gold Archives - Page 8 of 11

The unnaturally-tranquil stock markets suddenly plunged over this past week. Volatility skyrocketed out of the blue and shattered years of artificial calm conjured by extreme central-bank distortions. This was a huge shock to the legions of hyper-complacent traders, who are realizing stocks don’t rally forever. With stock selling unleashed again, herd psychology will start shifting back to bearish which will fuel lots more selling.

As a contrarian student of the markets, I watched stocks’ recent mania-blowoff surge in stunned disbelief. On fundamental, technical, and sentimental fronts, the stock markets were as or more extreme than their last major bull-market toppings in March 2000 and October 2007! I outlined all this in an essay on these hyper-risky stock markets on 2017’s final trading day. The ominous writing was on the wall for all willing to see.

January’s extreme surge in the US stock markets made this selloff case even more likely. Mid-month in another essay I warned, “The stock markets are now dangerously overbought, implying a major selloff is probable and imminent. … Such extremes are very unusual and never sustainable for long, signaling major selloffs looming.” So the fact these crazy stock markets finally rolled over wasn’t a surprise at all.

But I was awestruck at the sheer violence of what happened last Friday and the subsequent Monday, it was very odd. Even though the countless market extremes argued strongly for a major selloff, they tend to be much more gradual initially off bull-market peaks. So it was fascinating to watch all this unfold in real-time with my data feeds and CNBC. Students of the markets live for anomalous exceedingly-rare events!

The igniting catalysts were multilayered. The US flagship S&P 500 broad-market stock index (SPX) had blasted to a dazzling new all-time record high on Friday January 26th. It was stretched a mind-boggling 14.0% over its key 200-day moving average, which itself was high and steeply rising! The 8.9-year-old stock bull that had powered 324.6% higher felt unstoppable. Traders were universally convinced it would continue.

But just a couple trading days later on Tuesday January 30th, significant selling emerged. That morning Amazon, Berkshire Hathaway, and JP Morgan declared they were going to form a healthcare company. That unanticipated news way out of left field crushed the major healthcare stocks, hammering the SPX 1.1% lower. That was actually a significant down day by recent standards, the worst seen since mid-August.

With euphoric bullish psychology dented, Jobs Friday arrived a few trading days later on February 2nd. That official monthly US jobs report saw a modest headline beat, but the big news came on the wages front. Average hourly earnings beat expectations by climbing 2.9% year-over-year, the hottest read on wage inflation since June 2009. That triggered inflation fears with the 10-year Treasury yield already at 2.78%.

Higher prevailing interest rates are a huge problem for bubble-valued stock markets. The SPX had just left January with its 500 elite component stocks sporting a simple-average trailing-twelve-month price-to-earnings ratio way up at 31.8x! Historical fair value is 14x, twice that at 28x is formal bubble territory. In a higher-rate environment, extreme valuations are far harder to tolerate. So the stock markets sold off.

A week ago Friday the SPX slid all day long to close at a major 2.1% loss. That proved its biggest down day since way back in September 2016, before Trump won the election and the resulting extreme stock rally first on Trumphoria and later on taxphoria. Something was changing, the unnaturally-low volatility regime was crumbling. That left speculators and investors alike very nervous heading into last weekend.

It had been an all-time-record 405 trading days since the SPX’s last 5% pullback, unbelievably extreme. So that selloff really struck a nerve, I started to hear from casual acquaintances I hadn’t spoken to for years. At a friend’s Super Bowl party Sunday night, once the guests I didn’t know found out what I do for a living I felt like a celebrity. We spent the first quarter talking about the markets, people were really concerned.

Monday the 5th was extraordinary, a record day in some respects. SPX futures were down less than 1% in pre-market trading, nothing wild. But once the US stock markets opened, the selling started gradually snowballing. It greatly intensified around 3pm, with the SPX plunging from -2.3% to -4.5% on the day in literally 11 minutes! There was no news at all, it simply looked and felt like cascading stop-loss selling.

All prudent traders put trailing stop-loss orders on their stock positions. They are an essential measure to manage risk. Once a stock falls a preset percentage from its best level achieved during a trade, that position is automatically sold. In big stock-market selloffs, as stop losses are sequentially hit they feed into the ongoing selling. The more stocks fall, the more stops triggered, the more sell orders fuel the maelstrom.

The SPX bounced a bit, but still plunged a whopping 4.1% on close Monday! That was a serious down day by any standard, actually the worst since way back in mid-August 2011 which followed Standard & Poor’s downgrading US sovereign debt. Everyone takes notice when stock markets suffer their biggest daily drop in 6.5 years. That really changes collective psychology, shattering the euphoria rampant in January.

But amazingly that SPX plunge wasn’t the most-interesting thing Monday. The implied volatility on SPX options is tracked in the famous VIX fear gauge. It skyrocketed a stupendous 125.8% higher that day, its largest daily spike ever witnessed! That wreaked colossal havoc in the short-volatility market. Since Trump’s election win, more traders and capital have flocked to bet on the idea that volatility will keep falling.

Students of market history knew that was an absurd bet before Monday’s spike. Stock-market volatility has always been cyclical, just like stock prices. Exceptionally-low or -high volatility levels always mean revert back to normal. So betting that the record-low stock volatility in recent months would keep going even lower was a foolish, suicidal bet even before Monday. That epic VIX spike totally gutted these guys.

There are, or were, extraordinarily-risky inverse-VIX exchange-traded notes. These were designed to rally when volatility fell, some even with leverage which traders liked to further amplify with their own margin. One of the leading inverse-VIX ETNs was XIV, which is VIX spelled backwards. It had closed at $129.35 per share on Thursday February 1st, but by this Tuesday it had imploded 94.3% in a termination event!

All these inverse-VIX ETNs were shorting VIX futures, so they had to become massive buyers on that sharp SPX selloff to close out those devastated positions. On Monday the banks sponsoring these crazy ETNs had to buy an extreme record 282k VIX futures contracts! That catapulted the VIX itself to 50.3 on Tuesday morning, about as high as it ever gets outside of actual crashes and panics. What a wild ride!

That begs the question what happens next? This stock-market-selling and volatility shock happened at a time when stock markets were already very precarious. Such an extreme event has to start altering herd psychology. This first chart looks at the SPX superimposed over the VIX during the last few years, both on a closing basis. Once serious selling starts out of toppy stock markets, it usually portends much more coming.

This week’s stock selling unleashed emerged in some of the most-toppy stock markets ever witnessed. Again the average SPX-component TTM P/E leading into it was a bubble-valued 31.8x! Again the SPX had stretched 14.0% above its 200-day moving average, some of the most-overbought conditions seen in all of SPX history. The SPX had rocketed vertically for most of January in popular-mania-grade euphoria.

The future impact of stock selling being unleashed really depends on the market conditions that birthed that selling spike. If stock prices were near multi-year lows leading into selling spikes, with valuations lower than their historical average of 14x earnings, these events can mark selling climaxes before major reversals higher. But unfortunately the exact opposite was true leading into our current sharp SPX plunge.

Coming out of what looked and felt like a mania blowoff top, this past week’s serious selling is surely an ominous omen. Stock markets can’t rally forever, yet that’s exactly what they seemed to be doing since Trump’s surprise election victory. Between Election Day and late January’s latest record high, the SPX had soared 34.3% higher in just 1.2 years! And that span was incredibly extreme with record-low volatility.

Again as of last Friday it had been an all-time-record 405 trading days without a single 5% peak-to-trough SPX pullback. That’s 1.6 years! Nothing like that had ever happened before. Technically a pullback is a 4%-to-10% selloff in the stock markets on a closing basis. The last pullbacks were minor, a 4.8% one in late 2016 following a 5.6% one in mid-2016. Those were the last material selloffs in the SPX before this week.

