capitulation low to 16.4% in 3.0 months.

Although considerable, the gold stocks’ rally still hasn’t grown large enough to return to the radars of contrarian investors. That could be about to change though as a rare triple breakout looks imminent! GDX, the leading gold-stock investment vehicle, is on the verge of simultaneous upside breakouts from its 3 major upper-resistance zones. That will likely unleash big gold-stock buying from technically-oriented traders.

These major resistance levels have all converged near $21. The first and most important is GDX’s key 200-day moving average, which was $20.78 this week. 200dmas are seen as the dividing line between bull and bear markets. When prices surge back above 200dmas after long periods underneath them, the upside momentum often explodes. Traders love chasing gains and 200dma breakouts portend big ones.

The past few years have several examples of gold stocks surging dramatically after 200dma breakouts. The main one was in early February 2016, when GDX rocketing back over its 200dma after deep lows confirmed a new bull market was underway. The great majority of its initial massive 151.2% upleg came after that 200dma upside breakout. Another upleg surged after a 200dma breakout in mid-August 2017.

The latest one came in late December 2017, although that was truncated early by gold stalling out. Realize that no technical line is more important to traders than 200dmas. When they see major gold stocks power decisively back over their 200dma as measured by GDX, they are likely to rush to buy in to ride the momentum. Like selling, buying begets buying. The more gold stocks rally, the more traders want them.

That imminent 200dma breakout will be all the more potent as a new-upleg signal because 2 other major resistance lines have converged there. That downward-sloping resistance line of the descending triangle has also extended right on $21. So once GDX powers decisively above it, this past year’s vexing trend of lower highs will end. Traders will see that as evidence the major gold-stock trend is reversing to higher.

The final resistance line of that triple breakout is the major $21 support of GDX’s consolidating basing range that held rock solid for over a year-and-a-half. When prices fall, old support zones often become new overhead resistance. Traders tend to want to sell again when those old support levels near. So when GDX decisively breaks back out above $21, technical fears of that former support level will vanish.

Once back over $21, GDX will return to its multi-year consolidation basing trend between $21 to $25. So the triple breakout above that old support line, downward-sloping resistance line, and 200dma would set the stage for a sharp surge back towards the top of that old trading range. While GDX $25 isn’t very high in absolute terms, it’s still another 22.2% above this week’s levels. Such a rally would spark some excitement.

Because historical gold-stock uplegs have been so enormous, generating life-changing wealth, there is always latent gold-stock interest lurking. Contrarian investors and speculators alike sour on gold stocks when they are weak, but quickly return when they show technical signs of life. A GDX triple breakout sure qualifies as that! And much-higher gold-stock prices are certainly justified fundamentally, long overdue.

Gold miners’ earnings and thus ultimately stock prices are largely a function of gold levels. Mining costs are essentially fixed during mine-planning stages. So higher gold prices flow directly through to bottom lines in amplified fashion. This is easy to understand with an example. A month ago I waded through the Q3’18 results of GDX’s major gold miners. Their average all-in sustaining costs weighed in at $877 per ounce.

That is what it costs them to produce and replenish gold, and $877 was right in line with their previous 4 quarters’ average of $867. Those collective costs will remain stable even as gold’s upleg accelerates. At gold’s own extreme-futures-short-selling-driven bottom of $1174 in mid-August, the major gold miners of GDX were still earning about $297 per ounce. Such solid levels prove that capitulation wasn’t righteous.

Last Friday gold hit a new upleg high of $1248, up 6.3% from its anomalous late-summer lows. Imagine this young upleg grows to 30% like the H1’16 one, which is quite small by historical standards. That would leave gold near $1525. At those $877 average GDX AISCs, the major gold miners’ profits would rocket to $648 per ounce. That’s 118% higher on a 30% gold upleg! Big gold-stock upside is fundamentally justified.

The ratio between the closing prices of GDX and the dominant GLD SPDR Gold Shares gold ETF is an easy approximation of the critical fundamental relationship between gold-stock prices and gold levels. This last chart is updated from a mid-October essay where I explained why gold stocks are the last cheap sector in all the stock markets. The GDX/GLD Ratio shows gold stocks have vast room to mean revert higher.

This GGR construct has averaged 0.186x during the 3.0 years of this current gold bull so far. This week the GGR clawed back to 0.174x, hitting its own 200dma. But at the gold stocks’ deep capitulation low in mid-September, the GGR plunged all the way down to 0.155x. That’s 0.031x below normal for this bull. After GGR extremes in either direction, this key ratio tends to mean revert the other way and overshoot proportionally.

That argues GDX is easily likely to surge far enough leveraging gold’s gains to regain a 0.217x GGR. That’s certainly not a high level even in the modest context of this gold bull. At this week’s $1245 gold levels which translated near $118 in GLD terms, GDX would have to surge to $25.56 to accomplish that normal mean-reversion overshoot. That’s another 25.0% higher, which would make for a solid upleg well worth riding.

And that GGR target is still incredibly low in longer secular context. In the 2 years before 2008’s first stock panic in a century, the GGR averaged 0.591x. Though gold stocks plummeted in the extreme fear that panic spawned, the GGR rebounded to average 0.422x in the 2 years after that epic anomaly. Over a longer 4-year post-panic span, it averaged 0.381x. So seeing it regain 0.217x is nothing, it should go far higher.

The bigger gold’s own upleg, the more the gold stocks will outperform by the usual 2x to 3x and force the GGR higher. At $1525 gold after a relatively-small 30% upleg, that 2009-to-2012 post-panic-average GGR of 0.381x would yield a GDX upside target around $55 per share. That’s 169% higher from this week’s levels, even without an overshoot! Gold-stock profits growth from higher gold prices justifies huge gains.

And rather conveniently on the verge of that GDX triple breakout, a major gold-buying catalyst is likely this week. On Wednesday December 19th, the Fed’s FOMC meets to decide on whether or not to hike rates for the 9th time in this cycle. That rate hike has been universally expected for months now, it is fully baked in. But the thing gold-futures and dollar-futures traders are really watching is the rate-hike forecast.

While the FOMC meets 8 times per year, at every other meeting it releases something called the dot plot. That summarizes where top Fed officials making the decisions think the federal-funds rate should be in coming years. The last dot plot was published on September 26th when the S&P 500 remained just 0.8% under its all-time record high from a week earlier. Fed officials are boldly hawkish when stocks are high.

But the stock markets soon fell apart in Q4’18, the first in history seeing full-speed quantitative-tightening monetary destruction by the Fed! Various Fed officials including the chairman have waxed more dovish since stocks started sliding. Fearing a negative wealth effect adversely impacting the US economy, their resolve to hike rates withers. So there’s a good chance this week’s dot plot will be more dovish than the last one.

Late September’s had effectively forecast 5 more Fed rate hikes including at next week’s meeting. So if this new dot plot shows less than 4 total rate hikes forecast in 2019 and 2020, dollar-futures speculators will likely sell motivating gold-futures speculators to buy aggressively. Fewer expected rate hikes are very bullish for gold, as proven in past dot plots. A great example was the 5th hike of this cycle in December 2017.

A year ago this week the FOMC hiked, but its dot-plot rate-hike forecast was dovish. Instead of upping it to 4 rate hikes in 2018 as traders expected, Fed officials left it at 3. So over the next 6 weeks, gold shot up 9.2% to $1358 on heavy gold-futures buying by speculators. A similar rally after next week’s meeting if the dot plot forecasts fewer rate hikes than the last one would drive gold right back up near $1360 again.

That’s on the verge of a major bull-market breakout which would likely unleash massive new investment buying. And any material gold rally will light a big fire under the gold stocks, rapidly driving them higher. That would put GDX’s triple breakout in the bag with haste. Nothing drives big capital inflows into the gold stocks faster than seeing them decisively rally. They are perfectly set up for major gains in coming months!

A big mean-reversion rebound higher is inevitable and likely imminent. While traders can play it in GDX, that’s mostly a bet on the largest gold miners with slowing production. The best gains by far will be won in smaller mid-tier and junior gold miners with superior fundamentals. A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation than ETFs dominated by underperformers.

The bottom line is the gold stocks are nearing a rare triple breakout. Three major GDX resistance zones have converged just above current levels. Once the gold stocks surge decisively over, the technically-oriented traders will take notice. They will likely start chasing the momentum accelerating the gains, with buying begetting buying. And gold stocks are so undervalued big gains are totally justified fundamentally.

This bullish outlook should be really bolstered by this week’s FOMC meeting. Worried about the recent stock-market selloff and surging volatility, top Fed officials are likely to dial back their rate-hike forecasts for next year. That will almost certainly hit the US dollar and goose gold. If gold surges again on a dovish dot plot like it has after other rate hikes in this cycle, the gold stocks will blast higher achieving that triple breakout.

Adam Hamilton, CPA

December 17, 2018

Where are the populist government leaders who are cutting their outrageous government debts?
The answer, unfortunately, is that they do not exist.
Citizens riot in France over insane fuel taxes, central bankers resign in India, markets crash in America, and England’s citizens watch their Brexit turn into an overpriced wet noodle.
None of this fazes the world’s populist leaders. They believe they alone can fix what debt broke… with more debt!
Please click here now. Double-click to enlarge. In the middle of all the mayhem and madness, the uncrowned queen of the world, gold bullion, sits cooler than a cucumber. Gold is showcasing a nice steady uptrend on this medium-term price chart.
Please click here now. Heavyweight analysts at JP Morgan, Goldman, Wells Fargo, and other big banks are bullish on gold now, but many amateur analysts and investors are worried (with some sounding outright terrified) that gold is going lower.
This is a classic wall of worry rally, and I expect the upside price action to accelerate in January and February.
There’s also a real possibility that Trump piles on more destructive tariffs by March. If that happens, it would occur just as Chinese New Year gold buying really accelerates.
In that scenario, gold could surge towards the key $1400 area and the US stock market would likely crash like it did in 1929.
Please click here now. Double-click to enlarge. Investors must keep their eye on the big picture, which is all about the growth of the Chindian love trade and the rise of inflation, especially in the West.
A new pillar of gold bullion demand could also emerge now that India’s populist leader (Modi) has essentially taken control of the nation’s central bank. A fresh survey shows that 90% of Indian households see substantially higher inflation coming in 2019. That survey was done before the nation’s top central banker resigned yesterday!
The world’s populist leaders want interest rates to stop rising so their governments can borrow even more money and waste it on silly “people helper” programs.
Some of the populist leaders want to buy more bombs, some want more welfare programs, but what they all have in common is they want to spend more, and more, and more! This is highly inflationary.
Please click here now. While many amateur gold analysts have talked about their fear of lower prices, I’ve urged investors to focus on the epic upside breakout taking place on the world’s most important gold mining company. That company is: Barrick.
Junior gold and silver stock enthusiasts can expect to see their stocks begin to follow the Barrick leader. It’s already happening with many of the CDNX-listed stocks, and this morning’s pre-market “super surge” in Barrick’s price is going to start the next major wave higher for most of the junior miners.
What seals the deal? Answer: A weekly close above $14 for Barrick. I expect it to happen this week and investors who waste time reading the fears of the gold bears risk missing out on years of upside price action. The bottom line:
This is not the start of a gold bull market. It’s the start of a bull era that will last a hundred years.
I’ve predicted three U.S. rate hikes for 2019. Goldman was predicting four, but yesterday their chief economist Jay Hatzius reduced his forecast to three.
We’re on the same page now, with both of us predicting three hikes, a surprising rise in U.S. inflation, and GDP growth that fades under the 2% marker by the second half of 2019.
Ray Dalio is head of the world’s largest hedge fund (Bridgewater). Ray predicts an “inflationary depression” will envelop America within about two years. I think it takes three to four years, but given the danger, does the time frame really matter? The timing of a hurricane doesn’t change the fact that people need to get out of its way.
On that note, please click here now. Just as most big bank analysts are positive about gold now, they have increasingly negative forecasts for the U.S. dollar.
The policies of the world’s “spendaholic” populist leaders are extremely inflationary. The bank analysts know that’s bad news for dollar bugs and great news for gold stock investors.
Please click here now. Double-click to enlarge this magnificent GDX price chart. My short term guswinger.com swing trading service has caught all the key swings in the GDX base formation, reducing boredom while making investors richer! I focus on NUGT and DUST for the short term moves and unleveraged GDX for the home run plays!
We booked solid profits yesterday as GDX edged towards the important $20.50 price zone. After a brief pitstop at this minor resistance zone, the GDX bull is poised to drive its golden horns into the bears… and begin a magnificent charge up to $23.50!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Golden Outperformers” report. I highlight six GDXJ component stocks that are poised to immediately follow Barrick with major upside breakouts of their own! I highlight key technical signals and provide tactics to help investors book great profits.

Stewart Thomson

Graceland Updates

Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.

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Risks, Disclaimers, Legal

Are You Prepared?

In recent days we’ve seen the beginnings of an inversion in the yield curve.

The 2-year yield and the 5-year yield have inverted but not yet the the 2-year yield and the 10-year yield, the curve that is watched most. However, “2s and 10s” as bond traders would say appear headed for an inversion very soon.

We know that an inversion of the yield curve precedes a recession and bear market. That is good for Gold. But timing is important and the key word is precedes.

In order to analyze the consequences for Gold we should consult history.

First let’s take a look at the 1950-1980 period.

In the chart below we plot the Barron’s Gold Mining Index (BGMI), Gold, the Fed funds rate (FFR) and the difference between the 10-year yield and the FFR (as a proxy for the yield curve).

The six vertical lines highlight peaks in the FFR and troughs in the yield curve (YC), which begins to steepen when the market discounts the start of rate cuts. A steepening YC is and has been bullish for Gold except when it’s preceded by inflation or a big run in Gold.

Note that five of the six lines also mark a recession except in 1966-1967.

At present, the yield curve is on the cusp of inverting for only the third time since 1990.

The previous two inversions in 2000 and 2007 were soon followed by a steepening curve as the market sensed a shift in Fed policy.

The initial rate cut in 2000 marked an epic low in the gold stocks and the start of Gold strongly outperforming the stock market. In summer of 2007 the rate cuts began and precious metals embarked on another impulsive advance.

The historical inversions carry a different context but the takeaways are not so different.

Aside from the mid 1970s to the early 1980s, we find that a steepening of the curve (which accelerates from the start of Fed rate cuts) is bullish for precious metals. (This also includes a steepening in late 1984 that preceded the bull market in the mid 1980s).

With that said, the inversion itself is not bullish for precious metals because there can be a lag from then to the first rate cut and steepening of the curve.

I took a careful look at four of the previous inversions and counted the time from that point to the next significant low in gold stocks. The average and median time of those four is 10 months.

That appears to be inline with my thinking that the Federal Reserve’s final rate hike will be sometime in 2019.

In the meantime, precious metals are rallying but the inversion of the yield curve and Fed policy argue it would not be wise to chase this strength. There will be plenty of time to get into cheap juniors that can triple and quadruple once things really get going. To prepare yourself for an epic buying opportunity in junior gold and silver stocks in 2019, consider learning more about our premium service.

The recent stock-market selloff is persisting, fueling mounting worries among investors. The intensifying volatility and lack of a quick rebound higher is strangling euphoric sentiment, spawning self-reinforcing selling pressure. Scoffed at a few months ago, the notions that a young bear market is underway and a recession looms are gaining traction. The great beneficiary of this ominous stock-market downturn will be gold.

Gold has always been an essential asset class for prudently diversifying investment portfolios. Uniquely it tends to rally when stock markets weaken, offsetting some of the losses in typical stock-heavy portfolios. Gold acts like portfolio insurance, usually soaring when stock markets plunge on unforeseen news. All throughout history, wise investors have recommended everyone have 5% to 10% of their portfolios in gold.

But like insurance in general, the important role gold plays in portfolios is gradually forgotten when it isn’t needed. Just a few months ago, the U.S. stock markets seemed invincible. The flagship S&P 500 broad-market stock index (SPX) had powered 333.2% higher over 9.5 years by late September. That made for the 2nd-largest and 1st-longest stock bull in U.S. history! Investors were convinced that would last indefinitely.

The SPX had surged 9.6% year-to-date by that latest peak, while gold had slumped 7.3%. Thus investors felt no need to allocate virtually any capital to gold, they were and are radically underinvested in it. This is especially true of American stock investors, who were wildly optimistic after long years of big stock-market gains. Their effective portfolio exposure to gold was vanishingly small back in late September.

The 500 elite stocks of the SPX had an extreme collective market capitalization way up at $26,141.4b as that topping month waned. It is interesting contrasting that with the physical gold bullion holdings of the world’s dominant gold exchange-traded fund, the American GLD SPDR Gold Shares. GLD has long been the go-to destination for American stock investors looking to allocate capital for gold exposure in their portfolios.

At the end of September as stock euphoria peaked, GLD’s total holdings were merely worth $28.4b. That implies American stock investors were running trivial gold allocations around 0.11%! That’s on the order of only 1/50th the minimum 5% that’s been universally advised for centuries if not millennia. So it’s not much of a stretch to argue American stock investors had zero gold exposure, they were effectively all-out.

The sharp stock-market selloff in the few months since those halcyon all-time record highs has surprised most, but it shouldn’t have. As Q4’18 dawned, something ominous happened that was unprecedented in stock-market history. The US Federal Reserve upped its quantitative-tightening campaign necessary to start unwinding its $3625b of quantitative-easing money creation over 6.7 years to its terminal velocity.