Periodic selloffs to rebalance sentiment are essential to keeping stock bulls healthy. The longer markets go without significant selloffs, the more greed and complacency multiply. Traders forget that stocks fall too, and their hubris leads them to take all kinds of excessive risks. Like betting that record-low volatility will persist indefinitely. The leveraged speculation eventually gets so extreme that it threatens the entire bull.

My favorite analogy on this is forest fires. Officials love to suppress natural wildfires to protect structures. But the longer firefighters put out every little wildfire, the denser forest underbrush gets. This fuel source grows out of control, eventually leading to a conflagration far too extreme to put out. Rather than having a bunch of smaller wildfires to keep fuel in check, suppression eventually guarantees a super-destructive hell fire.

Periodic pullbacks and corrections in stock markets allow the underbrush of greed to be burned away before it gets thick enough to become a systemic risk. Traders naively believe levitating stock markets are less risky, but the opposite is true. The longer a span without a serious selloff, the higher the odds one is coming soon. Normal healthy bull markets actually suffer 10%+ corrections once a year or so to keep balance.

It’s been 2.0 years since the last actual SPX correction, which bottomed in early 2016. The lack of both smaller pullbacks and larger corrections let complacency grow unchecked into greed, euphoria, and even hubris recently. And these emotional extremes have to be mostly burned away for this bull to have any hope of eventually heading higher. The only thing that can eradicate widespread greed is major stock selloffs.

After Monday’s serious 4.1% plunge, the SPX was still only down 7.8% since its peak just 6 trading days earlier. While that is unusual speed to see such a decline, it still only ranks towards the high end of mere pullback territory. We hadn’t even hit a correction yet at 10%, and they can stretch as high as 20%. The SPX’s last corrections ran 12.4% over 3.2 months in mid-2015 and 13.3% over 3.3 months into early 2016.

Given the extreme overvalued and overbought conditions leading into this past week’s plunge, there’s no way even that was enough to rebalance away the euphoric sentiment. So it’s all but certain the SPX will grind lower in the coming months, heading down well over 10% into deep correction territory. At 10% the SPX would merely be back to early-November levels, merely erasing the recent mania-blowoff surge.

If this correction approaches 20% as it really ought to, that would drag the SPX all the way back down to 2298. Those levels were first seen just over a year ago in late January 2017. That would reverse the lion’s share of the entire past year’s taxphoria rally, wreaking tremendous sentiment damage. But don’t forget corrections tend to take a few months, not a few days. So the selling is way more gradual than Monday’s.

That extreme 50 VIX spike Tuesday morning must be considered. Again that’s about as high as the VIX ever gets in normal corrections, implying the immediate selling pressure should have abated. The only times higher VIX levels are briefly seen is after crashes and panics. A crash is a 20%+ drop in just two trading days from very-high stock-market levels. This past week’s Friday-Monday selloff wasn’t even close.

Crashes are exceedingly rare in history, and next to impossible today given the widespread use of stock-market circuit breakers. They effectively close markets for a time after intraday selling milestones are hit. Today the SPX has levels triggered at 7%, 13%, and 20% intraday declines. The trading halts depend on when these declines occur within a trading day, before or after 3:25pm. They would slow crash-grade plummets.

Panics are steep 20%+ selloffs within two weeks, extreme but much slower than crashes. They tend to cascade from lows out of late-stage bear markets to climax them. They are very rare too, with 2008’s being the first formal one since 1907. The VIX can temporarily soar above 50 in crashes and panics, but those extremes never last for long. In normal market conditions, a 50 VIX spike should mark an absolute bottom.

But the problem this week is Tuesday’s extreme VIX spike was the result of panic buying of VIX futures to liquidate those inverse-VIX ETNs. That has never happened before. Without that dynamic, the VIX likely wouldn’t have gone much above 30. That too implies this stock-market selloff still has plenty of room to run. So the stock selling unleashed is likely to persist over a few months at least, despite the VIX spike.

Given the extremes in these stock markets in late January, I still suspect the odds heavily favor a new bear market over 20% instead of a bull-market correction. I presented this compelling SPX-bear case in late December, and don’t have room to rehash it here. Normal bear markets tend to cut stocks in half over a couple years or so, 50% SPX losses. That works out to a gradual average selling pace of 0.1% per day.

The last couple SPX bears give an idea of what to expect in the inevitable next bear after such an epic stock bull. The SPX fell 49.1% over 2.6 years ending in October 2002, and 56.8% over 1.4 years that climaxed in March 2009. A 50% SPX loss, which is conservative since bears tend to be proportional to their preceding bulls’ sizes, would drag this index back to 1436. That’s September-2012 levels, a long way down!

No one knows whether this stock selling unleashed will culminate in a bull-market correction under 20% or a new bear market over 20%. But either way, speculators and investors ought to swiftly boost their anemic portfolio allocations to gold. The record-high stock markets in recent years have led to radical gold underinvestment. Gold tends to rally on balance when stocks fall, it’s the ultimate portfolio diversifier.

As this final chart shows, after the last SPX correction ending in early 2016 gold surged into a major new bull market. Hyper-complacent stock traders suddenly realized that they needed to own gold to diversify their stock-heavy portfolios. That gold bull has persisted, powering higher in a strong uptrend ever since despite this past year’s extreme taxphoria stock-market rally. A new SPX correction will work wonders for gold.

That last SPX correction into early 2016 wasn’t large at just 13.3%. Yet that was still enough to motivate complacent investors to flock back to gold. Their heavy buying catapulted gold 29.9% higher in just 6.7 months! Gold turned on a dime from deep 6.1-year secular lows because a major stock-market selloff finally convinced investors to up their meager gold allocations. Every investor should have 5% to 10%+ in gold.

Just a week ago that ratio was likely only running around 0.14% based on the values of that leading GLD gold ETF and the collective market capitalizations of the 500 SPX companies! So with gold allocations essentially zero late in an extreme stock bull, there’s vast room for massive capital inflows into gold in the coming years as investors rebalance their portfolios. Gold thrives for a long time after major stock selloffs.

The gold buying isn’t instant when the SPX falls though, as traders need time to process the drop and its likely implications. Back in early 2016 stock investors really didn’t start aggressively buying GLD shares until the SPX suffered multiple big down days. The SPX fell 1.5%, 1.3%, 2.4%, and 1.1% on separate trading days in a single week before gold buying resumed. More big SPX losses soon accelerated these inflows.

If you don’t have a significant gold allocation in your portfolio, you ought to get buying. It can be done with physical gold bullion or GLD shares. If you want to leverage gold’s bull market that will accelerate following a major stock selloff, consider the stocks of great gold miners. They tend to amplify gold upside by 2x to 3x due to their fantastic profits leverage to gold. The precious-metals sector thrives after stock selloffs!

Finally the stock selling unleashed is likely just beginning due to what the major central banks are doing this year. The Fed’s unprecedented quantitative-tightening campaign to start reversing its trillions of dollars of QE liquidity injected that levitated stocks for years is accelerating throughout 2018. At the same time the European Central Bank slashed its own QE campaign in half until September, when it may cease entirely.

Between the Fed’s QT and ECB’s QE tapering, global stock markets face central-bank tightening running $950b in 2018 and another $1450b in 2019 compared to 2017 levels! This will certainly strangle this QE-inflated monster stock bull. So on top of everything else this week’s sharp selloff portends, the euphoric stock markets were already in serious trouble from record extreme central-bank tightening. Got gold yet?

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The bottom line is the stock selling unleashed this week isn’t over. Given the fundamental, technical, and sentimental extremes around January’s record highs, a sub-10% pullback isn’t enough to eradicate the euphoria. At best a major correction approaching 20% is necessary, and those tend to run a few months or so. This week’s extreme VIX spike to levels that usually mark major bottoms was artificial, not normal.

And after such an extreme bull market largely driven by record central-bank easing, the odds really favor this selloff eventually growing into a 20%+ new bear. Especially with the major central banks starting to aggressively pull their liquidity in 2018. Whether a major bull correction or major new bear market, gold tends to thrive after major stock-market weakness. That leads investors to buy gold to re-diversify their portfolios.

While most gold investors are familiar with the Carlin Trend – the largest gold-producing region in the United States – there are other, less explored parts of Nevada starting to attract a lot of attention. Specifically, the Walker Lane Gold Belt where company-making discoveries are being drilled.

Located in southern Nevada, Walker Lane has some of the most important mining districts in North America including Comstock, Tonopah, Goldfield, Bullfrog and Aurora. Estimated to host over 50 million gold ounces, the region is being actively explored by Kinross and Barrick at the producing Round Mountain Mine, Gryphon Gold at the Borealis Mine, and Newcrest Mining at the Redlich project.

Unlike the Carlin Trend, where most gold projects are mining ore less than a gram per tonne, Walker Lane is starting to stand out on its own merits with exceptional high-grade assays.

Northern Empire Resources (TSXV: NM; USOTC: PSPGF) is a well-financed gold exploration and development company focused on an emerging gold district in the Walker Lane Trend. The Sterling Gold Project hosts four distinct deposits, including a fully permitted, open-pit mine. The Sterling Mine is one of the highest-grade heap leach mines in the western United States.

Situated 185 kilometres (two-hour drive) northwest of Las Vegas, on the eastern flank of the Bare Mountains, Sterling features five past-producing open pit and two underground gold mines. Drilling, surface mapping and sampling on the project suggests that the historic deposits are open for expansion and there is potential for new discoveries. The property still has infrastructure in place from 2015 when the Sterling Mine was last in production.

Along with having an outstanding property with exploration upside, Northern Empire also features a management team with an exceptional record of creating value for shareholders. Led by Executive Chairman Douglas Hurst and Michael Allen, President and CEO, the Northern Empire board has created over $3 billion in takeout value, including Newmarket Gold, acquired for $1 billion by Kirkland Lake, Kaminak Gold, acquired by Goldcorp for $520 million, International Royalty Corp, bought by Royal Gold for $700 million, Rainy River Resources, bought by Newgold for $310M, and Underworld Resources, purchased by Kinross Gold for $138 million.

Currently sitting at a $80-million market capitalization, Northern Empire has a cash balance of $18 million, having recently completed a $15 million bought deal financing that included no warrants. In fact, the company raised $35 million in 2017 with no warrants.

The gold junior is coming off a successful 2017 drill campaign and will aggressively drill known mineralized zones in 2018 to expand resources and explore for new deposits on its 125-kilometre land package.

The story of Northern Empire began in May 2017 when it acquired the Sterling Gold Project in Nye Country from Imperial Metals for $10M. The $20 million acquisition financing included an investment by global precious metals producer Coeur Mining, which earned an 11.6% stake in the company.

Northern Empire is backstopped by the low risk, permitted heap leach Sterling Mine; majors have an appetite for high margin, high grade assets. The main event, however is the blue-sky potential north of Sterling, where more ounces are ripe for exploration. In particular the focus is on the SNA deposit, which has Carlin-type mineralization adjacent to the Mother Lode deposit owned by Corvus Gold.

Between 1980 and 2000, nearly 200,000 ounces were pulled from Sterling’s three open pits and two underground mines. The run of mine ore was placed on heap leach pads, where gold recoveries averaged 88%.

Total inferred resources at the project are 709,000 ounces with an average grade of 2.23 grams per tonne gold – which is high for a deposit in Nevada where most deposits are lower-grade.

Northern Empire has all the permits required to operate the Sterling Mine. In May 2016 the mine was permitted to restart operations, with the Bureau of Land Management finding that the mine would not have significant environmental impacts.

Over the last six months the company has been aggressively expanding the property, having staked an additional 489 claims in June, thereby increasing its original land position by 50%. Another 261 claims were staked in October, which further solidified Northern Empire as the dominant landholder in the Bare Mountains, a district which includes the past-producing Sterling, 144, Daisy, Secret Pass, Gold Ace, Mother Lode deposits, and Bullfrog Mine.

Exploration is focused on the Crown Block of deposits just 7 kilometres north of the Sterling Mine. For the first time the Crown Block has been consolidated in a contiguous land package under one ownership. The Crown Block hosts four primary targets: Daisy deposit, Secret Pass deposit, SNA deposit and the Shear Zone target. The mineralization follows the same East-West detachment fault structure that hosted Barrick’s Bullfrog Mine, which produced 2.3 million ounces of gold at an average grade of 3.2 grams per tonne (“g/t”).

Glamis and Rayrock previously operated the Daisy Mine, which included Daisy, Secret Pass, and Mother Lode pits, and produced 104,000 ounces of gold between 1997 and 2001. When gold dipped below $300, the mine was closed down.

A total of 160 holes were drilled at Secret Pass which was previously mined in the 1990’s. Significant drill intercepts beyond the existing pit indicate potential resource expansion. Drill hole D-320 on the eastern edge of the historical pit intercepted 1.02 g/t gold over 77.7 metres.

SNA lies on a north-south structure that hosts Carlin-type mineralization which is open for expansion. Historically 149 holes were drilled at SNA. The Shear Zone is on the upper level of an epithermal vein and indicates potential for bonanza grades at depth. Past discoveries of mineralization were not followed up on.

In August 2017 Northern Empire initiated the first phase of an exploration program designed to confirm and expand the inferred resources at the Sterling Gold Project. Historic drill holes from the Daisy deposit include 68.58 g/t Au over 2.02 m, 7.37 g/t Au over 19.81 m, 80.77 g/t Au over 2.10 m, and 4.63 g/t Au over 35.05 m.

Of the planned 5,200 metres of drilling, over half was focused on the Sterling Mine, where Northern Empire outlined a pit-constrained inferred resource of 231,000 gold ounces grading 3.67 g/t. The work provided confidence in the resource, tested for extensions along strike and provided metallurgical samples prior to Northern Empire beginning economic studies.

The 52-hole drill program, 25 of which were reverse circulation holes and 27 that were diamond-drilled, started with the Daisy and Secret Pass deposits within the Crown Gold Project. The company also performed an evaluation of the entire project and flew a geophysical survey to identify new targets.

The Daisy deposit hosts an inferred mineral resource of 174,000 gold ounces at an average grade of 2.12 g/t gold, while the Secret Pass inferred resource is 188,000 ounces of gold at an average grade of 1.65 g/t.

The drills then moved to the Sterling Mine to complete infill, resource expansion, and exploration drilling.

“This round of drill results supports our resource model of the Sterling deposit, as well as the location of the underground workings. Sterling was known to be a narrow, high grade deposit with excellent metallurgy. Of note, are the occasional broader zones of mineralization, such as 12.19 metres of 8.37 g/t gold, as well as previously unacknowledged lower grade mineralization being identified by Northern Empire’s drilling; both of which may represent real opportunities within the Sterling deposit. Also, our early exploration of the area to the west and south of the Sterling deposit has yielded interesting results.”

Assay results from another seven holes reported in early December highlighted shallow, high-grade oxide gold at the Sterling Mine, with several holes hitting significant mineralization at the edges of the resource model, indicating the deposit remains open for expansion. Notable drill intercepts included 10.0 metres of 14.59 grams per tonne, 9.05 metres of 8.66 g/t, and 7.59 metres of 8.25 g/t.

As the calendar turns to a new year, Northern Empire is making plans for a 15,000-metre drill program it announced mid-December; the drills have already begun turning. In this new phase, drilling will be focused on infill and expansion of the Sterling Mine, Daisy, Secret Pass and SNA deposits, as well as testing high-priority exploration targets. Drilling will be completed with both core (diamond drilling) and reverse circulation rigs.