October 2018 would be the first month ever to see the Fed’s monetary destruction ramp to a staggering $50b-per-month pace. And even to unwind just half of the Fed’s radical QE, QT would have to keep on destroying $50b per month of QE-conjured money for 30 months! At the end of September when the SPX was just 0.6% off its all-time record high, I explained all this in depth warning it was this bull’s death knell.

And indeed within a week of Fed QT going full-throttle, the SPX started to slide. There was no way QE-levitated stock markets could ignore QT obliterating that QE money. Every daily selloff since had its own unique story and specific drivers, which I discussed and analyzed in our subscription newsletters. These all added up to enough selling to spawn an ongoing stock-market correction, an SPX selloff exceeding 10%.

Blame it on Fed QT, stock-market bubble valuations, mounting US-China trade-war threats, Republicans losing the House, or whatever you want, but by Black Friday the SPX had fallen 10.2% over 2.1 months since that euphoric record peak. The stock markets staged some sharp rallies within that span, but they quickly fizzled proving to be dead-cat bounces. This recent action is ominously looking very bear-market like.

We can’t know for sure whether the long-overdue new bear market driven by epic record Fed tightening is indeed upon us until the SPX falls 20%+ on a closing basis. This recent correction would still have to double to hit that bear-market threshold. But gold has certainly been the main beneficiary of the recent stock-market weakness. Investors are starting to remember the ages-old wisdom of diversifying into gold.

This week’s chart looks at the US-dollar gold price superimposed over the SPX during the past 4 years or so. Despite gold being forgotten in recent years as the stock markets surged ever higher, it remains in a young bull market. And that was spawned by the last set of back-to-back corrections in the SPX, which catapulted gold sharply higher. We’re likely on the verge of another stock-selloff-driven major gold upleg!

GLD’s physical-gold-bullion holdings held in trust for its shareholders reveal how American stock investors feel about gold. This past spring they started slumping as gold was sold to move even more capital into the lofty US stock markets. For 5 months in a row ending in September, GLD’s holdings retreated as investors dumped GLD shares faster than gold was falling. By early October GLD’s holdings hit a 2.6-year low.

I penned a whole essay on this stock-euphoria-driven gold exodus in late September, explaining why it was happening and why it was likely to soon reverse. And that shift in gold-investment sentiment began the very day the SPX started plunging in mid-October! Up until October 9th the stock markets looked totally normal, the SPX had only drifted a trivial 1.7% lower from its peak. Everyone remained wildly bullish.

But something snapped on October 10th, that fateful day the SPX plunged 3.3% out of the blue on no catalyst at all. Heavy technically-motivated selling accelerated led by the market-darling mega tech stocks. For years investors had believed them bulletproof, their businesses so good they could weather any stock selloff or economic slowdown. Fears surged on the worst SPX down day since back in early February.

That very day American stock investors started returning to gold. They poured capital into GLD shares so aggressively they forced a major 1.2% holdings build. GLD’s mission is to track the gold price, but it has its own supply-and-demand profile independent from gold’s. So when GLD shares are being purchased faster than gold is bought, GLD’s share price threatens to decouple to the upside on that excess demand.

So GLD’s managers must vent that differential buying pressure directly into the physical gold market in order to equalize it and maintain tracking. They do this by issuing enough new GLD shares to satisfy all the excess demand, and then plow the cash proceeds into gold bullion. Thus rising GLD holdings show American stock-market capital is flowing into gold. That proved to be GLD’s biggest build in 6.7 months.

That fateful day proved a major inflection point for both near-record US stock markets and the extremely-unpopular gold. As the SPX continued to weaken over the next couple months, GLD continued to enjoy modest builds on investment gold buying. By late November GLD’s holdings had climbed a considerable 4.5% over 6 weeks. That has helped push gold 5.5% higher since its mid-August lows, a solid young upleg.

Odds are that gold buying via GLD by American stock investors is only beginning. The longer this stock-market weakness persists, the deeper their worries will grow. And the more their stock-heavy portfolios bleed, the quicker they will remember they should’ve allocated 5% to 10% to gold. Once gold investment demand is kindled by falling stock markets, it tends to balloon dramatically and take on a life of its own.

Gold’s young bull market today that was forgotten this summer began as 2016 dawned. Much like this year, in the first half of 2015 the US stock markets were powering to dazzling new record highs. Since it seemed like stocks could do nothing but rally indefinitely, gold was forgotten and shunned. It slumped to a brutal 6.1-year secular low by mid-December 2015, with investors really wanting nothing to do with it.

But their ironclad euphoria started to crack soon after the stock markets corrected. In mid-2015 the SPX finally suffered its first correction in an incredibly-extreme 3.6 years after being levitated by relentless Fed money creation from its third quantitative-easing campaign. Gold caught a bid on that 12.4% SPX selloff over 3.2 months, but then faded again into the expected first Fed rate hike in 9.5 years in mid-December.

Then the SPX fell into another 13.3% correction over 3.3 months into early 2016. Seeing menacing back-to-back corrections after long years without one really deflated gold-suppressing stock-market euphoria. So in early 2016 American stock investors began prudently rediversifying their stock-dominated portfolios into gold. That birthed today’s gold bull, and the gold-buying momentum fed on itself to drive a powerful upleg.

Gold went from being left for dead in mid-December 2015 to surging 29.9% higher in just 6.7 months solely on American stock investors returning! This is no generalization, the hard numbers prove it without a doubt. The world’s best gold fundamental supply-and-demand data comes from the venerable World Gold Council. It releases fantastic quarterly reports detailing the global buying and selling happening in gold.

Gold blasted higher on SPX weakness in Q1’16 and Q2’16. According to the latest data from the WGC, total world gold demand climbed 188.1 and 123.5 metric tons year-over-year in those key quarters. That was up 17.1% and 13.2% YoY respectively! But the real stunner is exactly where those major demand boosts came from. It wasn’t from jewelry buying, central-bank buying, or even physical bar-and-coin investment.

In Q1’16 and Q2’16, GLD’s holdings alone soared 176.9t and 130.8t higher on American stock investors redeploying into gold after back-to-back SPX corrections. Incredibly this one leading gold ETF accounted for a staggering 94% of overall global gold demand growth in Q1’16 and 106% in Q2’16! So there’s no doubt without American stock investors fleeing into gold via GLD this gold bull never would’ve been born.

Gold was holding those sharp gains throughout 2016 until Trump’s surprise presidential victory unleashed a monster stock-market run on hopes for big tax cuts soon. Gold was pummeled in Q4’16 as American stock investors pulled capital back out to chase the newly-soaring SPX. That quarter total global gold demand per the WGC fell 103.4t YoY or 9.0%. GLD’s 125.8t Q4’16 holdings draw accounted for 122% of that!

Gold’s fortunes are being driven by American stock investors’ collective buying and selling of GLD shares. And nothing motivates them to redeploy capital into gold to diversify their stock-heavy portfolios like major SPX selloffs. Recent months’ one has already proven serious enough to rekindle differential GLD-share buying. And as H1’16 proved, once investors start driving gold higher its rallies tend to become self-feeding.

The more physical gold bullion American stock investors buy via GLD shares, the more gold climbs. The higher gold rallies, the more investors want to buy it to ride the momentum and chase its gains. So buying begets buying, driving gold higher fairly rapidly. And when stock markets are sliding, gold is often the only asset class rallying. That makes it even more attractive to investors getting pounded by sliding stocks.

This latest SPX correction is even more damaging to sentiment because it is 2018’s second one. Back in early February the SPX plunged 10.2% in 0.4 months, which started to crack sentiment. Back when this gold bull was born it was the second of back-to-back SPX corrections that proved the coup de grâce in hurting stock-market sentiment enough to unleash a reallocation into gold. This scenario is playing out again.

Provocatively seeing the three major US stock indexes suffer two 10%+ corrections within any single calendar year is itself a super-bearish omen. 2018 joined 1973, 1974, 1987, 2000, 2001, 2002, and 2008 as the SPX’s only other dual-correction years. Those coincided with a 48.2% SPX bear, a 20.5% single-day SPX crash, another 49.1% SPX bear, and a third 56.8% SPX bear! All three bears triggered recessions.

This stock-market weakness isn’t only likely to persist, but the odds really favor it snowballing into another major SPX bear market. Gold investment demand will naturally surge as stocks burn, fueling a strong bull market. Gold’s 29.9% gain over 6.7 months at best so far in this bull is nothing. Gold’s last secular bull from April 2001 to August 2011 saw it soar 638.2% higher! Gold’s gains as the SPX rolls over should be massive.

With a trivial 0.1% portfolio allocation to gold, what happens to gold prices if American stock investors just return to a still-immaterial 1.0%? That’s still way under the 5% to 10% recommended in normal times, and plenty of great investors believe 20% gold allocations are necessary during stock bears. Gold’s upside from here with virtually-zero US-stock-market capital allocated to it is vast. And it could accelerate rather fast.

The timing of this current SPX correction is likely to magnify bearish psychology. It has occurred entirely within Q4’18. The SPX exited Q3’18 just 0.6% off its record peak from a week earlier. So I suspect a lot of American retirement investors have no idea just how much carnage their precious capital has suffered. When they get their quarterly statements from their money managers in January, they could really freak out.

Even worse, far too much of this retirement capital was allocated to the market-darling mega techs which were the biggest holdings across most funds. Their losses have far outpaced the SPX’s. As of that latest correction low on Black Friday when the SPX was down 10.2%, Apple, Amazon, Microsoft, Alphabet, Facebook, and Netflix had collapsed 25.8%, 26.4%, 10.8%, 19.9%, 39.4%, and 38.2% from their all-time highs!

The mega techs that nearly single-handedly pushed the SPX higher for years averaged 26.8% losses, or 2.6x the SPX’s! When investors who don’t closely follow the stock markets figure that out next month, the investment demand for rallying gold ought to explode. The first half of 2019 has a setup much like H1’16, where gold essentially powered 30% higher. A similar upleg from mid-August’s lows isn’t a stretch at all.

Another 30% run from $1174 would leave gold at $1525. And once gold climbs decisively back over its bull-to-date high of $1365 from early-July 2016, investment interest and demand will soar. Just like the mega tech stocks, the higher gold prices the more investors want to buy it. A mere 16% gold upleg off August’s lows, or another 10% higher from this week’s levels, would near that psychologically-huge bull breakout!

All investors should always have 5% to 10% of their investable capital allocated to gold. But almost none do today as a long-overdue bear market fueled by epic record Fed QT looms. If you don’t have that core gold allocation, you need to get it in place before stocks fall much farther and gold surges much higher. The gold miners’ stocks will greatly leverage gold’s gains too, their leading index soared 182.2% largely in H1’16!

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The bottom line is this stock selloff is boosting gold. Flagging gold investment demand turned on a dime when the stock markets started plunging in mid-October. Gold has rallied on balance since as American stock investors start redeploying capital. Their buying alone via GLD shares was fully responsible for gold’s sharp 30% upleg in 2016’s first half. That followed the last back-to-back corrections in US stock markets.

And between record Fed tightening running full-throttle, continuing dangerous bubble valuations, and the mounting trade wars, this recent stock selling is likely to persist on balance. So gold investment will look far more attractive. Coming from virtually-zero gold portfolio allocations, investors have massive buying to do. The higher they push gold, the more other investors will chase it. Especially as US stock markets weaken.

Adam Hamilton, CPA

December 4, 2018

The double bottom is the world’s most stressful chart pattern. It forms after a significant price decline. The first low in the pattern creates substantial panic and fear in most investors.
The second low in the pattern is “softer”, but no less dangerous to emotionally vulnerable investors. The volume is generally weak and the price action makes investors feel like they are in some kind of financial gulag.
Then the sun bursts out from behind those financial clouds, and glorious upside action begins! On that fabulous note, please click here now. Double-click to enlarge the spectacular price action on this daily gold chart.
The long term fundamentals and liquidity flows for gold should never be confused with the medium or short term. In the long term, the biggest driver of gold price appreciation is the Chindian “wealth effect”.
It’s all about Chinese and Indian citizens growing their standard of living and buying ever-more gold to celebrate the good times.
In the West, inflation is the most potent driver of the gold price and America is beginning an enormous inflation cycle that will likely continue for fifteen to twenty years.
As Chindians bring respect to gold as an asset class, Western gold bugs won’t need to hide in the closet when they buy it because everybody will be able to get it online from companies like Amazon.
It will be as mundane as buying a coffee at Starbucks is now, but much more profitable!
In a nutshell, the love trade of three billion Chindians combined with the inflation trade of at least 500 million Westerners will soon completely restore gold’s shimmer and place as the ultimate asset.
Please click here now. Double-click to enlarge. All investors should keep their eye on the price action taking place on this long term gold chart. Note the RSI oscillator. It’s poised to leap above 50 and that’s in sync with the arrival of Chinese New Year seasonality.
Some heavyweight money managers believe that an inflationary surprise is coming to America, and it could happen as early as this Friday’s jobs report.
On that very interesting note, please click here now. Double-click to enlarge. A surprising uptick in US wage inflation is imminent and it will be a tremendous tail wind for silver’s upside price action. I don’t know if that inflationary surprise happens in Friday’s jobs report or not, but I do want investors to be positioned to get richer if it occurs!
In the short term precious metals market, I might be shorting GDX via DUST (although the good news is that I currently hold NUGT), but that has nothing to do with the fabulous long term fundamentals in play for the entire precious metals market.
At my short term guswinger.com trading service the average NUGT/DUST or UDOW/SDOW trade lasts only a week or two. I increased my average trade size threefold yesterday… to enhance the adrenaline rush and the profits, with professionally managed risk. Investors should always separate trading accounts from long term core position investing accounts. They are as different as night and day.
Please click here now. Jay Powell had to “blink” with rate hikes and so did Donald Trump with tariff taxes or the U.S. stock market would have incinerated yesterday. So, when Trump “supersized” Powell’s blink with his tariffs blink, the US stock market rocketed higher and I promptly sold half my UDOW swing trade position as the market opened. From there, the rally faded. Pros sold the news.
In the big picture, I think most stock market bulls and bears are working a bit too hard to predict either “make my stock market great” higher prices or the end of the bull market.
It’s simply later in the U.S. business cycle now than it was a year ago, and it will be even later as 2019 gets underway. As the cycle matures, volatility typically grows and that makes analysts a bit desperate about trying to figure out what comes next.
Reality check: What comes next is vastly much wilder price action than has occurred at any point in this bull market! That’s just what happens as earnings fade and inflation rises in an environment of debt worship.
Please click here now. Whether it’s the U.S. government’s maniacal obsession with debt growth and citizen extortion via income and capital gains taxation, the emergence of wage inflation, the negative effect of quantitative tightening on corporate stock buyback programs, or the inverting yield curve, what matters is that it’s all happening in the late stage of the business cycle. Price volatility is poised to go “off the charts” in 2019 as these forces intensify dramatically and synergistically.
Stock market investors should not waste time trying to figure out what comes next. There’s only one course of obvious tactical action for long term U.S. stock market investors, and that is: Reduce trade size now!
With the daily gold chart looking spectacular, what can gold stock investors expect? Well, for 2018 I’ve predicted that the “tax loss selling” of the past few years will be confined mainly to the tiny CDNX-listed juniors. GDX, GDXJ, and SIL and their component stocks are in great shape and poised to join gold in a “shotgun” move higher for the medium term.
Please click here now. Double-click to enlarge this GDX daily chart. GDX is sporting dual inverse head and shoulders patterns.
From a technical perspective, GDX can be viewed as a sports car with twin technical turbos that is revving its engine now. GDX appears poised to rise to the minor highs around $20.50, and then race straight to my $23.50 target zone!
There could be some wild volatility around Friday’s jobs report and the December 19 Fed meeting, but the dual H&S patterns are a powerful technical force to be reckoned with. When both the short term technicals and the long term fabulous fundamentals are weighed carefully, most gold stock investors should be in great spirits and ready for the upside journey of a lifetime!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Back Up The Golden Truck!” report. I highlight six under the radar junior gold stocks that could stage five bagger gains or more in 2019. I include key buy and sell signals for each stock!

Stewart Thomson

Graceland Updates

https://gracelandjuniors.com

Email:

stewart@gracelandupdates.com

stewart@gracelandjuniors.com

stewart@guswinger.com

Risks, Disclaimers, Legal

Are You Prepared?

December 3, 2018

The junior gold miners’ stocks have spent recent months mostly languishing near major multi-year lows. That spawned a sentiment wasteland riddled by bearishness and bereft of bids. But these companies’ battered stock prices aren’t fundamentally righteous, as proven yet again by their latest earnings season. Faring far better in a challenging third quarter than stock prices imply, they need to mean revert way higher.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Companies trading in the States are required to file 10-Qs with the U.S. Securities and Exchange Commission by 40 calendar days after quarter-ends. Canadian companies have similar requirements at 45 days. In other countries with half-year reporting, many companies still partially report quarterly.

The definitive list of elite “junior” gold stocks to analyze comes from the world’s most-popular junior-gold-stock investment vehicle. Mid-month the GDXJ VanEck Vectors Junior Gold Miners ETF reported $4.1b in net assets. Among all gold-stock ETFs, that was second only to GDX’s $9.0b. That is GDXJ’s big-brother ETF that includes larger major gold miners. GDXJ’s popularity testifies to the great allure of juniors.

Unfortunately this fame created serious problems for GDXJ a couple years ago, resulting in a stealthy major mission change. This ETF is quite literally the victim of its own success. GDXJ grew so large in the first half of 2016 as gold stocks soared in a massive upleg that it risked running afoul of Canadian securities laws. And most of the world’s smaller gold miners and explorers trade on Canadian stock exchanges.

Since Canada is the centre of the junior-gold universe, any ETF seeking to own this sector will have to be heavily invested there. But once any investor including an ETF buys up a 20%+ stake in any Canadian stock, it is legally deemed to be a takeover offer that must be extended to all shareholders! As capital flooded into GDXJ in 2016 to gain junior-gold exposure, its ownership in smaller components soared near 20%.

Obviously hundreds of thousands of investors buying shares in an ETF have no intention of taking over gold-mining companies, no matter how big their collective stakes. That’s a totally-different scenario than a single corporate investor buying 20%+. GDXJ’s managers should’ve lobbied Canadian regulators and lawmakers to exempt ETFs from that 20% takeover rule. But instead they chose an inferior, easier fix.

Since GDXJ’s issuer controls the junior-gold-stock index underlying its ETF, it simply chose to unilaterally redefine what junior gold miners are. It rejiggered its index to fill GDXJ’s ranks with larger mid-tier gold miners, while greatly demoting true smaller junior gold miners in terms of their ETF weightings. This controversial move defying long decades of convention was done quietly behind the scenes to avoid backlash.

There’s no formal definition of a junior gold miner, which gives cover to GDXJ’s managers pushing the limits. Major gold miners are generally those that produce over 1m ounces of gold annually. For decades juniors were considered to be sub-200k-ounce producers. So 300k ounces per year is a very-generous threshold. Anything between 300k to 1m ounces annually is in the mid-tier realm, where GDXJ now traffics.

That high 300k-ounce-per-year junior cutoff translates into 75k ounces per quarter. Following the end of the gold miners’ Q3’18 earnings season in mid-November, I dug into the top 34 GDXJ components’ results. That’s simply an arbitrary number that fits neatly into the tables below. Although GDXJ included a staggering 70 component stocks mid-month, the top 34 accounted for a commanding 82.9% of its total weighting.

Out of these top 34 GDXJ companies, only 3 primary gold miners met that sub-75k-ounce-per-quarter qualification to be a junior gold miner! Their quarterly production is rendered in blue below, and they collectively accounted for just 3.8% of this ETF’s total weighting. GDXJ is inarguably now a pure mid-tier gold-miner ETF, not a junior one. But its holdings include the world’s best gold miners with huge upside potential.

I’ve been doing these deep quarterly dives into GDXJ’s top components for years now. In Q3 2018, fully 31 of the top 34 GDXJ components were also GDX components! These are separate and distinct ETFs, a “Gold Miners ETF” and a “Junior Gold Miners ETF”. So they shouldn’t have to own many of the same companies. In the tables below I highlighted the symbols of rare GDXJ components not also in GDX in yellow.

These 31 GDX components accounted for 79.2% of GDXJ’s total weighting, not just its top 34. They also represented 31.7% of GDX’s total weighting. Thus nearly 4/5ths of this “Junior Gold Miners ETF” is made up by nearly 1/3rd of the major “Gold Miners ETF”! These GDXJ components also in GDX are clustered from the 11th- to 30th-highest weightings in that latter larger ETF. GDXJ is mostly smaller GDX stocks.

In a welcome change from GDXJ’s vast component turmoil of recent years, only 4 of its top 34 stocks are new since Q3 2017. Their symbols are highlighted in light blue below. Thus the top GDXJ components’ collective results are finally getting comparable again in year-over-year terms. Analyzing ETFs is much easier if their larger components aren’t constantly in flux. Hopefully changes going forward are relatively minor.

Despite all this, GDXJ remains the leading “junior-gold” benchmark. So every quarter I wade through tons of data from its top components’ latest results, and dump it into a big spreadsheet for analysis. The highlights make it into these tables. Most of these top 34 GDXJ gold miners trade in the US and Canada, where comprehensive quarterly reporting is required by regulators. But others trade in Australia and the UK.

In these countries and most of the rest of the world, regulators only mandate that companies report their results in half-year increments. Most do still issue quarterly production reports, but don’t release financial statements. There are wide variations in reporting styles, data presented, and release timing. So blank fields in these tables mean a company hadn’t reported that particular data for Q3 2018 as of mid-November.

The first couple columns of these tables show each GDXJ component’s symbol and weighting within this ETF as of mid-November. While just over half of these stocks trade on US exchanges, the other symbols are listings from companies’ primary foreign stock exchanges. That’s followed by each gold miner’s Q3’18 production in ounces, which is mostly in pure-gold terms excluding byproduct metals often found in gold ore.

Those are usually silver and base metals like copper, which are valuable. They are sold to offset some of the considerable costs of gold mining, lowering per-ounce costs and thus raising overall profitability. In cases where companies didn’t separate out gold and lumped all production into gold-equivalent ounces, those GEOs are included instead. Then production’s absolute year-over-year change from Q3’17 is shown.

Next comes gold miners’ most-important fundamental data for investors, cash costs and all-in sustaining costs per ounce mined. The latter directly drives profitability which ultimately determines stock prices. These key costs are also followed by YoY changes. Last but not least the annual changes are shown in operating cash flows generated, hard GAAP earnings, sales, and cash on hand with a couple exceptions.

Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers. So in those cases I included raw underlying data rather than weird or misleading percentage changes. This whole dataset together offers a fantastic high-level read on how the mid-tier gold miners as an industry are faring fundamentally. They actually did relatively well in Q3.

While this new mid-tier GDXJ is generally excellent, some decisions by its managers are utterly baffling. Out of all the world’s gold miners they could’ve added over this past year, they inexplicably decided on the giant largely-African AngloGold Ashanti. It produced an enormous 851k ounces of gold last quarter, the largest in GDXJ by far. It and the rest of the South African majors definitely don’t belong in GDXJ!

Remember that major-gold-miner threshold has long been 1m+ ounces per year. AU’s production is annualizing to well over 3x that, making this company the world’s 3rd-largest gold miner last quarter. Why on earth would managers running a “Junior Gold Miners ETF” even consider AngloGold Ashanti? It is as far from junior-dom as gold miners get. The same is true with the rest of the troubled South African gold miners.

AU, Gold Fields, Harmony Gold, and Sibanye-Stillwater mined 851k, 533k, 379k, and 309k ounces in Q3’18, all are majors. Yet they accounted for 13.1% of GDXJ’s total weighting. They are riddled with all kinds of problems too, from shrinking production to high costs to increasing stealth expropriations from South Africa’s openly-Marxist anti-white-investor government. Their inclusion heavily skews and taints GDXJ.

These South African majors’ Q3 production of 2.1m ounces was a whopping 41% of the GDXJ top 34’s total! And it still fell 7.0% YoY due to South Africa’s tragic death spiral. Excluding them and the amazing Kirkland Lake Gold which has grown so fast it was moved exclusively into GDX over this past year, the rest of the GDXJ top 34 grew production 3.4% YoY in Q3. The South African majors’ cost impact is even worse.

Mining in that country is very expensive thanks to very-old very-deep mines and endless new government interference via stifling regulations. In Q3 the South African majors’ cash and all-in sustaining costs came in really high averaging $925 and $1088 per ounce. The rest of GDXJ’s top 34 averaged $629 and $877, a massive 32.0% and 19.4% lower! The South African majors are really retarding GDXJ’s performance.

As struggling majors far larger than mid-tiers and juniors, they need to get kicked out of GDXJ posthaste. They can be left in GDX where they belong. AU effectively took KL’s place, which makes no sense at all fundamentally. Kirkland Lake produced 180k ounces of gold in Q3 at $351 cash costs and $645 AISCs. So unlike AU, KL remains solidly in the mid-tier realm and has been performing incredibly well operationally.

While GDXJ’s managers really dropped the ball including those South African majors, they deserve big praise for upping the weighting of the outstanding Australian miners. They are Northern Star Resources, Evolution Mining, Regis Resources, St Barbara, and Saracen Mineral. Their collective weighting in GDXJ grew to 21.7% at the end of Q3’s earnings season, nearly 2/3rds higher from their 13.3% a year earlier.

Unlike AU’s dumbfounding inclusion, the Australians’ rise is well-deserved. Their production surged 8.9% YoY to 686k ounces, or 23% of the GDXJ top 34’s total excluding those South African majors. And the Australian miners are masters at developing great gold deposits and controlling costs, as their cash costs and AISCs in Q3 averaged just $586 and $724! It’s fantastic GDXJ offers American investors this Aussie exposure.

GDXJ’s component list and weightings are a work in progress, and are gradually getting better. For years I’ve pointed out things like the South African majors that weren’t right, and GDXJ’s managers eventually seem to come around and change things for the better. Greatly helping that process is investors buying the better individual stocks like KL and shunning laggards like AU, readjusting their relative market capitalizations.

GDXJ and GDX are essentially market-cap weighted, with larger companies rightfully commanding larger weightings. These leading gold-stock ETFs’ managers can override this by deciding which gold miners to include in each ETF. So they can easily purge GDXJ of the deteriorating South African majors and add real mid-tier gold miners. But the true core problem is having so many of the same stocks in GDX and GDXJ.

Such massive overlap between these two ETFs is a huge lost opportunity for VanEck. It owns and manages GDX, GDXJ, and even the MVIS indexing company that decides exactly which gold stocks are included in each. With one company in total control, there’s no need for any overlap in the underlying companies of what should be two very-different gold-stock ETFs. Inclusion ought to be mutually-exclusive.

VanEck could greatly increase the utility of its gold-stock ETFs and thus their ultimate success by starting with one big combined list of the world’s better gold miners. Then it could take the top 20 or 25 in terms of annual gold production and assign them to GDX. Based on Q3’18 production, that would run down near 139k or 93k ounces per quarter. Then the next-largest 40 or 50 gold miners could be assigned to GDXJ.

Getting smaller gold miners back into GDXJ would be a huge boon for the junior-gold-mining industry. Most investors naturally assume this “Junior Gold Miners ETF” owns junior gold miners, which is where they are trying to allocate their capital. But since most of GDXJ’s funds are instead diverted into much-larger mid-tiers and even some majors, the juniors are effectively being starved of capital intended for them.

That’s one of the big reasons smaller gold miners’ stock prices are so darned low. They aren’t getting enough capital inflows from gold-stock-ETF investing. So their share prices aren’t bid higher. They rely on issuing shares to finance their exploration projects and mine builds. But when their stock prices are down in the dumps, that is heavily dilutive. So GDXJ is strangling the very industry its investors want to own!

Back to these mid-tier gold miners’ Q3’18 results, production is the best place to start since that is the lifeblood of the entire gold-mining industry. These top 34 GDXJ gold miners that had specifically reported Q3 production as of mid-November produced 5063k ounces. That surged by a massive 18.8% YoY, implying these miners are thriving. But that is heavily distorted by that huge 851k-ounce boost from AU’s addition.

Without the world’s 3rd-largest gold miner, the rest of the GDXJ top 34 saw their production slip 1.2% YoY to 4212k ounces. That reflected the peak-gold challenges the gold-mining industry is facing, as I discussed a couple weeks ago while reviewing the GDX majors’ Q3’18 results. The GDXJ top 34 are still outperforming the GDX top 34, which saw their gold production retreat 2.9% YoY in Q3 bucking historical trends.

Sequentially quarter-on-quarter from Q2’18 the GDXJ top 34’s production surged a dramatic 13.3%! And AU was already one of GDXJ’s top components then. That partially came from new mines ramping up at the world’s best mid-tier gold miners. It is far easier for them to grow production off lower bases than it is for the majors off high bases. That’s a key reason why the mid-tiers’ upside potential trounces that of the majors.

For all GDXJ’s faults, it does still offer investors exposure to much-smaller gold miners. The average quarterly production of all the top 34 GDXJ miners reporting it in Q3 was 163.3k ounces. That is 43% smaller than the 288.8k averaged by the top 34 GDX miners last quarter. And again AU’s crazy inclusion really skews this. Ex-AU, the GDXJ average falls to 140.4k. Without all the South African majors, it is 110.8k.

These annualize to 562k and 443k, both solidly in the mid-tier realm. Analyzing GDXJ’s production and costs requires breaking out those heavily-distorting South African majors that have no place in a mid-tier gold-miner ETF. Again their production fell 7.0% YoY in Q3, while the rest of the GDXJ top 34’s ex-KL grew 3.4%! Production and costs tend to be proportionally inversely related because of how mining works.

Gold-mining costs are largely fixed quarter after quarter, with actual mining requiring the same levels of infrastructure, equipment, and employees. The tonnage throughputs of the mills that process the gold-bearing ore are also fixed. So gold produced varies with ore grades each quarter. The more gold that is recovered, the more ounces to spread gold mining’s big fixed costs across. That lowers per-ounce costs.

There are two major ways to measure gold-mining costs, classic cash costs per ounce and the superior all-in sustaining costs per ounce. Both are useful metrics. Cash costs are the acid test of gold-miner survivability in lower-gold-price environments, revealing the worst-case gold levels necessary to keep the mines running. All-in sustaining costs show where gold needs to trade to maintain current mining tempos indefinitely.

Cash costs naturally encompass all cash expenses necessary to produce each ounce of gold, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses. In Q3’18, the overall cash costs of the GDXJ top 34 surged 8.4% higher YoY to $663 per ounce. That was still largely in line with the past four quarters’ $612, $618, $692, and $631 averaging $638.

But that sharp jump was mostly the result of the South African majors’ deepening troubles. Again their average cash costs last quarter were a whopping $925! Without them, the rest of the GDXJ top 34 averaged $629 per ounce which was only up 2.8% YoY and below the rolling-four-quarter mean. So the mid-tier gold miners of GDXJ are holding the line on cash costs, a sign their operations are fundamentally sound.

Way more important than cash costs are the far-superior all-in sustaining costs. They were introduced by the World Gold Council in June 2013 to give investors a much-better understanding of what it really costs to maintain gold mines as ongoing concerns. AISCs include all direct cash costs, but then add on everything else that is necessary to maintain and replenish operations at current gold-production levels.

These additional expenses include exploration for new gold to mine to replace depleting deposits, mine-development and construction expenses, remediation, and mine reclamation. They also include the corporate-level administration expenses necessary to oversee gold mines. All-in sustaining costs are the most-important gold-mining cost metric by far for investors, revealing gold miners’ true operating profitability.

The GDXJ top 34 reported average AISCs of $911 in Q3, up 3.8% YoY. But like cash costs, this was roughly in line with the $877, $855, $923, and $886 seen in the past four quarters. But again that was skewed quite a bit higher by those wrongly-included South African majors, which reported $1088 average AISCs in Q3. The rest of the top 34 averaged $877, which is actually better than the $885 four-quarter average.

So the South African majors are really tainting GDXJ’s collective operational performance, with lower production and higher costs dragging down this entire ETF. Those giant struggling gold producers are an albatross around the neck of the many great mid-tier gold miners in GDXJ! If you are a GDXJ investor, contact VanEck and urge them to boot the South African majors out of GDXJ to help it thrive going forward.

Gold-mining earnings are simply the difference between prevailing gold prices and all-in sustaining costs. And both sides of this equation moved the wrong way in Q3, squeezing the mid-tier gold miners’ profits. Q3’18’s average gold price of $1211 was 5.3% lower than Q3’17’s. And with overall GDXJ top 34 AISCs 3.8% higher at $911, that really cut into margins. These gold miners were collectively earning $300 per ounce.

That implied solid 25% profit margins absolutely, which aren’t bad. But they still plunged 25.4% YoY from Q3’17’s $402 per ounce, which amplified gold’s decline by 4.8x. But gold-mining profits leverage to gold is exactly why the gold stocks make such compelling investments. Gold stocks were weak in Q3 because gold was pounded to a deep 19.3-month low in mid-August on extreme all-time-record gold-futures short selling.

Left for dead and neglected, the gold miners’ stocks are the last cheap sector in these lofty bubble-valued stock markets. Their fundamental upside as gold mean reverts higher on speculators’ gold-futures buying and new investment demand as stock markets roll over is enormous. This is easy to understand with a simple example. In the last four quarters including Q3’18, the top 34 GDXJ gold miners’ AISCs averaged $894.

During gold’s last major upleg in essentially the first half of 2016, it powered about 30% higher driven by surging investment demand after stock markets suffered back-to-back corrections. That was even small by historical gold-bull-upleg standards. If we merely get another 30% gold advance from its recent mid-August low of $1174, we’re looking at $1525 gold. That would work wonders for gold-mining profits and stock prices.

At $1525 gold and $894 AISCs, the mid-tier gold miners would be earning $631 per ounce. That’s 110% higher than Q3’18’s $300! If gold-mining profits double, gold-stock prices will soar. Indeed during that last 30% gold bull in the first half of 2016, GDXJ rocketed 203% higher! So the gold-stock outlook is wildly bullish with gold itself due to power higher as the stock markets roll over on the Fed’s record tightening.