This area of Southern Nevada is accessible 12 months a year and Northern Empire will be aggressively working all year round. In early 2018 the company will turn its attention to the Crown Block, where drilling will begin on the SNA deposit where Northern Empire has identified the potential for a large Carlin-type deposit. This work will be targeting north-south structures exiting the Mother Lode pit, adjacent to the north and owned by Corvus Gold, and where historic drill holes such as ML088, drilled on the company’s property, returned 10.67 metres grading 4.13 g/t starting at 60.96 metres, and 28.96 metres grading 1.76 g/t starting at 100.58 metres.

Indeed an exciting aspect of this round of drilling is the close proximity of Corvus Gold’s drills on that company’s Mother Lode project, just metres away from Northern Empire’s holdings. Mother Lode produced 34,000 ounces at an average grade of 1.8 g/t in the late 1980s but closed due to low gold prices. In December Corvus announced it has expanded the sediment-hosted Mother Lode gold system to at least 450 metres along strike.

Corvus Gold’s exploration program at Mother Lode has received a major response from the market, with the stock more than doubling over the past year (+126%); most of the gain has been in the last three months and can likely be attributed to its success at the Mother Lode.

Since Northern Empire is the dominant land holder, and owns all the land surrounding Mother Lode, any extension of Mother Lode beyond Corvus Gold’s tight boundaries is likely to add ounces to Northern Empire’s Sterling Gold Project.

Drilling will also be completed at the Daisy and Secret Pass deposits with the goals of upgrading and expanding the resources, collecting metallurgical samples, and testing exploration concepts. On September 18 and October 4, 2017, the company announced drill results for Daisy and Secret Pass, highlighted by 47.24 metres of 1.47 g/t gold at Daisy and 82.30 metres grading 1.25 g/t at Secret Pass.

Northern Empire has an impressive assemblage of both past-producing gold mines and enticing exploration targets at its Sterling Gold Project in one of Nevada’s most promising gold mining regions: The Walker Lane Trend.

With the gold price powering above $1,330 per ounce, mineral-rich gold companies are rising in valuation once again, so what better time to get in on an exciting gold play that appears to offer investors ample upside? Northern Empire has the property, the treasury and the team to make it happen.

With over a decade of journalistic experience working in newspapers, trade publications and as a mining reporter, Andrew Topf is a seasoned business writer. He holds degrees in journalism and political science, and earned a Masters from the London School of Economics.

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.

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:

If a week is a long time in politics, six months is an age in a public company. And as 2017 Full Year Production Results & 2018 Guidance is published today, ordinary shareholders at Petropavlovsk (LSE: POG) may be beginning to question if the intentions behind last year’s messy coup were entirely honest.

To recap: after an astonishing 20-year run at Petropavlovsk, in which veteran gold-bug Peter Hambro weathered the storms of a collapsing gold price and an increasingly impatient shareholder base, the City mainstay finally returned the company to its first profit in January 2017. Shortly thereafter, he was booted out of his own company by a rag-tag bunch of mining dilettantes, with distressed debt funds Sothic and M&G playing monkey, and Renova Group grinding the sorry organ.

We covered each twist and turn of the dispute here at Mining Feeds, exploring the real intentions of Renova Group, the rumours surrounding dormant assets in their portfolio and the toothless City Takeover Panel that wouldn’t know a takeover by stealth if it slapped them in the chops. Shrugging off allegations of impropriety, the repeated justification for the brazen coup, parroted by all three activist shareholders, was that ‘corporate governance’ issues had fallen short of the mark at Petropavlovsk under the leadership of Messrs Hambro and Maslovskiy. A justification made early and repeated often.

Speaking to the Financial Times, City AM, The Times and Reuters, M&G and Sothic repeatedly criticised corporate governance failings at Petropavlovsk and called for greater transparency at board level. [1], [2] Shareholders took them at their word and at the company’s AGM, the old board were fired. Not that a single one of the new Directors turned up to grab the baton, of course. So, it has now been seven months since they took over: how are shareholders being rewarded?

The first act of the new board was to claim credit for Petropavlovsk’s best results: a 166% lead in H1 profits, a 150% increase in net cash from active operations and a 20% boost to sales. The trouble was, the ‘strong set’ of results praised by new Chairman Ian Ashby were solely due to the efforts of the outgoing board. As Alistair Osborne in The Times of London concluded at the time, perhaps the intentions of the insurgents weren’t quite as honourable as claimed. “Corporate governance? Yeah, right.” [3]

Shortly afterwards, Renova Group promptly sold up their controlling stake in Petropavlovsk to an interesting entrepreneur from Kazakhstan. So, having kicked up a shareholder storm at Petropavlovsk, stacked the board with a bunch of directors who don’t know the first thing about mining and given next-to-no indication of how they intended to grow the company they’d fought so hard to control, Renova cut and ran. Exemplary corporate governance…

Kenes Rakishev, the Kazakh businessman who bought Renova’s stake, fortunately has quite a bit of experience in mining having been a part of Central Asia Metals Plc (AIM:CAML), a copper, zinc and lead production and exploration company, for several years.[4]

But in fairness to the new board at Petropavlovsk, they are nothing if not consistent. Not content with claiming credit for the company’s first profits since 2015, they promptly pushed the company back into worrying territory with a sorry set of H2 production results. Announcing with some aplomb that the company had boosted production by as much as 10%, Ian Ashby failed to note that the company’s H2 production results were a whole 11% lower than the impressive results of the first half of 2017.[5] So, a downturn in fortunes presented as cause for celebration? The new board is fast being characterised by new standards for deceit, not transparency.

So, what good news can come of the mess? Well, in interviews given to Reuters, The Daily Telegraph and the Financial Times, new investor Kenes Rakishev has proposed bringing back some of the top team responsible for the recovery at Petropavlovsk. Ahead of a visit to London to meet shareholders earlier this month, Rakishev told reporters of his wish to reinstate former CEO, Pavel Maslovskiy.[6] And to boot, his wishes for the company have already attracted plaudits from industry influencers, with Investors Chronicle praising Rakishev’s ‘conviction bet’ for possible rebranding and M&A action.[7]

The loyalty of Petropavlovsk’s ordinary shareholders has hardly been rewarded by the activism of its majority owners in the past 12 months, and that will sting. Rakishev is an exciting new prospect for Petropavlovsk’s fortunes, and we will be watching his next steps at the company with hopeful anticipation.

Gold and gold stocks have enjoyed an excellent rebound since their December lows. Over the past six weeks Gold rebounded from a low of $1238 all the way to $1365 in recent days. The miners meanwhile rebounded nearly 18% (GDX) and 21% (GDXJ). However, these markets are approaching important resistance levels and at a time when sentiment is becoming stretched and the US Dollar has become very oversold.

Take a look at the charts of Gold, GDX and GDXJ. Gold has reached the September 2017 highs while GDX came within 2%-3%. GDXJ is lagging but came within less than 5%. Another round of buying over a few days should be enough to push the miners to resistance.

Recent strength in Gold and gold stocks is mostly due to weakness in the US Dollar which is very oversold and approaching important support. On Friday, the US Dollar Index touched 88, which marks the 2009 and 2010 peaks and is the only real support between the low 80s and the low 90s. We also plot Gold against foreign currencies (Gold/FC) which tells if Gold is rising in real terms or if its rising due to the US Dollar weakness. Gold/FC failed to break above key resistance. That signals that over the short-term, Gold would be vulnerable to a bounce in the US Dollar.