The rest of the top 34 GDXJ gold miners’ fundamentals were mixed last quarter. Cash flows generated from operations totaled $1.3b in Q3, down 21.2% YoY. That’s reasonable given average gold’s 5.3% YoY retreat and their leverage to it. Cash on hand remained high at $5.4b, down just 5.3% YoY. So these mid-tier gold miners have plenty of capital to build and buy new mines to continue growing their production.

Revenues only slipped 0.4% YoY to $4.1b, which means the softer gold prices were largely offset by higher production. But GAAP profits looked like a disaster, with the GDXJ top 34’s plummeting to a $379m loss in Q3’18 from being $212m in the black in Q3’17! That was far worse than the lower gold prices warranted, but thankfully it was mostly the result of big non-cash charges flushed through income statements.

Tahoe Resources reported a massive $170m impairment charge on its suspended Escobal silver mine that is being held hostage by the corrupt Guatemalan government. Yamana Gold wrote off $89m after selling a mine in Argentina. Explorer NOVAGOLD reported an $81m loss from discontinued operations on the sale of one of its projects. These three unusual items alone wiped out $340m of profits from GDXJ’s ranks.

Without them, the top 34 GDXJ gold miners’ earnings would’ve fallen to -$39m from +$212m. That isn’t great, but it doesn’t reveal any serious issues a rising gold price won’t quickly solve. Interestingly if KL was still included instead of AU, that would’ve added another $56m in Q3’18 profits. The mid-tiers’ overall earnings should dramatically leverage and outpace gold in coming quarters as it inexorably mean reverts higher.

While GDXJ should certainly no longer be advertised as a “Junior Gold Miners ETF”, it offers exposure to some of the best mid-tier gold miners on the planet. It’s really growing on me, I like this new GDXJ way better than GDX. That being said, GDXJ is still burdened by overdiversification and way too many gold miners that shouldn’t be in there. They are either too large, are saddled with inferior fundamentals, or both.

So the best way to play the gold miners’ coming massive mean-reversion bull is in individual stocks with superior fundamentals. Their gains will ultimately trounce the major ETFs like GDXJ and GDX. There’s no doubt carefully-handpicked portfolios of elite gold and silver miners will generate much-greater wealth creation. GDXJ’s component list is a great starting point, but pruning it way down offers far-bigger upside.

The bottom line is the mid-tier gold miners reported solid fundamentals despite a challenging third quarter for gold prices. Excluding the South African majors, they were able to grow their production nicely while holding the line on costs. That portends dramatic operating-cash-flow and earnings growth in the coming quarters as gold mean reverts higher on big investment buying. The mid-tier gold miners’ stocks will soar on that.

Gold stocks are not only unloved and dirt-cheap today, but they are a rare sector that rallies strongly with gold as general stock markets weaken. While virtually no one was interested in these leveraged plays on gold upside in recent months, that will change fast as these lofty stock markets roll over. And the mid-tier gold miners’ recent Q3 earnings season proved they remain ready to fundamentally amplify gold’s gains.

Adam Hamilton, CPA

December 3, 2018

Recent market and economic developments are positive for Gold and precious metals but conditions are not bullish yet.

Bullish conditions and bullish fundamentals would be highlighted by a shift in Fed policy. They aren’t shifting yet. They are slowing, which precedes a shift.

From a market standpoint, we need to see strength in Gold in real terms (against stocks and foreign currencies) and a steepening of the yield curve. These developments along with shifting Fed policy will tell us a new bull market is soon to begin.

In regards to Gold against equities, the chart below shows both progress but the need for more strength.

Gold remains below its long-term moving average against U.S. stocks (NYSE). The trend has not turned bullish yet.

Gold relative to the rest of the world (U.S. excluded) and Emerging Markets has turned the corner but now must prove it can hold above the long-term moving average.

Gold relative to foreign currencies is at an interesting juncture as the chart below shows. Over the past month it has been battling with a confluence of resistance right at its 200 and 400 day moving averages.

From a market standpoint, the stock market is key as it will front-run Fed policy. It’s a reflection of the economy and health of corporations. A stronger stock market means tighter Fed policy.

That could go out the window if and when the S&P 500 loses its recent lows at the 400-day moving average. But these lows could hold for several months.

The yield curve continues to flatten, which is not bullish for Gold. Steepening is.

Although the Fed said something about rate hikes coming to an end and the market now expects only two more hikes, the conditions are not there for Gold.

On the fundamental side, history argues that conditions turn most bullish after the last hike and when the market begins to discount a new rate cutting cycle. It appears we are still months away from the last hike.

On the technical side, there is improvement in the leading indicators but nothing definite yet.

Gold has not broken out of its downtrend relative to U.S. stocks nor has it broken out against foreign currencies. These things should happen before a bull market begins.

In the meantime, don’t try to catch falling knives or chase weakness as there will be plenty of time to get into cheap juniors that can triple and quadruple once things really get going. Moreover, the start of the next bull looks to be more than a few months away.

Consider our premium service which can help you ride out the remaining downside and profit ahead of a major bottom in the sector. To prepare yourself for an epic buying opportunity in junior gold and silver stocks in 2019, consider learning more about our premium service.

November 30, 2018

GOLD:

Short Term Update:

What a day! This is incredible! We called it with our wave counts, and now it’s really happening as the Fed may have just blinked!

Within wave .iii. we are now working on our first impulsive sequence, as shown on our “Daily Gold Chart”.

Within that first impulsive sequence we believe that we are working on a subdividing wave $iii$. Within wave $iii$, wave !i! ended at the 1246.00 high and all of wave !ii! at 1196.60.

We are now rallying in wave !iii!, which has an initial target of:

!iii!=1.618!i!=1296.40!

Within wave !iii! it looks like we are subdividing again as shown on the Daily Gold Chart. It looks like wave ?i? ended at 1230.90 and that we are now falling in wave ?ii?.

Our retracement levels for the end of wave ?ii? were:

50% = 1213.80;

61.8% = 1209.70.

Our report card on that call: Bingo!

We expected that gold should drop a little further before all of wave ?ii? ends, and that’s exactly what happened.

Longer term our first projection for the end of wave .iii. is:

.iii. = 1.618.i. = 1447.20.

We do have higher projections. Of course, wave .iii. should subdivide into a 5 wave impulsive sequence in its journey higher.

Trading Recommendation: Long gold. Use puts as stops.

Active Positions: We are long, with puts as stops!

Silver:

Short Term Update:

In the very short term, silver has been correcting the rally from 13.86 to 14.54. Silver could be ready to move higher again quite soon.

We are working on the assumption that all of wave ii ended at the 13.86 low and that we are now starting to work higher…

In the initial stages of wave .iii.

We have been waiting to see a very big up day to confirm this assumption.

Silver will accelerate higher (and perhaps quite dramatically) with gold once the 95.93 low in the USDX gives way.

We also need to break above our red downtrend line that is shown on the Daily Silver Chart that connects 17.35 and 14.92.

Our first projection for the end of wave iii is:

iii = 1.618i = 26.09.

Trading Recommendation: Long silver. Use a put as a stop.

Active Positions: We are long, with puts as stops!

GDX & Gold Stocks:

GDX 60 Min Chart:

GDX Daily Chart:

Short Term Update:

We have now updated our count to suggest that all of wave ^i^ ended at the 19.92 high and that all or most of wave ^ii^ at the 18.72 low.

If that is the case then we should now be moving higher in wave ^iii^, as the next big event in this market.

We are now working on the assumption that all of wave -ii- is complete at the 18.26 low and that we are now rallying in wave -iii-.

Our first projection for the end of wave -iii- is:

-iii- = 1.618-i- = 23.49.

Longer term our first projection for the end of wave 3 is:

3 = 1.618(1) = 48.95.

We have updated all of the following counts, for the following:

Kinross: Has now completed its minimum requirements for a completed wave (ii), at the 2.38 low. Wave (iii) rally is now underway.

Barrick: We have completed the minimum requirements for a completed wave (ii) at the 9.53 low. Wave (iii) rally is now underway.

HUI: We have completed the minimum requirements for a completed wave (ii), at the 131.12 low. Wave (iii) rally is now underway.

XAU: We have completed the minimum requirements for a completed wave 2 at the 60.59 low. Wave 3 rally is now underway.

Trading Recommendation: We continue to suggest buying all of the above gold stocks and indices, for a long term hold.

Active Positions: We are long the GDX, ABX, KGC, NEM, SSR, and TSX:XGD with no stops!!

Free Offer For Website Readers: Please send me an Email to admin@captainewave.com and I’ll send you our free “Gold could Hit $1300 By Christmas!” report. We highlight our new weekly wave counts chart for GDX, which suggests that $1300 gold by Christmas can really happen! We discuss tactical approaches to make money on the play!

Thank-you!

Captain Ewave & Crew

Email: admin@captainewave.com

Website: www.captainewave.com

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The following interview of Brett Heath, CEO of Metalla Royalty & Streaming, took place by phone & email over the past 10 days. Brett and his expert team have achieved quite a lot over the past year. In this interview I asked Brett for an update as I am especially interested in Metalla’s latest transaction, (a 2% NSR) on the Santa Gertrudis Royalty.

Please describe the importance of your most recent acquisition, the Santa Gertrudis Royalty (a 2% NSR).

The Santa Gertrudis royalty has the potential to be a Company maker for Metalla. The expansive 42,000-hectare property in Sonora Mexico hosts Carlin-type deposits, similar in nature to what has created some of the largest hydrothermal gold deposits in the world. This, combined with a world-class major gold producer in Agnico Eagle as the operator, that has invested upwards of $100 million into the asset shows the confidence and potential of further upside surprises like the new high-grade discovery of the Centauro Zone. With an overall strike length of 18 km on the Santa Gertrudis property that has already been identified, Metalla is positioned to benefit from additional exploration success from the balance of Agnico’s 2018 drilling campaign and beyond.

Can we get an update on your 2 or 3 most important assets?

The Endeavor mine, operated by CBH Resources where we have a silver stream that contributes the most significant portion of Metalla’s cash flow continues to show signs of further exploration success of the Deep Zinc Lode discovery that was made earlier this year. We hope to have an update in 2019 that outlines a mine plan extension past December 2020.

Also, we are expecting a resource update in January 2019 from Osisko Mining on the Garrison gold property where Metalla has a 2% NSR royalty. Osisko has drilled an additional 90,000 m since the latest PEA (the PEA has just under 2 million ounces of gold resources). We are expecting a significant improvement in total ounces, but also an improvement in the categories of Measured & Indicated.

Finally, the Joaquin project which is being developed by Pan American Silver, where Metalla owns a 2% NSR continues to show progress. Pan American has stated that they now expect production in Q1 of 2020.

The Santa Gertrudis deal puts your market cap above C$80 M. At what stage might a mid-tier precious metals Royalty & Streaming company like Sandstorm Gold (~C$1 billion market cap), or Maverix Metals (~C$515 M market cap) show interest in acquiring Metalla?

The bigger royalty companies historically look to take over smaller royalty companies when gold & silver enter into a bull market. This is because mining company equity often becomes over-valued, making it is less costly to acquire a company like Metalla outright rather than take on a royalty or stream. Bigger royalty companies that trade at much higher valuations can provide big premiums to smaller royalty companies while still being accretive.

One of the biggest problems the big royalty companies have in a bull market in precious metals is growth. That’s because providing project capital to mining companies usually gives them a 2-3 year window for those projects to come online. They are forced to look at buying companies like Metalla or price royalties or streams at a much higher cost. Historically that hasn’t worked out so well.

A crucial part of our portfolio is royalties on development projects with major mining companies. We think these assets will command a large premium in the future, potentially even more than our royalties that are already producing.

Silver & Gold prices (in USD) have been weak this year, down 16% & 6%, respectively, how much is that likely to impact your FY 2019 earnings (for the year ending May 2019)?

We take metal price risk along with the mining companies, specifically on silver where 100% of our cash flow comes from currently. What is important to remember is that royalty & streaming contracts offer guaranteed margins. So where a mining company may be break even or losing money at a slightly lower gold or silver price, Metalla will always have cash flow as long as the asset is in production. More importantly, when precious metals prices rise, there is a tremendous amount of leverage built in that translates directly to the shareholders of Metalla.

On the other hand, lower precious metals prices might enable Metalla to strike better deal terms, do you see more attractive transaction opportunities?

We are looking to lock up as much gold and silver in royalty & streaming contracts as we can at current prices. These are the times when incredible deals can be struck, and, as an investor of Metalla, we pay you to wait through our monthly dividend program.

What can you tell readers about new deals that you’re actively working on, deals that could be announced within the next 6 months?

I can tell readers that the hardest part of building a royalty company is getting to a place of critical mass. I believe we have achieved this in the first two years at Metalla and I think it will be easier to scale this company from C$80M to C$500M than it was to go from C$0 – C$80M. Now is the time to position for the next cycle before the institutions take notice of what we have built.

Your current annualized distribution yield is 2.25% (based on C$0.80 stock price), the highest of any precious metals-focused Royalty/Streamer I know of. As the company grows, what are the implications for monthly distributions over the next 6-12 months?

We hope to bring on some royalties that are currently producing over the next 6 months. If we do, the development pipeline could allow us to enhance our dividend program. We have stated a 50% dividend payout goal, but we are prudently working our way towards that goal.

In terms of company valuation, how does Metalla compare to peers? What metrics do you use in your comparisons?

We still trade at a steep discount to peers based on a Net Asset Value (NAV) perspective. As we grow Metalla to C$100M+ in market cap, we expect investment banks to pick up research coverage of us showing the deep value Metalla has to offer. This could be a big potential catalyst for shareholders over the coming year.

Why should readers consider buying shares of Metalla Royalty & Streaming Ltd. instead of other precious metals companies?

We have a strategy, focusing on the pre-existing royalty market that has allowed up to excel in what is a very competitive industry. As a first mover, this should continue to translate into outperformance among our peers.

Thank you again Brett for your time and thoughtful responses to my questions.

Disclosures: The content of this interview is for illustrative and information purposes only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research, [ER] including but not limited to, commentary, opinions, views, assumptions, reported facts, estimates, calculations, etc. is to be considered implicit or explicit, investment advice. Further, nothing contained herein is a recommendation or solicitation to buy or sell any security. Mr. Epstein and [ER] are not responsible for investment actions taken by the reader. Mr. Epstein and [ER] have never been, and are not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and they do not perform market making activities. Mr. Epstein and [ER] are not directly employed by any company, group, organization, party or person. Shares of Metalla Royalty & Streaming are speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they consult with their own licensed or registered financial advisors before making investment decisions.

At the time this article was posted, Peter Epstein owned shares in Metalla Royalty & Streaming, and the Company was an advertiser on [ER]. By virtue of ownership of the Company’s shares and it being an advertiser on [ER], Peter Epstein is biased in his views on the Company. Readers understand and agree that they must conduct their own research, above and beyond reading this article. While the author believes he’s diligent in screening out companies that are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. Mr. Epstein & [ER] are not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article. Mr. Epstein & [ER] are not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. Mr. Epstein and [ER] are not experts in any company, industry sector or investment topic.

November 27, 2018

The next Fed meet (and rate hike) is December 19, and just weeks after that, U.S. president Donald “The Golden Trumpster” Trump may be set to unleash a new round of inflationary and growth-crushing tariffs.
It’s not easy (to put it mildly) for American business to create new factories to replace the products made by highly productive Chinese factories.
So, for 2019, most top U.S. bank economists and money managers are slashing their U.S. GDP growth forecasts and raising their inflation forecasts.
Morgan Stanley’s global stock market weightings are legendary in the institutional world, and they just moved America to a horrifying “underweight” ranking for their global stock market positioning.
Most big-name economists in America see U.S. GDP growth sliding to sub 2% by mid 2019 while inflation stages an “upside surprise”.
Please click here now. Goldman’s top economists clearly have the same view I do.
What’s particularly interesting about this forecast is that their top economist is also forecasting four rate hikes from the Fed in 2019.
Four hikes would put enormous pressure on the U.S. government’s ability to finance its outrageous debt. It can be argued that these hikes are the Fed’s response to the insane growth of that debt.
Whether there are two rate hikes as Morgan Stanley predicts, three as I predict, or four as Goldman predicts, the growth of U.S. government debt is clearly going to put vastly more pressure on the US government bond market (and the corporate bond market) in 2019 than it already has in 2018.
In the matter of “tax loss” season, I realize that many gold market investors are nervous that gold stocks will decline into December like they have in recent years.
Please click here now. Double-click to enlarge. I don’t see anything to be concerned about on this daily gold chart.
Please click here now. Double-click to enlarge. I don’t see anything on this GDX chart to be concerned about either.
GDX and most senior gold stocks are tracking the gold price quite nicely. Gold supply is limited, and top analysts at Goldman and other firms are predicting “Commodities will soar.”
Also, 2019 is an election year in India. Morgan Stanley just raised India to “overweight” in its global stock market weightings, as it moved America to that somewhat pathetic underweight ranking. While GDP growth nosedives to potentially under 2% in America, it should be at least 7% in India for 2019, and I’m predicting it could hit 8%. GDP growth and upside action in the Indian stock market is good news for gold. The bottom line:
Gold demand in India is rock solid, as it is in China. As commodities begin to rise, Goldman will lead institutional investors into more commodities investing. Gold, GDX, GDXJ, SIL, and related stocks should have a great year.
Please click here now. Double-click to enlarge this CDNX venture index chart.
Whether it’s MACD, moving averages, RSI, or a host of other technical indicators, gold and GDX look solid. Unfortunately, that’s not the case with CDNX.
Please click here now. That’s a look at the key buy (green) and sell (gold) signals for the high risk venture sector that I cover in my gracelandjuniors.com newsletter.
The CDNX and related stocks are susceptible to tax loss selling. Penny stocks are high risk (but also high potential reward) and I don’t expect to get a major buy signal for the CDNX index until gold trades at $1420 on a weekly closing basis.
Please click here now. Double-click to enlarge what just may be the world’s most spectacular price chart!
Barrick is chaired by former Goldman president John Thornton. Thornton has aggressively bought stock in the open market and has categorically stated that he is not selling a single one of his shares for short term gain.
Clearly, Thornton is not playing for peanuts. With the majestic bull wedge and inverse head and shoulders bottom in play, it’s obvious that this man is poised to see himself and all Barrick shareholders gain enormous wealth in what I call the “bull era”.
Thornton was the driving force of the Barrick-Rangold merger. That merger was approved by a stunning 95% of shareholders of both companies. The Chinese government has awarded him the government’s highest award for a non-Chinese person. Of foreigners who have contributed significantly to Chinese growth, the Chinese government views John Thornton as one of the fifteen most important people in the world.
Barrick shareholders are not just in good hands. They are in spectacular hands! A breakout from the bull wedge with a Friday close over $14 is a rocket launch signal for the entire gold mining sector. Rather than wasting time worrying about a tax loss season that is going the way of the dodo bird, I suggest that gold stock investors should be positioning themselves, as Goldman clearly is, for the rocket ride of a lifetime, in a fabulous gold bull era!

stewart@gracelandupdates.com

stewart@gracelandjuniors.com

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November 20, 2018

After breaking upside from a double bottom pattern, gold continues its solid price action. More good times lie directly ahead for precious metals investors, because Chinese New Year buy season begins very soon.
Please click here now. Double-click to enlarge. Note the solid position of my key 14,7,7 Stochastics indicator on this daily gold chart.
The U.S. stock market’s “traditional end of the year rally” is turning into a veritable turkey shoot for the bears. Gold seems immune to the action, suggesting that unseen inflationary pressures may be larger than most investors realize.
Please click here now. Double-click to enlarge. Investors need to understand that as the business cycle matures, volatility in the stock market rises.
Any decline could be the start of a bear market. A “buy the dip” approach to the market becomes a death trap as corporate earnings peak, rates rise, GDP peaks, and inflation gains attention.
The bottom line: U.S. stock market bears crack the whip, and late cycle price chasers take a horrific trip!
Please click here now. Morgan Stanley’s top currency analysts believe the dollar has peaked against most of the currencies it recently rallied against. Hedge fund “superman” Ray Dalio is talking about a 30% dollar devaluation. He proposes monetizing the U.S. government’s huge debt as a “final solution.”
I’ve suggested a “Plaza Accord 2.0” is going to happen. I believe U.S. President Trump will lead preliminary discussions about it from behind closed doors at the upcoming G20 meeting.
Please click here now. As empires peak and then die, the peak usually comes with the nation enveloped in a state of “war worship.”
Massive amounts of money are borrowed by the government to fund the madness, but even that isn’t so enough, so more is extorted via “taxes” from struggling citizens.
In the case of America, more than 25% of the government’s gargantuan debt is easily attributable to war worship.
The final nail the U.S. government’s debt coffin likely came when instead of cutting the capital gains tax to zero and beginning a Treasury monthly gold buy program, the government decided to impose tariff taxes to “boost growth and make trade fair.”
Import tariffs are the best form of taxation, but only when used instead of income and capital gains taxation. In this case, tariffs are layered on top of income and capital gains taxes. The bottom line: Instead of becoming a super-sized version of Switzerland, America risks becoming a stagflationary wasteland.
Ray Dalio speaks of “other currencies” rising to prominence as the dollar fades. He says he doesn’t want to be specific about it though. Is that because gold is one of those currencies?
The U.S. stock market has begun collapsing, inflation is on the move, and junior miners should be looking good. Are they?
For the answer to that question, please click here now. Double-click to enlarge. Most of the world’s smallest resource companies are in the Canadian CDNX index.
It’s the best indication of the overall health of the global junior mining and junior energy sectors. I highlight key buy and sell action points on my www.gracelandjuniors.com website for many of the CDNX component stocks. This is a look at the signals for the index itself.
There’s no significant buy signal yet, but in early 2019 as inflation likely moves higher and U.S. GDP declines, a “America, it’s time to usher in the new year with a new and not so exciting era of substantial stagflation!” welcome mat will be rolled out.
I expect to get a major buy signal for the entire junior mining sector as that happens.
Please click here now. Double-click to enlarge. I’m impressed with the price action of GDX on this daily chart.
Note how quickly GDX has surged back above the neckline of that pesky H&S top pattern after breaking down. That’s positive action and now there’s a bull wedge in play too!
Please click here now. Double-click to enlarge this long term GDX “Trigger Time” chart.
Investors also need to watch the price of Barrick (ABX-NYSE) closely. If it can close above $14.00 on Friday of this week, that will be a major buy signal, and Barrick is my most important lead indicator for GDX and the entire senior gold stocks sector.
All gold stock investor eyes need to be laser-focused on the $22.50 zone for GDX, because if GDX can stage two consecutive Friday closes above that price, I will have a massive buy signal in play!

Risks, Disclaimers, Legal

US elections are here!
Please click here now. Double-click to enlarge this big picture chart for gold.
From both a technical and fundamental perspective, gold looks solid.
This chart suggests that whatever happens in the US election, it’s going to be positive for gold.
One of my biggest predictions for the fall of 2018 was that a US stock market sell-off would see gold and gold stocks begin to function as the ultimate safe haven.
That happened exactly on cue, and to get an idea of how mainstream media is beginning to open their eyes to this theme, please click here now. Bloomberg Intelligence is highly respected by the global institutional investor community.
It’s really unknown whether the stock market will rally or decline from here, but the odds are now astronomically high that when the next decline does happen…
The world gold community will be smiling because their precious metal investments will perform admirably!
Please click here now. The Fed’s QE and low rate programs incentivized corporations to launch enormous stock buyback programs and incentivized both retail and institutional investors to buy stock with borrowed money.
Merrill’s chief equity market technician is very concerned about the current divergence between the price of the SP500 index and the total US market margin debt.
I’ve predicted that as this business cycle ages, inflation would make a surprising appearance that would catch most analysts off guard.
On that note, please click here now. In America, inflation could stage a shocking move to the upside if the emerging divergence between the interest rate on commercial bank excess reserves and the Fed Funds rate grows.
Even if that doesn’t happen, global inflation is clearly on the move, and the move is to the upside!
Please click here now. Western gold bugs may hate the Chinese government for good reasons, but that doesn’t change the fact that it generally acts more like a lean and mean corporation than like a government, in terms of efficiency.
After accounting for inflation, Chinese real GDP growth is about 3%, and the same is true for India. In the West, most countries have flat or negative real GDP growth.
The same is true for wage growth.
The simple reality is that gold is becoming the world’s most stable asset because three billion Chindian citizens are maniacal savers, obsessed with gold, and getting richer.
The standard of living of these citizens is increasing at a tremendous rate. An immigrant caravan headed towards the US border gets American citizens wildly excited while they buy no gold and try in vain to fix a US stock market price chase that has gone badly wrong.
What’s missed in all the caravan-oriented excitement is that the entire caravan is composed of perhaps 10,000 people…
While every single day there are about 50,000 babies born in India, and almost every one of them will become a maniacal gold buyer as they reach maturity.
The bottom gold bull era line: Are babies golden? Absolutely! Gold-oriented Chindia is a titanic force that just keeps growing.
Please click here now. Double-click to enlarge this short-term gold chart. Keep my big picture gold chart in mind when viewing this chart. A fabulous double-bottom pattern is in play.
Please click here now. Double-click to enlarge this key GDX chart.
There’s solid technical action taking place around a decent inverse H&S bottom pattern. It’s a consolidation of the upside breakout. Please click here now. Gold stock investors should prepare to surf a global inflationary wave, that is already shocking institutional analysts even though it is only in its infancy right now!

Risks, Disclaimers, Legal

Gold’s impressive rally continues to accelerate. Key fundamental and technical price drivers are playing a bullish song with almost perfect harmony.
Please click here now. Double-click to enlarge what may be the most beautiful weekly chart continuation pattern in the history of markets.
Note the awesome stance of the RSI and Stochastics oscillators as gold begins to ascend from the right shoulder low of the pattern.
If Michelangelo could be brought back to life, he would surely consider the picture being painted by the current technical action on this gold chart to be a “bull era masterpiece”.
Gold’s fabulous technical posture received a solid fundamental boost from two key central banks on Friday. Please click here now. The PBOC just announced an important change in price discovery for the yuan versus the dollar.
Please click here now. The “tariffs tantrum” created a decline in the yuan versus the dollar, and that’s what created the decline in gold to the right shoulder low.
The yuan is now rallying, and the PBOC announcement should give this rally some serious legs.
If the rupee also begins a rally against the dollar as the strong demand season for gold begins in India, gold’s right shoulder rally could turn into a major barnburner!
US central bank chair Jay Powell also added more fuel to gold’s rally on Friday, when he hinted that rates could be normalized by mid 2019. This powerful central banker also suggested that US GDP growth of 3% cannot be sustained for much longer.
Many analysts hoped that the Trump administration could extend the business cycle and corporate tax cuts have certainly helped to do that.
Unfortunately, Trump has shot most of his economic booster shot bullets, and his administration brings middle of the road republicanism to the table, not libertarianism.
Given the current demographics of the United States (population age, debt, and a declining “petro-dollar”), it’s going very difficult to “make most of the citizens great” with this approach.
Trump himself is a highly skilled business builder. Individuals with his incredible skills can thrive in almost any environment. In a socialist country like China, India, or Germany, Trump would likely be just as successful as he’s been in America, and perhaps even more so due to his incredible drive to overcome adversity.
Unfortunately, the average business owner doesn’t have his skills or energy, and they need vastly more libertarian support than the US government can currently provide.
The bottom line: US population demographics are horrific. House prices in most areas are unaffordable for almost anyone who isn’t rich or hasn’t inherited money. There is no incentive for industry to produce cheap electric cars. Property taxes are outrageously high and still rising relentlessly.
To reach and sustain the kind of long term growth rates that Trump has targeted, the income tax and the capital gains tax can’t just be cut. They need to be eliminated completely.
Back in 2014 I predicted that US GDP would peak in the 4% – 5% range in a single quarter during the 2017 – 2019 time frame. It happened in 2018. I’ve further predicted that GDP begins to fade in 2019 and steadily declines to the 1%-2% range. That prediction looks to be perfectly on track, and I’m sticking with it.
Please click here now. Commerzbank is a member of both the LBMA and the COMEX. Their analytical work command tremendous respect in the institutional investment community.
Their top analysts now suggest that gold will reach $1300 by year-end and $1500 by 2019. I don’t use time targets, but my weekly chart bull continuation pattern for gold bullion is perfectly in sync with their scenario.
Please click here now. Double-click to enlarge this Chinese stock market chart. Events in America are lining up with events in China and India to create a picture-perfect gold price surge to the $1500 area in 2019.
This Chinese stock market chart shows the FXI-NYSE ETF in a beautiful bull wedge pattern. The upside breakout that I’m forecasting would put Chinese gold buyers in a very good mood just as the strong demand season begins!
Please click here now. Double-click to enlarge this key GDX chart. A Vanguard gold-oriented mutual fund is transitioning to a more “general commodity” holdings approach. That’s put pressure on gold stocks in a “one off” or “black swan” manner as the fund sells a lot of gold stocks to make the transition. The good news is that this selling seems to be largely complete now.
I realise that the gold stocks decline may have caught some investors by surprise, but those with put options for insurance easily took it in stride. This is simply a great and unique opportunity to buy GDX and quality gold stocks near the base of my $21 – $18 accumulation zone.
As the majestic rally from gold bullion’s right shoulder low accelerates, Vanguard’s selling ends, and gold stocks are poised to stage “hypersonic” outperformance against all asset classes. Key fundamental and technical price drivers will soon make all gold stock investors look and feel like they are King Kong, lording over a fabulous bull era!

The junior gold miners’ stocks have been thrashed in August, plummeting to brutal multi-year lows. Such carnage naturally left sentiment far more bearish than usual in this forsaken contrarian sector. But these extremely-battered gold-stock prices certainly aren’t justified fundamentally. Junior gold miners’ collective results from their just-completed Q2’18 earnings season prove their stock prices need to mean revert way higher.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Companies trading in the States are required to file 10-Qs with the US Securities and Exchange Commission by 45 calendar days after quarter-ends. Canadian companies have similar requirements. In other countries with half-year reporting, many companies still partially report quarterly.

The definitive list of elite “junior” gold stocks to analyze comes from the world’s most-popular junior-gold-stock investment vehicle. This week the GDXJ VanEck Vectors Junior Gold Miners ETF reported $4.5b in net assets. Among all gold-stock ETFs, that was second only to GDX’s $8.4b. That is GDXJ’s big-brother ETF that includes larger major gold miners. GDXJ’s popularity testifies to the great allure of juniors.

Since Canada is the center of the junior-gold universe, any ETF seeking to own this sector will have to be heavily invested there. But once any investor including an ETF buys up a 20%+ stake in any Canadian stock, it is legally deemed to be a takeover offer that must be extended to all shareholders! As capital flooded into GDXJ in 2016 to gain junior-gold exposure, its ownership in smaller components soared near 20%.

That high 300k-ounce-per-year junior cutoff translates into 75k ounces per quarter. Following the end of the gold miners’ Q2’18 earnings season in mid-August, I dug into the top 34 GDXJ components’ results. That’s simply an arbitrary number that fits neatly into the tables below. Although GDXJ included a staggering 71 component stocks this week, the top 34 accounted for a commanding 81.1% of its total weighting.

Out of these top 34 GDXJ companies, only 4 primary gold miners met that sub-75k-ounce-per-quarter qualification to be a junior gold miner! Their quarterly production is rendered in blue below, and they collectively accounted for just 8.9% of GDXJ’s total weighting. But even that is really overstated, as 3 of these are long-time traditional major silver miners that are increasingly diversifying into gold in recent years.

GDXJ is inarguably now a pure mid-tier gold-miner ETF, and really ought to be advertised as such. While its holdings include some of the world’s best gold miners with huge upside potential, the great majority definitely aren’t classic junior gold miners. At least this ETF’s big composition changes are stabilizing, as Q2’18 was the first quarter since mid-2016 where GDXJ’s components didn’t radically change year-over-year.

I’ve been doing these deep quarterly dives into GDXJ’s top components for years now. In Q2’18, fully 32 of the top 34 GDXJ components were also GDX components! These are separate and distinct ETFs, a “Gold Miners ETF” and a “Junior Gold Miners ETF”. So they shouldn’t have to own many of the same companies. In the tables below I highlighted the symbols of rare GDXJ components not also in GDX in yellow.

These 32 GDX components accounted for 78.4% of GDXJ’s total weighting, not just its top 34. They also represented 38.0% of GDX’s total weighting. Thus nearly 4/5ths of this “Junior Gold Miners ETF” is made up by over 3/8ths of the major “Gold Miners ETF”! These GDXJ components also in GDX start at the 10th-highest weighting in that latter larger ETF and extend down to 47th. GDXJ is mostly smaller GDX stocks.

In a welcome change from GDXJ’s vast component turmoil of recent years, only 2 of its top 34 stocks are new since Q2’17. Their symbols are highlighted in light blue below. Thus the top GDXJ components’ collective results are finally getting comparable again in year-over-year terms. Analyzing ETFs is much easier if their larger components aren’t constantly in flux. Hopefully changes going forward are relatively minor.

In these countries and most of the rest of the world, regulators only mandate that companies report their results in half-year increments. Some do still issue quarterly production reports, but don’t release financial statements. There are wide variations in reporting styles, data presented, and release timing. So blank fields in these tables mean a company hadn’t reported that particular data for Q2’18 as of this Wednesday.

The first couple columns of these tables show each GDXJ component’s symbol and weighting within this ETF as of this week. While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges. That’s followed by each gold miner’s Q2’18 production in ounces, which is mostly in pure-gold terms. That excludes byproduct metals often present in gold ore.

Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers. So in those cases I included raw underlying data rather than weird or misleading percentage changes. This whole dataset together offers a fantastic high-level read on how the mid-tier gold miners are faring fundamentally as an industry. August’s plunge wasn’t righteous.

It was great to see GDXJ’s top 34 components almost unchanged from Q2’17, with only two new stocks in those ranks. My previous essays on GDXJ components’ quarterly results had been a sea of light blue since 2016. But one of the new components in Q2’18 is inexplicably the giant largely-African miner AngloGold Ashanti. It produced an enormous 805k ounces of gold last quarter, the largest in GDXJ by far.