Some sentiment indicators suggest the rebound in precious metals could be in its later innings. Thursday the daily sentiment index for Gold hit 91% bulls. Friday, the daily sentiment index for the greenback hit 10% bulls. The CoT’s are not as extreme. Gold’s net speculative position (relative to open interest) is 40% bulls. The 2011, 2012 and 2016 peaks were around 55% bulls. Meanwhile, Silver’s net speculative position is at 26% bulls.

Gold and gold stocks have enjoyed a great rebound since the Fed rate hike but technicals and sentiment suggest they are due for a pause or correction. The miners and Gold are very close to the resistance levels we noted in a recent editorial. Recent strength has been driven mostly by weakness in the US Dollar which is very oversold and testing support. Meanwhile, the daily sentiment index has reached short-term extremes for Gold and the greenback. The odds appear to favor a pause in this rebound or a short-term correction. That is great news for anyone who missed the rally as it would setup a decent buying opportunity before a major breakout. We continue to seek the juniors that are trading at reasonable values but have fundamental and technical catalysts that will drive increased buying. To follow our guidance and learn our favorite juniors for 2018, consider learning more about our premium service.

Jordan@TheDailyGold.com

Gold’s strong upleg accelerated this week, powering to major new breakout highs. Speculators rushed to buy gold futures following surprising weak-dollar comments from the US Treasury Secretary, which hit the US dollar hard. That boosted gold to critical technical levels that should really intensify the shift back to bullish psychology. This mounting gold breakout confirms gold’s bull market is very much alive and well.

While this week’s surge put gold on many more traders’ radars, it has actually been picking up steam for 6 weeks now. Gold’s latest major interim low of $1242 came a couple days before the Fed’s latest rate hike in mid-December. The gold-futures speculators who dominate this metal’s short-term price action have always had a deep and irrational fear of Fed rate hikes. Historically gold has thrived in rate-hike cycles!

Leading into that fifth rate hike of this current cycle, these hyper-leveraged traders aggressively dumped longs and ramped shorts at record levels. That battered gold lower while exhausting potential selling. So once the Fed hiked as expected, and didn’t up its 2018 rate-hike forecast from the prior quarter’s three more, these excessively-bearish traders started buying back in. This pattern was seen around past rate hikes.

So two trading days after this latest rate hike when gold was still at $1256, I published an essay outlining why that hike was so bullish for gold. It concluded, “…Fed rate hikes are bullish for gold, and this week’s is no exception… After each past December rate hike which gold-futures speculators sold aggressively into, gold dramatically surged in the subsequent months.” And that’s indeed exactly what happened since.

By the final trading day of 2017 gold had already surged 4.9% out of its pre-rate-hike interim low. Those strong gains continued in this young new year despite these extreme mania stock markets retarding gold investment demand. By this Tuesday, gold’s new upleg extended to an 8.0% gain over nearly 6 weeks. Since the Fed’s rate hike, gold had rallied on 19 out of 27 trading days. Upleg momentum was already building.

Every January the ultra-exclusive World Economic Forum is held in Davos, Switzerland. It attracts the world’s most powerful people, from CEOs to top political leaders to billionaires. The financial media flocks to the Swiss Alps to interview these leading movers and shakers. One of this year’s attendees is Steven Mnuchin, Trump’s Treasury Secretary. He gave an interview in Davos which shocked currency traders.

Mnuchin told reporters, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.” That’s certainly true, as it’s easier for American companies to export around the world when their goods are less expensive due to a lower dollar. But Treasury secretaries have a long tradition of never saying anything about the dollar beyond that they “support a strong-dollar policy”. So Mnuchin’s candor was unexpected.

Mnuchin had made similar comments last year that didn’t affect markets as much. But the combination of this past year’s strong dollar downtrend and a couple more developments that day triggered big US dollar selling. The US had just slapped tariffs on imported solar panels and washing machines hours earlier. Trump’s Commerce Secretary Wilbur Ross spoke alongside Mnuchin at that Davos conference.

Ross warned more trade measures were coming. When asked about trade wars he replied, “Trade wars are fought every single day… So a trade war has been in place for quite a little while, the difference is the US troops are now coming to the rampart.” There’s no more efficient way to boost exports and execute trade wars than jawboning the local currency lower. All this together really struck home for currency traders.

So the US Dollar Index plunged 1.0% on Wednesday following those comments, hitting its worst levels in 3.1 years. Incidentally this past year’s dollar weakness shouldn’t have surprised anyone. Back in late December 2016 when dollar euphoria reigned as the USDX traded at a 14.0-year secular high, I wrote an essay on the unsustainability of those extremes. I warned of “a major topping underway” before a new bear.

With the USDX failing below 90 on those Mnuchin and Ross comments, speculators started flooding into gold futures. After closing near $1341 in US trading Tuesday, gold surged as high as $1352 in overnight action. Those gains extended in the US on Wednesday, with gold blasting up 1.3% to $1358. That was a very important level technically and psychologically, confirming gold’s forgotten bull market is alive and well.

This chart looks at this young gold bull superimposed over speculators’ collective positions in both long and short gold-futures contracts. The Fed’s five rate hikes of this tightening cycle are also highlighted, showing how bullish they’ve proven for gold. This week’s $1358 gold levels are a major upleg breakout, and right on the verge of being a major bull-market breakout. Investors will certainly take notice of this.

Gold’s bull was born in despair in December 2015 the day after the Fed’s first rate hike in 9.5 years. The gold-futures speculators had freaked out leading into that FOMC meeting, fleeing longs while rushing to add shorts. That hammered gold to a 6.1-year secular low. Just a few trading days before that hike when gold was despised, I published deep research showing how gold thrived during past Fed-rate-hike cycles.

Futures speculators were betting the other way, expecting gold to collapse once the Fed ended ZIRP. It didn’t take them long to realize the error in their ways though, as they quickly started buying to cover their excessive shorts while flooding into new longs with a vengeance. So gold soared 29.9% higher over the next 6.7 months, well exceeding the +20% new-bull threshold! That initial bull upleg peaked at $1365 in July 2016.

After such a blistering run, gold needed to take a breather and consolidated high for over a quarter. But that rolled over into a severe correction on two separate events. First gold-futures stops were run which blasted this metal back down to its 200-day moving average. After that gold bounced sharply, but that was truncated by Trump’s surprise election win in early November 2016. That unleashed epic Trumphoria.

Stock markets surged on hopes for big tax cuts soon from the newly-Republican-controlled government. That led futures speculators and investors alike to flee gold, crushing it sharply lower. By mid-December 2016 the day after the Fed’s second rate hike of this cycle, gold had plunged 17.3% to $1128. That was not a new bear though, as it fell shy of the necessary 20% loss. But psychologically it may as well have been!

That exceedingly-anomalous gold plunge in late 2016 mostly driven by the post-election stock-market surge wreaked tremendous sentiment damage. The investors who started getting excited about gold in the first half of 2016 abandoned it, assuming that sharp rally was a flash in the pan. And with the stock markets powering relentlessly higher all throughout 2017 on taxphoria, gold receded into the market shadows.

A couple weeks ago I wrote an essay delving into the selloff dynamics between stock markets and gold. Gold is a unique asset that tends to rally when stock markets sell off materially, making it the ultimate portfolio diversifier. Thus investors tend to view it as the anti-stock trade. It was actually the last stock-market correction in early 2016 that fueled gold’s powerful upleg early that year. Stocks greatly affect gold.

While gold can still rally when stock markets happen to be climbing, investors simply feel no need to diversify their stock-heavy portfolios. So they largely forget gold. Thus gold sentiment for much of 2017 remained nearly as bearish as at those deep late-2016 lows. Investors remembered gold spiraling lower after the election, and that continued to shape their opinions and outlooks on gold regardless of price action.