Remember that major-gold-miner threshold has long been 1m+ ounces per year. AU’s production is annualizing to over 3x that, making this company the world’s 3rd-largest gold miner last quarter. Why on earth would managers running a “Junior Gold Miners ETF” even consider AngloGold Ashanti? It is as far from junior-dom as gold miners get. Having so many of the same stocks in both GDXJ and GDX is a big problem.

VanEck could greatly increase the utility of its gold-stock ETFs and thus their ultimate success by starting with one big combined list of the world’s better gold miners. Then it could take the top 20 or 25 in terms of annual gold production and assign them to GDX. Based on Q2’18 production, that would run down near 127k or 92k ounces per quarter. Then the next-largest 30 or 40 gold miners could be assigned to GDXJ.

That’s one of the big reasons smaller gold miners’ stock prices are so darned low. They aren’t getting enough capital inflows from gold-stock-ETF investing. So their share prices aren’t bid higher. They rely on issuing shares to finance their exploration projects and mine builds. But when their stock prices are down in the dumps, that is heavily dilutive. So GDXJ is strangling the very industry its investors want to own!

Back to these mid-tier gold miners’ Q2’18 results, production is the best place to start since that is the lifeblood of the entire gold-mining industry. These top 34 GDXJ gold miners that had specifically reported Q2 production as of the middle of this week produced 4467k ounces. That surged a massive 24.7% YoY, implying these miners are thriving. But that’s almost all driven by that huge 805k-ounce boost from AU’s inclusion.

Without AngloGold Ashanti which wasn’t there in Q2’17, the rest of the top 34 GDXJ gold miners saw their total production climb 2.2% YoY to 3662k ounces. That’s a little behind the 3.0% annual growth in overall global mine production in Q2’18 according to the World Gold Council’s latest Gold Demand Trends report. But these mid-tier miners are still faring far better than the majors that dominate that other GDX ETF.

As discussed last week in my essay on the GDX gold miners’ Q2’18 results, their production adjusted for quarterly data availability plunged a sharp 7.7% YoY! With big economically-viable gold deposits getting increasingly hard to discover, the majors are really struggling to replace depleting production. So much of the growth is coming from the mid-tiers and juniors, which will help their stock prices outperform the majors.

Starting from far-lower production bases, most of the smaller gold miners can ramp production by adding single new mines. These are often modest in scale and cost compared to the giant mines the majors need to target. Since growing production greatly boosts profits, investment capital will increasingly flow into mid-tier gold miners in coming years. So GDXJ’s upside should well outpace the major-dominated GDX’s.

For all GDXJ’s faults, it does still offer investors exposure to much-smaller gold miners. The average quarterly production of all the top 34 GDXJ miners reporting it in Q2 was 144.1k ounces. That is 44% smaller than the 258.3k averaged by the top 34 GDX miners last quarter. And again AU’s crazy inclusion really skews this. Ex-AU, the GDXJ average falls to 122.1k. That annualizes to 488k, solidly in the mid-tier realm.

With today’s set of top-34 GDXJ gold miners achieving relatively-good production growth, their costs per ounce should’ve declined proportionally. Higher production yields more gold to spread mining’s big fixed costs across. And lower per-ounce costs naturally lead to higher profits. So production growth is highly sought after by gold-stock investors, with companies able to achieve it commanding premium prices.

Cash costs naturally encompass all cash expenses necessary to produce each ounce of gold, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses. In Q2’18, these top 34 GDXJ-component gold miners that reported cash costs averaged $631 per ounce. That was actually up a slight 0.5% YoY, contrary to what you’d expect with higher production.

The majority of reporting gold miners saw cash costs rise significantly last quarter. There were plenty of challenges at various individual mines, including unexpected downtimes and lower ore grades. Both of those yield fewer ounces to bear the burden of gold mining’s big fixed costs. General price inflation is also mounting thanks to the trillions of dollars of money central banks conjured out of thin air over the past decade.

$631 per ounce is still very healthy, not much worse than the GDX majors’ average of $610 last quarter. That means these elite mid-tier gold miners could temporarily weather gold prices way down into the mid-$600s and still keep their mines running! At worst in mid-August, gold plunged to $1174 on close driven by epic all-time-record gold-futures short selling. Gold had fallen 4.1% month-to-date by that point, a big loss.

But the GDXJ gold miners suffered disproportionally, with this ETF’s price plummeting 15.5% MTD in sympathy with gold! That 3.8x downside leverage was excessive, the result of irrational herd sentiment. GDXJ’s share price was crushed to a brutal 2.4-year low, implying these miners are in fundamental peril. But with gold still trading a whopping 86% above their cash costs even at recent lows, that clearly wasn’t the case.

These top 34 GDXJ gold miners reporting AISCs saw them average $886 per ounce in Q2’18. That was also up a modest 0.9% YoY, so costs didn’t decline proportionally with rising production. Still $886 is an excellent level compared to prevailing gold prices, and competitive with the GDX majors which averaged $856 last quarter. $886 is right in line with the past four quarters’ trend of $879, $877, $855, and $923 too.

The fundamental implications of this are very bullish, proving that this month’s gold-stock capitulation was purely an overdone herd-sentiment thing. Gold averaged $1306 in Q2’18, up 3.9% YoY. That means the top GDXJ gold miners were earning average profits just under $420 per ounce. Thanks to AISCs mostly holding the line and modestly-higher gold prices, those earnings rose a solid 10.7% YoY from $379 in Q2’17.

With gold mining considerably more profitable last quarter than a year earlier, you’d think the gold-stock prices would’ve been proportionally higher. Yet GDXJ’s average price in Q2 still slipped 1.1% lower YoY, which makes no sense fundamentally. And even if August’s capitulation-grade $1175 gold was able to magically persist as if those crazy-record gold-futures shorts were never covered, gold mining is still very profitable.

At Q2’18’s average AISCs which are again right in line with recent years’ levels, $1175 gold would still yield hefty $289-per-ounce profits for the mid-tier gold miners. Those don’t justify deep multi-year lows in gold-stock prices. And these profits will balloon dramatically as gold inevitably mean reverts much higher. Extreme gold-futures short-covering buying is imminent, and will be proportional to August’s record shorting.

The impact of higher gold prices on mid-tier-gold-miner profitability is easy to model. Assuming flat all-in sustaining costs at Q2’s $886 per ounce, 10%, 20%, and 30% gold rallies from mid-August’s lows would lead to collective gold-mining profits surging 40%, 81%, and 122%! And another 30% gold upleg isn’t a stretch at all. In the first half of 2016 alone after the first stock-market corrections in years, gold soared 29.9%.

GDXJ skyrocketed 202.5% higher in 7.0 months in largely that same span! Gold-mining profits and thus gold-stock prices surge dramatically when gold is powering higher. Years of neglect from investors have forced the gold miners to get lean and efficient, which will really amplify their fundamental upside during the next major gold upleg. The investors and speculators who buy in early and cheap could earn fortunes.

As long as the gold miners can produce gold at all-in sustaining costs way below prevailing gold prices, they will generate big profits for investors. Eventually their stock-price levels have to reflect their true underlying profitability. With $1175+ gold and $886 AISCs, the mid-tier gold miners’ stocks must mean revert way higher. Their extreme low levels today are fundamentally absurd, they can’t and won’t last for long.

With GDXJ’s radical composition changes finally settling down, the rest of its top 34 components’ core fundamentals are finally comparable year-over-year again. It’s nice to have that massive rejiggering in GDXJ’s underlying index past us. These elite mid-tier miners’ total revenues climbed 9.3% YoY to $5558m, well outpacing gold’s 3.9% YoY gain. That 2.2% higher production excluding AngloGold Ashanti also helped.

Those sales helped generate cash flows from operations of $1384m. While 5.1% lower YoY, that is still massively positive for this small contrarian sector. As long as gold mines are yielding far more cash than they cost to run, the mid-tier gold miners remain fundamentally healthy. Positive cash flows build capital necessary to expand operations, and helped drive these miners’ cash war chests up 9.3% YoY to $6784m in Q2.

But their hard GAAP profits as reported to regulators collectively looked terrible, collapsing from a strong $751m in Q2’17 to a big $146m loss in Q2’18! Is that the fundamental monkey wrench justifying these wretched stock-price levels? Not at all, as big unusual items flushed through bottom lines can make profits comparisons very misleading. There were two huge non-recurring items that mostly drove this big swing.

A year ago in Q2’17, elite mid-tier miner IAMGOLD reported a colossal $524m one-time non-cash gain from the reversal of mine-impairment charges. That accounted for nearly 70% of the top 34 GDXJ gold miners’ overall profits that quarter! Without that unusual item, their total Q2’17 profits were just $227m. Another unusual item heavily skewed last quarter’s latest profits, coming from mid-tier gold miner New Gold.

Gold mining is very challenging and risky, with many problems not evident until mining is well underway. New Gold’s serious troubles illustrate why diversifying capital across multiple gold miners is essential for all contrarian investors. NGD’s young Rainy River gold mine isn’t living up to potential due to variability in ore grades and processing. So in late July NGD slashed Rainy River’s 2018 production outlook by a huge 30%!

Not only did NGD’s stock crater, but this Rainy River situation is so bad New Gold recorded a $282m impairment charge on that mine! Such unusual non-recurring items flow directly into profits. Without that New Gold disaster, the top 34 GDJX gold miners’ total GAAP earnings in Q2’18 were $136m. While still down a major 40.2% YoY, that $91m drop is a fraction the size of the $897m including those unusual items.

The mid-tier gold miners’ recently-reported solid-to-strong Q2’18 results prove that their brutal plunge in August wasn’t fundamentally righteous. Like all capitulations fueled by cascading stop-loss selling, it was merely a sentimental and technical thing. As gold surges on the record futures short-covering buying that is imminent, the battered gold stocks will mean revert dramatically higher. And the mid-tiers will lead the way.

At Zeal we’ve literally spent tens of thousands of hours researching individual gold stocks and markets, so we can better decide what to trade and when. As of the end of Q2, this has resulted in 1012 stock trades recommended in real-time to our newsletter subscribers since 2001. Fighting the crowd to buy low and sell high is very profitable, as all these trades averaged stellar annualized realized gains of +19.3%!

The key to this success is staying informed and being contrarian. That means buying low when others are scared, before undervalued gold stocks soar much higher. An easy way to keep abreast is through our acclaimed weekly and monthly newsletters. They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. Subscribe today and take advantage of our 20%-off summer-doldrums sale! We’re redeploying stopped capital in new gold-stock trades at extreme fire-sale prices.

The bottom line is the mid-tier gold miners reported solid-to-strong fundamentals in their recent Q2’18 results. They were able to modestly grow their production despite the majors’ falling rather sharply. More gold mined combined with essentially-flat costs and higher average gold prices fueled solid profits growth. The mid-tiers’ production costs were far below prevailing gold prices even at mid-August’s deep capitulation lows.

That gold plunge that dragged gold stocks sharply lower was driven by crazy-all-time-record gold-futures short selling. Those extreme positions must soon be closed with proportional buying, which will catapult gold sharply higher. With gold-stock prices trading at such fundamentally-absurd levels today, they ought to soar and really leverage gold’s coming mean-reversion gains. Their post-capitulation upside is huge.

Fed week is exciting for some. Gold bulls and bugs alike hope the Fed will do something or say something that will trigger a huge move in precious metals. It doesn’t work like that. The Fed follows the market, which for the Fed Funds rate (FFR) is the 2-year yield. The 2-year yield has been screaming higher over the past 12 months and it implies at least another two rate hikes in the future. That’s not good for precious metals and could be partly why (among other reasons) Gold and gold stocks have lost their 200-day moving averages. Whatever the reason, the short-term technicals are negative and there is risk of increased selling before a potential rebound in July.

First, let’s take a look at Gold and gold against the equity market. As we can see from the chart, Gold in June has failed twice at its 200-day moving average. That is different from 2017 when each time Gold lost its 200-day moving average, it made a V rebound back above it.

Gold’s weakness against the broad equity market is another concern. At the bottom of the chart we plot Gold against the NYSE, a broad stock market index. The ratio recently failed at its downtrending 200-day moving average and is also threatening a move to new lows for essentially the first time since 2015. (The December 2017 break was not sustained to the downside).

Elsewhere, the miners have spent the second quarter wrestling with their 200-day moving averages. GDX failed at its 200-dma twice in the past month, including last week. Meanwhile, GDXJ has shown a tiny bit more strength but essentially has wrestled with its 200-dma since April. The silver stocks (SIL) have been weaker as they have not traded above their 200-dma since January and could have started to breakdown on Friday by closing at 3-month low.

The immediate outlook for precious metals is negative as the price action suggests but current bearish sentiment implies a rebound is on the horizon. The summer could be playing out as we anticipated three weeks ago. An immediate move lower could push Gold to strong support around $1260 and that would put sentiment indicators into truly extreme territory. From there, it is critical that the sector recaptures 200-day moving averages. Given our recent cautious views, we have narrowed our focus to a smaller group of companies capable of performing well in this environment. To follow our guidance and learn our favorite juniors for the next 6 to 12 months, consider learning about our premium service.

The gold miners’ stocks have mostly been consolidating low this year, exacerbating bearish sentiment. Even with gold grinding higher in a solid uptrend and nearing a major upside breakout, the gold stocks just can’t get any love. But that may be about to change, with gold and its miners’ stocks in the midst of their spring rally. Strong seasonal tailwinds make May one of the best months of the year in gold-stock bulls.

Gold-stock performance is highly seasonal, which certainly sounds odd. The gold miners produce and sell their metal at relatively-constant rates year-round, so the temporal journey through calendar months should be irrelevant. Based on these miners’ revenues, there’s little reason investors should favor them more at certain times of the year than others. Yet history proves that’s exactly what happens in this sector.

Seasonality is the tendency for prices to exhibit recurring patterns at certain times during the calendar year. While seasonality doesn’t drive price action, it quantifies annually-repeating behavior driven by sentiment, technicals, and fundamentals. We humans are creatures of habit and herd, which naturally colors our trading decisions. The calendar year’s passage affects the timing and intensity of buying and selling.

Gold stocks exhibit strong seasonality because their price action mirrors that of their dominant primary driver, gold. Gold’s seasonality generally isn’t driven by supply fluctuations like grown commodities experience, as its mined supply remains fairly steady all year long. Instead gold’s major seasonality is demand-driven, with global investment demand varying dramatically depending on the time within the calendar year.

This gold-demand seasonality is well-known and heavily studied. The seasonal gold year starts in late July as Asian farmers begin reaping their harvests. They plow some of their surplus income into gold. That’s followed by the famous Indian wedding season in autumn, with its heavy gold buying for brides’ dowries. That culture believes festival-season weddings have greater odds of yielding long, successful marriages.

After that comes the Western holiday season, where gold jewelry demand surges for Christmas gifts for wives, girlfriends, daughters, and mothers. Following year-end, Western investment demand balloons after bonuses and tax calculations as investors figure out how much surplus income the prior year generated for investment. Then Chinese New Year gold buying flares up after that heading into February.

These understandable cultural factors drive surges of outsized gold demand between summer and late winter. But interestingly there is one more gold-demand spike in spring. Over the years I’ve seen a variety of theses explaining this April-and-May seasonal gold rally, but nothing definitive like for the rest of the year’s gold seasonality. As silly as it sounds, I suspect spring itself is the reason for this demand surge.

Sentiment exceedingly influences investing, which requires optimism for the future. Investors won’t risk deploying their scarce capital unless they believe it will grow. And the glorious expanding sunshine and warming temperatures of spring naturally breed optimism. The vast majority of the world’s investors are far enough into the northern hemisphere that spring has a major impact. This seasonality extends to stocks too.

Since it’s gold’s own demand-driven seasonality that fuels the gold stocks’ seasonality, that’s logically the best place to start to understand what’s likely coming. Price action is very different between bull and bear years, and gold is absolutely in a young bull market. After being crushed to a 6.1-year secular low in mid-December 2015 on the Fed’s first rate hike of this cycle, gold powered 29.9% higher over the next 6.7 months.

Crossing the +20% threshold in early March 2016 confirmed a new bull market was underway. Gold corrected after that sharp initial upleg, but normal healthy selling was greatly exacerbated following Trump’s surprise election win. Investors fled gold to chase the taxphoria stock-market surge. Gold’s correction cascaded to monstrous proportions, hitting -17.3% in mid-December. But that was shy of a new bear’s -20%.

Gold’s last mighty bull market ran from April 2001 to August 2011, where it soared 638.2% higher! And while gold consolidated high in 2012, that was technically a bull year too since gold just slid 18.8% at worst from its bull-market peak. Gold didn’t enter formal bear-market territory at -20% until April 2013, thanks to the crazy stock-market levitation driven by extreme distortions from the Fed’s QE3 bond monetizations.

So the bull-market years for gold in modern history ran from 2001 to 2012, skipped the intervening bear-market years of 2013 to 2015, and resumed in 2016 to 2017. Thus these are the years most relevant to understanding gold’s typical seasonal performance throughout the calendar year. We’re interested in bull-market seasonality, because gold remains in its young bull today and bear-market action is quite dissimilar.

This chart averages the individually-indexed full-year gold performances in those bull-market years from 2001 to 2012 and 2016 to 2017. 2018 isn’t included yet since it remains a work in progress. This chart distills out gold’s bull-market seasonal tendencies in like percentage terms. Quantifying gold’s bull-market seasonal tendencies requires all relevant years’ price action to be recast to be perfectly comparable.

That’s accomplished by individually indexing each calendar year’s gold price action to its final close of the preceding year, which is recast at 100. Then all gold price action of the following year is calculated off that common indexed baseline, normalizing all years regardless of price levels. So gold trading at an indexed level of 105 simply means it has rallied 5% from the prior year’s close, while 95 shows it’s down 5%.

This methodology renders all bull-market-year gold performances in like percentage terms. That’s critical since gold’s price range has been so vast, from $257 in April 2001 to $1894 in August 2011. Finally each calendar year’s individually-indexed gold prices are averaged together to arrive at this illuminating gold-bull seasonality. Gold has always tended to enjoy strong rallies in the spring months of April and May.

During these modern bull-market years from 2001 to 2012 and 2016 to 2017, gold’s spring rally tended to start in mid-March on average. From that major seasonal low following the winter rally, gold often starts grinding higher before its gains accelerate through April and most of May. This spring rally has generally run its course by late May. Across the 14 bull years in this study, gold averaged nice spring rallies of 3.7%.

This spring rally unfolds rapidly, with an average duration of just 2.2 months. That makes it the smallest and shortest of gold’s three major seasonal rallies, falling way behind the champion 9.5% winter rally that precedes it and strong 6.6% autumn rally that follows the summer doldrums. Nevertheless, it is still well worth trading. 3.7% gains still really make a difference, and naturally about half of years exceed this average.

This year gold’s spring-rally bottoming came on March 20th, when gold closed at $1310 the day before the Fed was universally expected to hike for the 6th time in this cycle. That was March’s 14th trading day this year, right in line with gold’s average seasonal low on March’s 10th trading day. And so far gold has largely followed the spring-rally seasonal pattern since, gradually grinding higher from late March to mid-April.

Climbing the typical 3.7% from that spring low into May’s spring-rally topping would propel gold to $1358. That’s right on the verge of being a major decisive breakout from the horizontal $1350 resistance line that gold-futures speculators watch like hawks. And it isn’t far from new bull-market highs above July 2016’s $1365 bull-to-date peak. As I wrote last week, this spring rally really ups the odds gold is nearing a bull breakout!

And given its performance in April, gold ought to see a bigger May rally than usual this year. On average in these 14 modern bull-market years, gold climbed 1.8% in Aprils then another 1.3% into its late-May spring-rally toppings. But as of the middle of this week, gold was actually down 0.1% month-to-date in April. That’s poor performance by April standards, setting up this May for a strong mean-reversion rally.

Historically this spring-rally April-May span is often self-equalizing. If gold materially underperforms or outperforms its seasonal averages in April, its May performances tend to mean revert and overshoot in the opposite direction. Back in 2009 for example, gold fell 3.4% in April but then blasted 10.0% higher in May! In 2016 gold surged 5.1% in April before dropping 6.1% in May. Weak Aprils often lead to strong Mays.

If gold is bid too aggressively in April, the resulting excitement entices in and exhausts all available near-term buying before the summer doldrums. That certainly hasn’t happened this year. Gold rallied into mid-April, but reversed sharply on a strong short-covering rally in US Dollar Index futures. Thus gold has largely drifted sideways on balance this month. So the usual spring buying likely hasn’t even started yet!

That leaves traders with full capital firepower to flood back in in May, likely as the sharp USDX rally runs out of steam. The delayed spring-rally gold buying this year can all be compressed into May, which really increases the odds of outsized gains. While nothing is guaranteed in seasonals since they merely use multi-year averages to reveal trend tendencies, strong Mays are definitely more likely following weak Aprils.

And as goes gold, so go gold stocks. Gold stocks also exhibit strong seasonality, which is of course the direct result of gold’s own seasonality. Since gold-mining costs are largely fixed when mines are being planned, fluctuations in gold’s price flow directly into amplified moves in gold-mining profits. Higher gold prices drive much-higher earnings for the gold miners, which attract in more investors to bid up stock prices.

The ironclad historical relationship between the price of gold, gold-mining profitability, and therefore the gold-stock price levels is exceedingly important to understand. If you need to get up to speed, I wrote an essay looking at gold-stock price levels relative to gold early last month. Fundamentally gold stocks are leveraged plays on gold. Thus they really outperform in the spring due to gold’s strong seasonal rally.

This next chart applies this same bull-market-seasonality methodology used on gold directly to the gold stocks. It looks at the average annual indexed performance in the flagship HUI NYSE Arca Gold BUGS Index in these same bull-market years of 2001 to 2012 and 2016 to 2017. Because of gold’s dominant influence over gold-mining earnings, gold-stock seasonality naturally mirrors and amplifies gold’s own seasonality.

Gold stocks’ seasonal spring rally is much stronger than gold’s, buttressing that spring-optimism-drives-stock-buying thesis. Between mid-March and early June, the gold stocks have averaged hefty 12.8% rallies in these 14 modern bull-market years. That makes for exceptional 3.5x upside leverage to gold’s 3.7% seasonal spring rally! Interestingly this is gold stocks’ best seasonal leverage to gold’s gains by far.

While the HUI averaged 15.5% surges during gold’s winter rally, that only made for 1.6x upside leverage to gold’s big 9.5% gain. And the HUI’s 10.5% average gain during gold’s autumn rally also only amplified gold’s 6.6% gain by 1.6x. So while the gold-stock spring rally’s 12.8% average gains rank second out of these three seasonal rallies, it offers the most bang for the buck in gold-stock upside compared to gold!

This year the gold stocks’ spring-rally bottoming happened on March 20th, the same day as gold’s. The HUI slumped to 169.2 that day. Since then this leading gold-stock index has recovered 6.9% as of the middle of this week, trouncing gold’s 1.0% spring-rally gains so far. A merely-average spring rally would take the HUI to 190.9 by late May or early June, which is another 5.6% higher from here. That’s worth riding.

But if gold’s seasonal spring rally is compressed into May, and strong buying forces it over $1350 or even better its $1365 bull-to-date high, the gold miners’ stocks have far more near-term upside potential. For the most part gold stocks remain deeply out of favor, forgotten or ignored. But they will explode back on to speculators’ and investors’ radars if major new gold highs attract the financial media’s interest and attention.

Again as I discussed last week, gold’s nearing bull breakout will work wonders for not only psychology but hard gold-mining profits. The gold stocks are radically undervalued today compared to their actual underlying fundamentals. In Q4’17 gold averaged about $1276 per ounce, but the major gold miners of the leading GDX VanEck Vectors Gold Miners ETF reported average all-in sustaining costs of just $858 per ounce!

So they were already collectively earning fat operating profits of $418 per ounce. And these are going to soar in Q1’18, because the average gold price surged 4.1% quarter-on-quarter to $1329. Since mining costs are largely fixed, all-in sustaining costs will likely stay flat from Q4. That means major gold miners’ operating profits are likely to rocket 12.7% QoQ to $471 per ounce! That will delight contrarian investors.

The gold miners will be releasing these latest Q1 results between now and mid-May, right when gold is powering higher in its seasonal spring rally. So the gold stocks are certainly set up for an outsized spring rally this year! The potent combination of absurdly-cheap gold-stock prices, surging earnings forcing their valuations even lower, and higher gold prices attracting financial-media attention should really stoke traders’ interest.

This last chart breaks down gold-stock seasonality into even-more-granular monthly form. Each calendar month between 2001 to 2012 and 2016 to 2017 is individually indexed to 100 as of the previous month’s final close, then all like calendar months’ indexes are averaged together. Slicing up seasonal tendencies this way shows May has averaged the second-strongest monthly gold-stock gains in modern bull-market years.

During these 14 Aprils in modern gold bull-market years, the gold stocks as measured by the HUI saw average gains of 1.6%. But the lion’s share of the spring-rally gains came in May, where average gains more than tripled to 5.0%! For decades if not longer, May has been one of the best and most-important months to be heavily long gold miners’ stocks. Only February proved better seasonally at a +5.4% average.

The key to gold stocks’ spring rally is to get your capital deployed in mid-March, when gold stocks swoon to their spring-rally bottoming. In intra-month terms the initial gains are often fast in late March as gold stocks rebound out of oversold lows. But then the spring rally tends to slow down in April, discouraging impatient and short-sighted traders. The real gains come in May, and next month’s setup is exceptionally bullish.

Of course the standard seasonality caveat applies that these are mere tendencies, not primary drivers of gold or gold stocks. Seasonal tailwinds can be easily drowned out by bearish sentiment, technicals, and fundamentals. Seasonality doesn’t always work, especially when it doesn’t align with the primary drivers of sentiment, technicals, and fundamentals in that order. Thankfully that certainly isn’t the case this year.

The gold miners’ stocks aren’t entering their second-strongest month of the year overbought after a big rally. Quite the contrary, they have really underperformed year-to-date on excessive bearishness. This week the HUI was actually still down 6.0% so far in 2018, far behind gold’s modest 1.6% gain! Since gold-mining profits amplify gold price moves, gold-stock prices tend to leverage gold by 2x to 3x much of the time.

Thus spring rally aside the HUI should already be up 3.1% to 4.7% year-to-date, or trading between 198.3 to 201.4 compared to this week’s anomalously-low 180.8. That’s another 9.6% to 11.3% higher from here even if gold merely stays near $1325. The gold stocks are overdue to mean revert higher no matter what gold does! Gold’s spring rally will simply hasten and enlarge gold stocks’ long-delayed next upleg.

The farther gold rallies in May in one of its strongest spans of the year seasonally, the closer it will get to major breakouts and new highs. The higher gold climbs, the more attention it will get from the financial media, investors, and speculators. As their sentiment turns bullish again, capital will flood back into the beaten-down gold stocks. The gold miners’ coming surging earnings in their Q1 results are icing on the cake.

While investors and speculators alike can certainly play gold stocks’ coming spring rally with the major ETFs like GDX, the best gains by far will be won in individual gold stocks with superior fundamentals. Their upside will trounce the ETFs’, which are burdened by over-diversification and underperforming gold stocks. A carefully-handpicked portfolio of elite gold and silver miners will generate much-greater wealth creation.

At Zeal we’ve literally spent tens of thousands of hours researching individual gold stocks and markets, so we can better decide what to trade and when. As of the end of Q4, this has resulted in 983 stock trades recommended in real-time to our newsletter subscribers since 2001. Fighting the crowd to buy low and sell high is very profitable, as all these trades averaged stellar annualized realized gains of +20.2%!

The key to this success is staying informed and being contrarian. That means buying low before others figure it out, before undervalued gold stocks soar much higher. An easy way to keep abreast is through our acclaimed weekly and monthly newsletters. They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. For only $12 per issue, you can learn to think, trade, and thrive like contrarians. Subscribe today, and get deployed in the great gold and silver stocks in our full trading books!

The bottom line is gold stocks experience a strong spring rally seasonally. This is driven by gold’s own seasonality, where outsized investment demand arises at certain times during the calendar year. Gold usually enjoys a strong spring rally likely driven by the universal optimism this season brings. And since gold drives gold miners’ profitability, their stock prices naturally follow it higher while amplifying its gains.

And gold stocks’ already-strong spring rally is likely to prove exceptional this year. Gold stocks have really lagged gold so far in 2018, despite fat earnings rapidly growing with higher gold prices. Once gold nears breakouts, traders are going to remember the gold miners and be amazed by their dirt-cheap stock prices wildly disconnected from fundamentals. They will flood back into this small sector catapulting it higher.

Adam Hamilton, CPA

April 27, 2018

I’ve predicted that in 2018 the US stock market would suffer a series of crashes somewhat akin to the 1987 event, but smaller in size.
Please click here now. Double-click to enlarge this interesting chart of the US stock market. Clearly, these mini-crashes are starting to happen.
Having said that, I haven’t sold any of my US bank stocks and I have no plans to do so.
To understand why I’m still “long and strong” the bank stocks in this environment, please click here now. Bank profits are soaring because of tax cuts, QT, and rate hikes.
Corporate boards are still using the bulk of the profits for stock buybacks and bonuses for the “fat cats”, while throwing crumbs to the lower-paid workers.
As disgusting as that is, it’s a good environment to own stock market indexes, and a great environment to own bank stocks.
This is the stage of the business cycle where “big growth” transitions to “decent growth with inflation”. Simply put, in this environment bank stocks do well, growth stocks stumble, and gold stocks start to get modest liquidity flows from institutions.
As the cycle moves to “inflation with low growth”, growth stocks crash, bank stocks fade, and gold stocks soar.
Please click here now. Double-click to enlarge this key T-bond chart. US interest rates are rising now and poised to rise relentlessly for the next several years.
There are “institutional thresholds” of importance in major markets. For the US stock market, institutions will generally continue to buy stocksuntil the ten-year yield reaches the 4%-5% range.
Please click here now: http://www.graceland-updates.com/images/stories/18mar/2018mar27tenyearyield1.png Double-click to enlarge.
Goldman is predicting four rate hikes this year and I’m predicting a minimum of three. The yield should get close to 4% by the end of this year.
I realise that most gold bugs are “stock market crash enthusiasts”. There’s no question that the US stock market has soared mainly because the “hot air” of QE and low rates has incentivized corporate boards to focus on stock market buybacks rather than worker wages and business expansion.
Having said that, patience is required. Investors need to focus on the slow but steady cyclical transition from growth to inflation as the Fed pushes the enormous QE money ball out of government bonds and into the fractional reserve banking system.
Please click here now. Double-click to enlarge this fabulous daily gold chart. The rectangle pattern is flag-like, and suggests gold is coiling to burst above my key $1370 resistance zone.
Short term traders who took my recommendation to buy the $1310 area should be sellers in this $1340-$1355 area. That’s because there could be quite a bit more coiling action before a true breakout above $1370 occurs. The bottom line is that investors need to be patient and traders need to book profits now!
Looking at the big picture, the inflation trade is clearly becoming more positive for gold every day. The Trump decision to appoint John “The Hawk” Bolton to a key post in his administration makes the geopolitical trade for gold a positive one as well.
What about the love trade? Well, please click here now. The 2019 Indian elections are approaching and the Modi government is likely to win again.
Modi is backed with “monster money” and to ensure he wins again he’s launching a huge farm income program called MSP. This program is inflationary because it boosts crop prices. That alone is positive for the global price of gold.
The MSP program also is poised to create a massive boost in farmer income, and rural Indians always use extra income to buy more gold. Please click here now. This MSP policy launch is happening at the same time as the influential Niti Aayog panel pushes the Modi government to implement a massive gold-positive policy agenda.
I’ve been adamant that 2018 would see the absolute end of gold-negative policy from the Modi government, and the launch of positive policy. That’s clearly in play, and it’s going to exponentially accelerate relentlessly.
Please click here now. Double-click to enlarge this GDX chart. The technical action is superb, and investors should now be buyers of their favourite GDX and GDXJ component stocks on all two and three-day pullbacks.
Please click here now. Double-click to enlarge. With food inflation set to surge in India and general wage and price inflation on the move in America, it’s time for investors to take a more serious interest in silver stocks. The big upside action won’t start until there’s a volume-based breakout from the bull wedge pattern on this silver stocks ETF chart.
Call option buyers should wait for that breakout before buying, but all silver stock enthusiasts should be buyers of key SIL component stocks right now. Use two and three-day pull backs to take buy-side action, in preparation for the imminent upside rocket ride!