Gold actually fared really well in 2017 considering the extreme stock-market rally. Last year gold still powered 13.2% higher, very impressive considering the concurrent huge 19.4% S&P 500 surge! This gold bull’s second upleg enjoyed a 19.5% gain over 8.7 months leading into early September. Gold was able to peak at $1348 before that upleg failed after stock markets surged again following a new wave of taxphoria.

Even though gold never entered a bear market, that interim-high level was problematic for sentiment. While close, September 2017’s $1348 remained decisively below July 2016’s $1365. For key technical levels I consider decisive to be 1% beyond the previous extreme. So even though a 19.5% gold upleg is nothing to sneeze at, especially in extremely-euphoric stock markets, it wasn’t enough to change psychology.

Without a new bull-market high, gold stayed out of the financial-news headlines. The investors that had fled this leading alternative investment in the wake of Trump’s election win saw nothing to get gold back on their radars. The legions of gold bears could argue that the secondary lower top confirmed gold was in a downtrend. Technical analysis is something of a Rorschach test, often reflecting analysts’ own biases.

That gold bearishness really intensified heading into this latest Fed rate hike in December 2017. As that month dawned, it had been 16.8 months since gold’s initial bull-market high. Gold’s chance to break out a few months earlier had failed. So as you can see above, gold-futures speculators fled in terror from long positions while also ramping shorts. This latest gold-futures liquidation hit all-time record highs.

Gold-futures speculators’ collective positions are reported once a week in the CFTC’s Commitments of Traders reports. They are current to each Tuesday. In the CoT week ending December 12th on the eve of the Fed’s fifth rate hike of this cycle, speculators dumped an astounding 49.9k long contracts while adding 20.5k new short ones! That was the largest selling on record out of 989 CoT weeks since early 1999!

These traders’ collective bets had run to such hyper-bearish extremes that they had to mean revert after whatever the FOMC did in mid-December. And that has indeed happened. But as long as gold prices just meander within that giant trading range established in the first half of 2016, it will be difficult to shift psychology back to bullish. This week’s strong gold surge on that dollar weakness is starting to change that.

Gold’s $1358 close in US trading Wednesday was 0.7% above its early-September peak. While not quite at that 1%+ threshold for a decisive breakout yet, this is still a major higher high. Gold has been carving higher lows periodically ever since late 2016 when that post-election selloff exhausted itself. But higher lows don’t spark excitement outside of existing gold investors, higher highs are necessary for that.

Gold needs to close over $1361 to see a decisive breakout above the last upleg’s peak. It has traded above that level intraday in both Asian and American trading since Wednesday’s close. It’s only a matter of time until $1361+ sticks on a closing basis. That’s going to finally confirm higher highs to go along with the past 13.3 months’ higher lows. But the real prize remains a decisive breakout to new bull highs.

The new gold bull again peaked at $1365 in early July 2016 within a couple weeks of the UK’s Brexit vote. That unexpected outcome of the British people voting to take back their sovereignty from the unaccountable European Union bureaucrats was such a shock to the markets that major central banks rushed to declare they were ready to print money if necessary. Stocks rallied sharply on hopes for more easing.

The S&P 500 had been drifting sideways to lower without a single new bull-market high for 13.7 months before that. Gold $1365 in July 2016 happened the very trading day before the S&P 500 finally climbed to its first new record high. With stock markets apparently off to the races again, gold demand waned as investors weren’t interested in diversifying. A single close above $1365 will finally confirm gold’s bull persists!

But if gold just touches those bull-to-date highs and fades, bearish technical analysts can easily dismiss it as a double or triple top. In order for gold to garner financial-media attention and attract investors’ gazes back to it, a decisively 1%+ breakout is necessary. That happens at $1379. Gold is so close to a major upside breakout to new bull highs, which will conclusively prove to all investors its current bull market still lives.

That will really start shifting psychology away from the overwhelmingly-bearish levels it’s been stuck at since late 2016. In a normal year gold’s strong 2017 rally would’ve gone a long way to restore bullish sentiment. But again gold was overshadowed last year by the extreme stock-market surge, which stole all the limelight. The blind spot investors harbor for gold will start fading when new bull-market highs are seen.

The exact timing is unknowable and not really important. Gold could power over $1379 within days, or it might take weeks. Investment gold buying will flare again really boosting gold once these extremely-euphoric mania-blowoff stock markets finally roll over. Stock selloffs are great for gold, and even a minor one will easily catapult it to decisive new bull highs. That will dispel the fog of bearishness plaguing gold.

$1400+ gold may seem high after a multi-year bear market followed by a couple years of drifting low in this stock-market-surge-interrupted bull market, but it’s really not. Gold first climbed above $1400 in November 2010 and largely stayed there until June 2013. Over that 2.6-year span gold averaged $1595! And it went as high as $1894 in August 2011. Gold is nowhere near historical extremes, still relatively low.

At best gold’s young bull was only up 29.9% over 6.7 months by mid-2016. That’s trivial as far as gold bulls go, a rounding error. During gold’s last secular bull between April 2001 to August 2011, gold soared 638.2% higher in 10.4 years! Today’s young gold bull would still be tiny even if it saw gold doubled, taking it to $2102. That would still be well below gold’s inflation-adjusted real high from January 1980.

As I’ve been arguing continuously since late 2016, this young gold bull ain’t over yet! Major central banks around the world have conjured many trillions of dollars out of thin air which have levitated world stock markets. That really depressed gold demand. But once these QE-bloated markets inevitably roll over on this year’s new Fed and ECB tightening, a record flood of flight capital will likely seek the ultimate hedge of gold.

Investors can play gold’s ongoing mean-reversion bull in physical gold bullion or the leading GLD SPDR Gold Shares gold ETF. But the coming gold gains will be really amplified by the gold miners’ stocks. As gold rises, gold miners’ profits grow much faster. Thus major gold-stock prices usually leverage gold’s upside by 2x to 3x. Smaller gold miners can double that again. Gold stocks yield life-changing gains in gold bulls.

In essentially the same span of that last gold bull ending in late 2011, the HUI gold-stock index rocketed 1664.4% higher! Last week I wrote an essay explaining why the parallel flagship GDX VanEck Vectors Gold Miners ETF was on the verge of a major $25 upside breakout on strong earnings potential. There’s no doubt investors will flood into gold stocks as gold psychology changes, ultimately driving incredible gains.

While every investor needs to have a 5%-to-10%+ portfolio allocation to gold for diversification purposes, great gold stocks should be added on top of that. The beaten-down and left-for-dead gold miners’ stocks are deeply undervalued today with gold still out of favor. This is the only sector in all the stock markets likely to power much higher when everything else heads lower. Great gold stocks are essential to own today!

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 gold’s bull-market breakout becomes apparent. 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 this gold bull’s third upleg is breaking out. This week gold closed above the peak from its second upleg, and is close to a decisive breakout. That puts gold within spitting distance of its bull-to-date high of $1365 from July 2016. Once gold powers decisively above those levels, it will confirm to all that gold’s bull is very much alive and well. That will work wonders to shift psychology back to bullish again.

Impressively gold is doing all this with stock markets still at mania-blowoff record highs. Gold investment demand explodes once stock markets roll over, which is what ignited and fueled this gold bull’s strong initial upleg in early 2016. So when the long-overdue and inevitable material stock-market selling finally arrives, gold’s advance will really accelerate. Get long before this major bull-market breakout changes everything!

The world’s leading gold-stock ETF is nearing a major upside breakout from key technical levels. GDX is getting closer to challenging and powering above $25. That would accelerate the sentiment shift in this deeply-undervalued sector back to bullish, enticing investors to return. Good operating results from the major gold miners in their upcoming Q4’17 earnings season could prove the catalyst to fuel this GDX $25 breakout.

The classic way to measure gold-stock-sector price action is with the HUI NYSE Arca Gold BUGS Index. But the HUI benchmark is being increasingly usurped by the GDX VanEck Vectors Gold Miners ETF as the gold-stock metric of choice. GDX is used far more often than the HUI in gold-stock analyses these days, both online and on financial television. I haven’t seen the HUI mentioned on CNBC for years now.