Thanks and Cheers,

Stewart Thomson, Graceland Updates

https://www.gracelandupdates.com

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Gold has staged a superb rebound from the $1310 support zone, but that was overshadowed by the truly spectacular reversals taking place in most of the Western world’s gold stocks!
Please click here now. Double-click to enlarge this gold chart. I like the technical action being displayed right now. Here’s why:
First, $1370 is massive resistance. It’s understandable that gold would build a modest head and shoulders top pattern after arriving at this key price zone.
What’s especially positive is that gold has only modestly declined in the face of this resistance and top pattern. My key 14,7,7 Stochastics oscillator is also modestly oversold now, which is good news.
For even better news, please click here now. Double-click to enlarge. This morning, the dollar broke below key support in the 108 price area against the yen.
When investors bet against central banks, they tend to lose. When they bet against the President of the United States, they can get blown right off the financial map.
The bottom line is that President Trump was elected on a mandate to bash the dollar lower, and it is getting beat on like a rag doll by the yen right now.
The bear flag-like action occurred as the dollar approached this support zone. That is ominous for the dollar bugs, and fabulous news for gold.
Investors don’t need to “back up the truck” when buying precious metal assets right now, but they should be emotionally positive and focused more on gold stocks than bullion.
That’s because there is so much news taking place fundamentally in the gold market that favours the miners. Inflation is rising, mainly because quantitative tightening is pushing money out of government bonds and into the banking system.
That’s raising interest rates, incentivizing banks to lend, and putting pressure on the US government’s ability to finance itself. Please click here now. Double-click to enlarge. Since breaking the neckline of a daily chart head and shoulders top pattern, the US T-bond hasn’t even staged a minor rally!
Another of Trump’s election pledges was that US bond market creditors were going to take a haircut on what they get paid. Looking at the price action in the bond market and statements from new Fed chair Powell, it appears that a haircut is on the cusp of really happening.
Trump is acting like he doesn’t care if the US government defaults, and I would suggest that’s the right course of action to take. Inflate, default, or die. It looks like a combination of inflation and “defaultation” is what Trump has planned to end the US government’s horrific levels of excess size, debt, and abuse of citizens around the world.
The rising risk of a joint bond and dollar market meltdown is why gold has acted like a champ while quantitative tightening and rate hikes accelerate.
While QT and rate hikes are the main gold fear trade theme, there are many other supporting factors.
For example, powerful money managers are beginning to voice concerns that Trump’s spending on infrastructure and his tax cuts could cause “overheating” in the US economy.
When institutions get into that mindset they buy… gold stocks!
On that key note, please click here now. Double-click to enlarge this GDX chart. There may be a classic non-confirmation signal in play for the entire precious metals sector, with most gold stocks breaking their December lows, while gold bullion did not.
The GDX break of its December low was immediately followed by a V-Bottom pattern. Note the position of my key 14,7,7 Stochastics series oscillator. It’s adding to the power of the buy signal in play.
Please click here now. That’s another look at GDX, with an emphasis on the trading volume.
Both Powell and Trump seem more interested in the success of Main Street than in Wall Street or the government bond market. I’ve predicted that Powell will attempt to reverse US money velocity by the summer of this year, and that he will succeed.
That change in focus is great news for citizens who have been encased in vile government red tape for far too long, and it is spectacular news for gold, silver, and mining stocks.
With the dollar, T-bond, and the general stock market on very shaky and inflationary ground, institutional money managers have started to take a serious look at gold stocks. By the summer, I expect them to be consistent buyers every month. It doesn’t take a lot of institutional money to blast gold stocks to significantly higher price levels.
To profit from the imminent inflationary fun, aggressive investors should buy GDX call options. Investors who don’t own gold stock at these price levels or lower should be firmly pressing the buy button today!

Stewart Thomson

Graceland Updates

https://www.gracelandupdates.com

https://gracelandjuniors.com

www.guswinger.com

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stewart@gracelandupdates.com

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Technically and fundamentally, gold is poised to resume its magnificent rally that is taking investors into what I call a “bull era”.
The next FOMC meeting announcement is tomorrow. I expect the Fed to strongly signal more rate hikes and ramped up quantitative easing. There’s an outside chance that bank deregulation is addressed, but that’s likely going to happen in the next meeting.
Regardless, everything the Fed is doing is positive for inflation, negative for government bonds, and negative for the dollar.
Please click here now. Nothing is more terrifying to institutional bond market analysts than the prospect of significant inflation.
The US government is on the ropes. Rates are rising, QT is creating bond market liquidation, and wages are starting to surge. The inability of the US government to finance itself in an inflationary environment means rate hikes and QT are negative for both the bond market and the dollar.
Please click here now. Double-click to enlarge this key short term gold chart.
Even though gold has rallied more than $100 an ounce in a very short time frame, the pullback action is very positive. It’s taking the shape of a small positive wedge formation. Solid Chinese New Year demand is likely behind the positive nature of this soft pullback. Global gold investors should be buyers at $1328, $1310, and $1300, with a bigger focus on gold stocks than bullion.
During deflationary times, bullion is the leader. During the inflationary times that are beginning now, mining stocks are poised to dramatically outperform bullion.
Global growth with inflation and the end for the great global bond market should create at least a decade of gold stock outperformance against gold. These stocks are essentially poised to enter a period of growth much like Main Street America experienced in the 1950s.
While all the current news is very positive for gold market investors, the best news of all may be coming on Thursday. Please click here now. On Thursday, India’s national budget is announced and a duty cut may finally happen!
Gold’s uptrend against US government fiat ended in 2011 – 2012 as India began increasing the import duty aggressively. This essentially put millions of jewellery workers on the bread line and shuttered hundreds of thousands of small jewellery shops.
The bottom line is that Indian government duty hikes basically nuked Western gold mining stock enthusiasts and put the survivors in a horrifying gulag.
For the past several years, jewellers have begged the government to begin reducing the duty. Unfortunately, the government has shown no interest in announcing even a tiny cut.
Until now. While the commerce department has called for a duty cut for years, this is first time the all-powerful finance department has addressed the issue in a positive way. So, a cut on Thursday is not a “done deal”, but the odds of it happening are now vastly higher than at any time since the import duty peaked at 10% in 2013.
Jewellers and dealers are not buying gold in any size now, because they are anticipating the government will finally give them a cut. That’s created some gold price softness over the past week. I’ve suggested that a duty cut could be the catalyst that blasts gold over the $1370 area highs. In turn, that would usher in the start of a rally to massive resistance at $1500.
For gold, a duty cut in India has truly gargantuan ramifications. It is the equivalent of a corporate tax cut in America. It restores confidence amongst citizens and shows that the government understands not just sticks, but carrots. When citizens feel good they are more productive. GDP grows, bringing the government more tax revenues. Thursday could be a truly epic win-win day for gold and all its global stakeholders. Are investors prepared?
Please click here now. Institutional money managers are starting to see the myriad of inflationary lights flashing that I predicted were coming.
Money velocity is starting to rise. The upturn is subtle, but it’s there! As Powell takes over the Fed and ramps up QT, I expect money velocity to surge aggressively from the 60-year lows that it sits at now. As this happens, gold stocks should essentially “run rickshaw” over bullion.
Also, key Chinese gold mining stocks that I use (and own) as key lead indicators for Western miners are staging what can only be described as massive long term chart breakouts.
Please click here now. Double-click to enlarge this GDX chart.
In the summer of 2017, I outlined the $23 – $18 price zone as a key buying area for all gold stock enthusiasts. Investors who took my recommendation are looking good now.
Note the return line that I’ve highlighted on the chart. The price is almost there now. Solid rallies often begin from these technical return lines.
Chinese “Golden Week” holidays begin around Valentine’s Day. That’s still two weeks away. Gold markets close for a week, and the price usually softens. The jobs report is this Friday. Gold typically rallies in the days following the report. A duty cut, gold-positive statements from the Fed, and post jobs report market strength could see GDX reach my $25 – $26 target by Valentine’s Day.
From there a significant market correction would be expected, followed by a major surge to multi-year highs. Please click here now. Double-click to enlarge this GDX weekly chart. In 2018, GDX should surge out of the significant symmetrical triangle that I’ve highlighted. With powerful institutions buying, it should easily reach my $30 – $32 target zone. Gold stocks investors are basically sitting on an inflation-themed money train that the Fed is going to turbocharge with rate hikes, QT, and bank deregulation. All aboard!

Thanks,

Stewart Thomson, Graceland Updates

https://www.gracelandupdates.com

Email:

stewart@gracelandupdates.com

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There are very few sellers left

There were very few sellers left in January 2016 when the devastating “forever bear” was about to end. Six months later and a 150% rebound in the large caps and 200% rise in the juniors (GDXJ) provided sellers an opportunity. They drove the miners and juniors down by 40% to 45% in less than five months. However, both GDX and GDXJ have been able to hold above that low multiple times. GDX has held $21 four times! GDXJ has held $29.50 twice in solid fashion.

The bears had multiple opportunities in 2017 to push the miners lower but the miners held above their December 2016 lows and maintained the 62% retracement of the 2016 surge. The miners did not break out in 2017 but they held key support multiple times and the latest rebound suggests selling power has dried up.

The recovery pattern following a mega-bear market bodes well for gold stocks in the second half of 2018

In November we wrote about this history and the potential implication for gold stocks in 2018 and beyond. The mega bear markets that compare to gold stocks from 2011-2016 with respect to price (+80% decline) and time (+2 years) follow a distinct pattern. The initial rebound is sizeable in price but not so much in time. That gives way to a correction and consolidation that lasts a minimum of 18 months. Then the market surges higher in third-wave like fashion.

The gold stocks are nearly 17 months through their consolidation. We do not know if the consolidation is ending soon or if it will last another three, six or even nine months. We do know that history argues the correction and consolidation should end sometime in 2018.

Gold is not too far away from breaking out

Gold is much closer to breaking its 2016 high than the miners but the miners could begin to sniff that potential breakout in Gold before or as it happens. Gold recently bottomed around $1240 with sentiment indicators at encouraging levels. In the chart below we plot Gold along with its net speculative position as a percentage of open interest (CoT) and the GLD put-call ratio. The CoT recently touched 27% which, although not a bearish extreme is fairly low relative to most readings since February 2016. The GLD put-call ratio recently touched the highest level in more than two years. With current sentiment relatively muted, Gold has a chance to rally up to trendline resistance. That would put it in position to breakout sometime in 2018.

Gold Stocks are one of the few sectors that offer compelling value

As we discussed last week, the gold stocks continue to offer historic value. The value is not quite as historic as in January 2016 when it was absolutely historic but it remains exceptional. Outside of the commodity sector there is nothing in a value sense that compares with the gold stocks. Even within the commodity sector, there is little that compares to gold stocks. Heading into 2018 traders and investors have to be intrigued at the deep value opportunity in the gold stocks in nominal and especially relative terms.

Increasing inflation expectations

Commodities typically outperform at the end of an expansion and into the beginning of a recession. This is accompanied by rising inflation. Some commodity sectors have performed well but the commodities as a whole (CRB or CCI) has yet to make new highs. One thing that could trigger a sharp rise in inflation expectations would be a breakdown in long-term bond prices.

In the chart below we plot the 5-year bond price, the 10-year bond price and the 30-year bond price. The 5-year bond has already broken to a 7-year low while the 10-year bond is not far behind. The 30-year bond continues to hold above its 2015-2016 lows but does not have much wiggle room. A breakdown in the 10-year and 30-year bonds may not be immediately bullish for precious metals but a continued decline or acceleration to the downside would be.

The strength of the current rebound in the gold stocks has definitely surpassed our expectations and the December lows should hold moving forward. If that is the case then a breakout move for the gold stocks this year is more likely than not. More backing and filling may be ahead but if GDX and GDXJ can surpass their September highs it would be a very good sign for 2018. The miners have plenty of work to do before a true breakout move can begin but traders and investors would be wise to keep a close eye on the sector. We prefer companies with strong fundamentals that are trading at reasonable values and have upcoming catalysts that will drive buying. To follow our guidance and learn our favorite juniors for 2018, consider learning more about our premium service.

The S&P/Venture Composite Index finished down 0.3% to 768.04 and the S&P/TSX Global Mining index was up 0.15% to 66.52 for the day as the summer doldrums roll on. Gold closed up $1.50 at $1274.90 while silver closed down 9 cents to $16.70 and copper down 1.6 cents to $2.875. On the TSX Venture, 327 issues advanced, while 368 remained unchanged and 365 declined, 115,365,198 shares traded hands in 19,555 trades worth approximately $54,171,000. On the day, 21 companies reached new highs while 69 reached new lows on the Venture Exchange and 8 venture mining companies released drill results and sample assays.

Precipitate Gold Corp. (PG) released results that included the discovery of mineralization in a previously untested anomaly to the south of the main zone yielding a 1.1-metre interval of 2.59 grams per tonne gold (including 0.11 per cent copper, 0.6 per cent lead and 0.65 per cent zinc) (GR17-15) and a main zone drill intercept of 14.73 metres of 1.16 grams per tonne gold, including 2.67 metres of 2.23 grams per tonne gold (GR17-13). Laboratory results are pending for eight more holes.

Klondike Gold Corp. (KG) reported today results from its lonestar property in the Yukon with 30.7 m of 1.6 g/t Au at Lone Star in the Yukon. Thus far in 2017, the drill program has completed 35 holes. Assays for the earliest 11 holes have been received, including 9 holes released today. Twenty-four holes are still in the lab queue, while drilling continues. The market response to the news was muted as shares in the company were down half a cent on 209,000 shares to 30 cents.

Panoro Minerals Ltd. (PML) provided an update of its exploration drill program at its Cotabambas copper-gold-silver project in Peru. Highlights of the program are from Drillhole CB-157, the first hole completed at the Maria Jose zone, intersected 195.2 m of copper mineralization grading 0.34 % Cu, 0.06 g/t Au and 1.6 g/t Ag. Shares of the company remain unchanged at 15.5 cents for the day.

Altamira Gold Corp. (ALTA) identified two new zones of mineralization have been identified at both Baldo East and Toninho, at its Cajueiro Project, Brazil. Results from the initial five trenches at Baldo East include 3m @ 6.54g/t gold including 1m @ 17.54g/t gold, and 6m @ 2.26g/t gold, and 3m @ 5.83 g/t including 1m @ 16.24g/t, and 1m @ 9.15g/t, and 9m @ 1.19 g/t including 1m @ 5.62g/t . Shares in the company were down half a cent to 18.5 cents on 286,700 shares.

Aurion Resources Ltd. (AU) released 452 rock samples assayed from nil to 2,520 grams per tonne (81.4 ounces per ton) with 32 assaying greater than 31 g/t Au (one ounce per ton), 45 greater than five g/t Au and 70 assaying greater than 1.0 g/t Au from its Aamurusko gold prospect, Finland. Share price declined 3 cents to $1.78 on 436,000 shares.

Margaux Resources Ltd. (MGX) released the results from initial surface rock sampling on its Bayonne and Jackpot properties, in Southern British Columbia. The results include gold assays from grab samples of up to 27.5 g/t (grams per tonne) gold on the Bayonne and widespread zinc mineralization at Jackpot including 20.8 per cent zinc from Jackpot Main. Shares in the company remained unchanged at 28 cents on 50,500 shares.

Galantas Gold Corp. (GAL) reported grab samples of between 1.1 and 11.0 grams per tonne gold and between 1.4 and 7.0 g/t silver from its underground mine Omagh Gold Mine, Ireland. The share price remained unchanged at 8 cents on 20,000 shares.

Mexican Gold Corp. (MEX) released its initial mineral resource estimate for the El Dorado/Juan Bran and Santa Cruz zones at its Las Minas project, Mexico. Total measured and indicated resource amount to 304,000 ounces AuEq contained within 4.97 million tonnes grading 1.9 g/t AuEq. The initial mineral resource estimate is for two of the eight known zones of mineralization at Las Minas. The company was halted at remains so at the end of the trading day.

According to TMX earnings calendar for the TSX venture, Avino Silver and Gold Mines Ltd. (ASM) should be releasing its second quarter 2017 results after the close of the market on August 2, 2017. Barkerville Gold Mines (BGM), North Arrow Minerals Inc. (NAR), and Orsu Metals Corp. are expected to be publishing their earnings tomorrow as well.

gold bars — In a rising gold market gold producers provide a leveraged investment opportunity.

Gold is making regular headlines these days as global economic uncertainty remains high and the yellow metal recently reached record prices of just over $1,900 per ounce. Since a sharp correct where gold gave back over $200, the price has recovered and gold is currently trading around $1,885 per ounce.

Goldman Sachs said it expects gold prices to continue to climb in 2011. The U.S. based investment bank cited the current low level of U.S. real interest rates, European debt issues, balancing inflation with growth in China, and mixed data from several major economies as drivers for gold’s continued appreciation. “We recommend near-dated consumer hedges in gold,” stated analysts at Goldman Sachs and they expect further price increases later this year and into 2012.

According to Citigroup, a resurgence in investment demand has fueled gold’s rally over the past decade. Investment demand has grown from 4% of total demand for gold in 2000 to over 39% in 2010. “We caution that this very aspect that provided support for gold over this time may result in its downfall going forward,” noted Citigroup. “Even a slowdown, let alone a decline, in net investment flows can have a materially negative impact on the gold price from current levels.” So whether you are a gold bug bull or a gold bubble believer, one thing is for certain, there is no denying gold’s captivating run.

With all the excitement around the price of gold let’s not forget gold equities. Tye Burt, President & CEO of Kinross Gold (TSX:K) may have crystalized the argument for gold equities best when he stated in a recent interview with CNBC, “Gold price is up 25% year-over-year and our earnings effectively doubled. There is a leverage in the gold producers which will play out in their equity prices.”

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Can the price of gold keep rising? Talk to gold bugs and they will tell you key drivers such as political instability and inflation are bigger issues today than when the yellow metal began the stellar rise that tripled its price in half a decade.

But gold has its critics, and their rebuttal was crystallized by Warren Buffett who said he would rather own “all of the farmland in the United States, 10 Exxon Mobils, plus have $1 trillion of walking-around money” instead of all the gold in the world. In the meantime, gold bugs have been gaining adherents from the world of economics. Former Fed Chairman Alan Greenspan, for instance, believes there is increasing evidence that economies do better when pegged to a gold standard, as the US was from 1870 to 1914.

The Economist’s Edward George takes a more practical view of gold’s rise. He doesn’t “…believe the price can fall below U$800/troy oz for long, as over half of current gold mining operations are only profitable at a price of at least US$1,000/troy oz. If the price falls below this level for a long time they will simply stop producing, reducing supply and ultimately driving up the price again.”

The rising tide of gold prices has lifted most all the boats in the public markets. Some gold miners, candidly, aren’t sure the price is sustainable. Others have delivered huge margins by behaving as though the price of gold hasn’t moved, making smart acquisitions, removing hedge and keeping their cost of production down. As we approach the Ides of March it appears gold and gold companies are set to have very interesting 2011.

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