GDX does have major advantages over the HUI. Most importantly it is readily tradable as an ETF and with options. GDX’s component stocks and their weightings are also regularly updated by elite gold-stock analysts, keeping it current. The HUI is rarely if ever updated to reflect company-specific changes in the ranks of the world’s top gold miners. GDX is dynamic where the HUI is effectively static and outdated.

GDX also has limitations as a gold-stock metric though. It was only born in May 2006, so that’s the limit of its price history available for analysis. And because its managers are paid 0.51% of its assets each year to maintain this ETF, GDX is not as pure of measure of gold-stock performance as a normal index. Over a decade that adds up to a substantial 5% difference. Nevertheless GDX’s popularity continues to grow.

This week GDX had $7.7b in assets under management, dwarfing its direct competitors. That was 21x larger than the next-biggest 1x-long major-gold-stock ETF! GDX’s sister GDXJ Junior Gold Miners ETF weighed in at $4.7b, but that generally includes smaller gold miners. GDX is the undisputed king of the gold-stock ETFs. As a contrarian speculator, I watch GDX’s price action in real-time all day every day.

For an entire year now, GDX has meandered in a relatively-tight trading range between $21 to $25. As gold stocks periodically fell even deeper out of favor, this ETF slumped down near $21 lower support. Then as they inevitably rallied back out of those lows, GDX climbed back up near $25 resistance. That made for a roughly-20% gold-stock price range, certainly narrow by this sector’s standards and tough to trade.

This GDX chart over the past couple years or so highlights 2017’s gold-stock consolidation. With this unloved sector neither rallying nor falling enough to get interesting, investors mostly abandoned it over the past year. So gold stocks largely drifted sideways on balance, which certainly proved vexing for the few remaining contrarian speculators and investors. A GDX $25 breakout would greatly improve psychology.

Last year’s gold-stock performance per GDX was very poor. This ETF’s price climbed 11.1% in 2017, which is better than a kick in the teeth. But gold’s impressive 13.2% gain last year well outpaced the gold stocks’ performance. Normally the major gold miners’ stocks amplify gold advances by 2x to 3x, so GDX should’ve powered 26% to 40% higher in 2017. Gold stocks are only worthwhile if they outperform gold.

That’s because gold miners face many additional operational, geological, and geopolitical risks compared to just owning gold outright. So if the gold stocks don’t outperform gold, they simply aren’t worth owning. Seeing them lag the metal which drives their profits for essentially an entire year is extremely anomalous. It’s a reflection of the entire global markets proving extremely anomalous in 2017, an exceedingly-weird year.

Gold stocks normally perform much more like 2016 than 2017. A couple years ago GDX rocketed 52.5% higher in one of the best major-sector-ETF performances in all the stock markets. That greatly amplified 2016’s underlying 8.5% gold advance by 6.2x. All those gains rapidly accrued in that year’s first half, as GDX skyrocketed 151.2% higher in 6.4 months on a parallel 29.9% gold upleg! Gold stocks can really move.

But last year as extreme record-high stock markets and the even-more-extreme bitcoin popular speculative mania stole the spotlight from gold, gold stocks were largely left for dead. Speculators and investors alike wanted nothing to do with classic alternative investments when everything else proved much more exciting. Thus GDX hasn’t been able to decisively break out above its $25 upper resistance, despite trying.

GDX did power 34.6% higher in 1.8 months early last year, peaking on a closing basis at $25.57 in early February 2017. But that rally fizzled with gold’s when stock markets started surging to new records on hopes for big tax cuts soon from the newly-Republican-controlled US government. By early March GDX had retreated back down to $21.14, right at its $21 support line. At least that held strong throughout 2017.

The gold stocks soon rebounded into another rally, but that topped at $24.57 in GDX terms in mid-April. Again gold had stalled out amidst epic general-stock euphoria. Gold is the key to gold-stock fortunes, as traders only think about the gold miners when gold itself catches their attention. GDX was repelled right at its 200-day moving average, which can prove both major support or resistance depending on market direction.

By early May GDX was right back down to $21.10 again, increasingly establishing the clear consolidation trend seen in this chart. The gold stocks couldn’t rally significantly heading into their summer-doldrums lull, and GDX was soon right back down to $21.21 in early July. That very day I published an essay on gold stocks’ summer bottom, predicting a new upleg once those usual weak summer seasonals passed.

And that indeed happened, with GDX rebounding and then accelerating to power 20.2% higher to $25.49 by early September. That was right at its early-February peak, a critical level technically to see a major upside breakout. But once again gold didn’t cooperate, selling off sharply as general stock markets yet again blasted to another series of record highs on renewed hopes for big tax cuts soon. Taxphoria was huge!

Thus the gold stocks slumped again, falling back down near GDX’s strong $21 support as this ETF hit $21.42 on close in mid-December. That was the day before the Federal Reserve’s fifth rate hike of this cycle, so gold-futures speculators were scared. They irrationally fear Fed rate hikes are bearish for gold, even though history has long proven just the opposite. Gold and gold stocks surged after that hike as I predicted.

From the day before that latest FOMC meeting to this week, GDX rallied 13.8% to $24.37. Wednesday morning when I decided to pen this essay, GDX was nearing $24.50. So the long-awaited decisive $25 breakout is in easy reach. Gold stocks are a volatile sector, with 3%+ daily swings in prices relatively common. So all it will take to propel GDX above its $25 resistance is a few solid-to-strong sector up days.

The upcoming Q4’17 earnings season for the major gold miners in the next few weeks could prove the catalyst to spark serious gold-stock buying. Because gold stocks are so deeply out of favor, the small fraction of traders that even think about them assume they are struggling operationally. Throughout all the markets, traders wrongly attribute prices stretched to anomalous levels by extreme herd sentiment to fundamentals.

A month ago bitcoin skyrocketed near $20k as many traders believed such extremes were fundamentally righteous due to the underlying blockchain technology. Yet it was a popular speculative mania, extreme greed sucking people in. In early December I warned “Once this mania bitcoin bubble bursts, and it will, the odds are very high that bitcoin will lose 50% to 75% of its value within a few months on the outside!”

This week just over a month later bitcoin has indeed been cut in half, falling to $9k intraday. Extreme prices are the result of irrational and ephemeral herd sentiment, not fundamentals. Gold stocks are now stuck on the other end of the psychology spectrum, plagued with extreme fear. Since their prices have been so weak, traders think poor fundamentals must be the reason. But that’s simply not true at all.

As a contrarian speculator and market-newsletter writer for the past couple decades, few people are more deeply immersed in the gold-stock realm than me. Every quarter just after earnings season I dive into the actual operating and financial results of the major GDX gold miners. I’m eagerly looking forward to doing that again with their new Q4’17 results, which will be reported between late January and mid-February.

So now the latest quarterly results available from the major gold miners are Q3’17’s. I explored them for the top 34 GDX gold miners, representing almost 92% of its total holdings, back in mid-November. In Q3’17 these elite gold miners reported average all-in sustaining costs of $868 per ounce. That’s what it costs them not only to produce gold, but to explore for more and build new mines to maintain production levels.

Q3’17’s average gold price was $1279, which means the major gold miners were collectively earning profits around $411 per ounce. That made for hefty 32% profit margins, revealing an industry actually thriving fundamentally instead of struggling as herd-sentiment-blinded traders wrongly assume. Gold miners make such excellent investments because their mining costs generally don’t follow gold prices.

Gold-mining costs are essentially fixed during mine-planning stages, when engineers and geologists work to decide which ore to mine, how to dig to it, and how to process it. Once mines’ necessary infrastructure is built, their actual mining costs don’t change much. Quarter after quarter generally the same levels of equipment, employees, and supplies are needed to mine gold. So all-in sustaining costs hold pretty steady.

In the four quarters leading into Q3’17, the top-34 GDX gold miners’ all-in sustaining costs averaged $855, $875, $878, and $867. That works out to an annual average of $869, virtually identical to Q3’17’s $868 per ounce. Those flat AISCs happened despite the gold price varying greatly in that five-quarter span, with this metal slumping as low as $1128 and surging as high as $1365. Gold-mining costs are static.

So as long as prevailing gold prices remain well above all-in sustaining costs, mining gold remains very profitable and spins out big positive operating cashflows. And relatively-flat mining costs generate big gold-miner profits leverage to gold. These core fundamental truths about gold-mining stocks are what could help their upcoming Q4’17 results ignite the buying necessary to propel GDX above $25 for a major breakout.

These new Q4 results aren’t going to be spectacular, as gold’s $1276 average price last quarter was just under Q3’s $1279 average. But assuming flat all-in sustaining costs as usual, $868 in Q4 would still yield fat profit margins of $408 per ounce. That too is virtually unchanged from Q3’s $411. So the major gold miners as a sector shouldn’t see collective downside surprises in earnings in Q4, avoiding damaging sentiment.

It’s not the Q4’17 results that should spark major gold-stock buying, but their implications for the current Q1’18 quarter. While Q1 is young, gold is averaging nearly $1323 so far as of the middle of this week. That is already 3.6% above Q4’s average, which is a big move higher. If these gold levels hold and the major gold miners’ all-in sustaining costs hold, they are looking at Q1’18 profits way up at $455 per ounce!

That’s a whopping 11.5% higher quarter-on-quarter! Not many if any sectors in all the stock markets can even hope for such massive earnings gains. And if gold continues powering higher in the coming months in a major new upleg, Q1’s average gold price will be pulled higher accordingly. That means even larger major-gold-miner profits growth. These super-bullish prospects ought to rekindle material gold-stock demand.

Investors usually buy stocks not because of current earnings, but because of what they expect profits to do over the coming year or so. Rising gold prices coupled with flat costs give gold-mining profits growth in 2018 some of the greatest upside potential in the entire stock markets. Institutional investors should take notice of this as Q4’17 results are released, leading to funds upping their tiny allocations to gold stocks.

On top of that January tends to be a big news month for the gold miners, as many publish their cost and production outlooks for the new year. These reports tend to be bullish on balance, with the major gold miners forecasting higher production and lower costs tending to garner the most attention. So there’s good odds of positive newsflow over the coming weeks as well, drawing investors’ focus back to gold stocks.

All this shows why the gold miners’ stocks have usually enjoyed strong seasonal rallies in January and most of February. So GDX now has its best chance in a year of decisively breaking out above $25 in the coming weeks. That would work wonders for bearish gold-stock psychology. The more gold stocks rally, the better herd sentiment, and the more traders want to buy them. And GDX’s potential upside is huge.

This last chart encompasses nearly all of GDX’s entire history going back to early 2007, a half-year after it was birthed. Gold stocks remain wildly undervalued today, so GDX $25 and even its $31.32 seen at gold stocks’ latest major interim high in early August 2016 are super-low in longer-term context. GDX is actually still down near stock-panic levels, highlighting vast upside as gold stocks inevitably mean revert higher.

The shaded area in the lower right encompasses the last couple years. Despite GDX seeing one heck of a bull-spawning upleg in early 2016, the gold stocks remain very low. GDX itself actually hit an all-time low in January 2016. The gold stocks were trading at fundamentally-absurd prices as I pointed out that very week. That extreme anomaly was the product of fleeting herd sentiment, it had nothing to do with fundamentals.

So far in young 2018, GDX is averaging $23.66 on close. That’s actually worse than Q4’08’s $25.13, which was during the most-extreme market-fear event of our lifetimes. For the first time since 1907, the general stock markets suffered a full-blown panic in late 2008. Everything else including gold and its miners’ stocks were sucked into that epic maelstrom of fear. Traders were terrified, fleeing in horror from everything.

So GDX plummeted as low as $16.37 in late-October 2008, climaxing a devastating 71.0% drop in just 7.5 months. In that panic quarter of Q4’08, gold averaged just $797. While industry costs were lower then, the major gold miners were still earning much less in both profit-margin and absolute terms than they are today. Yet the average GDX share price was much higher in Q4’08 than it’s been over the past year!

The fact GDX could trade around $25.13 during a stock-panic quarter with $797 gold highlights the sheer madness of today’s gold-stock prices. Since 2017 dawned, GDX has averaged just $22.99 with $1261 average gold levels. Seeing gold-stock prices 8.5% lower despite strong profits and average gold prices being a whopping 58.2% higher makes zero sense! The gold stocks have to mean revert far higher from here.

That’s what happened after the extreme pricing anomalies of that late-2008 stock panic too. Over the next 2.9 years, GDX more than quadrupled with a 307.0% gain! Another proportional mean-reversion bull out of early 2016’s all-time GDX low would catapult this ETF back up near $51. That’s still more than another double from today’s levels. And with gold mining so profitable, this new bull’s gains should be far larger.

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

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 the leading GDX gold-stock ETF looks to be on the verge of a major breakout. The upcoming Q4’17 results from the major gold miners along with Q1’s higher prevailing gold prices ought to catch investors’ attention. The gold miners should prove very profitable in Q4, with prospects for big and fast earnings growth in Q1 and all of 2018 as gold powers higher. This should help GDX get bid well over $25.

Once gold stocks power decisively above that vexing upper resistance level of the past year, the shift in trader psychology back to bullish will really accelerate. Gold stocks should enjoy relatively-large capital inflows from institutional investors looking for undervalued sectors in an extremely-overvalued stock market. The forgotten gold miners’ stocks have a good chance to outperform everything again this year like in 2016.

2. Chinese gold dealers will be on holiday this year from about February 15 to February 21. This creates a significant vacuum in gold demand. As dealers and Chinese gold markets close, the gold price tends to soften in global markets.

3. The good news is that gold has a rough general tendency to rally strongly ahead of the Golden Week festival, and that’s happening right now.

4. Please click here now. Double-click to enlarge. Gold has reached the outer boundary of my $1340 – $1365 resistance zone.

5. A flag pattern is possibly forming. Note the nice pennant pattern that formed at the $1320 resistance zone area. I would also like investors to note that gold has burst through resistance at both $1300 and $1320 with ease.

6. Short term technical indicators are overbought and a pullback is expected. Hopefully the pullback is a flag pattern rather than something deeper.

7. Regardless, both the $1320 and $1300 price zones should now function as support on any pullback.

8. The $1365 area on this February futures chart is much more formidable resistance, because it represents the highs made when India’s Modi “trumped the Trumpster” by calling in the nation’s fiat money.

9. Modi did that on US election night, as India’s powerful gold buyers were buying enormous amounts of gold to bet on a Trump victory. Their bets were correct, but Modi ruined the payoff.

10. That horrific demonetization announcement was followed by “know your client” and GST tax policy announcements. In the short term, these policies were all negative for both gold and GDP growth.

11. Please click here now. A lot has changed since those policies were unveiled. The Indian gold jewellery market has almost finished restructuring.

12. Demand for gold in India is now very steady and rising. That trend is not just “here to stay” but here to accelerate!

13. The upcoming Indian Federal budget could feature some positive announcements for gold. The post office plan to help rural Indians buy more gold is just one of many proposals coming from India’s top jewellers. There’s also a chance for a duty cut, which is endorsed by the nation’s commerce department.

14. In America, Jerome Powell is set to become head of the central bank in just three weeks. His aggressive plans for more quantitative tightening, consistent rate hikes, and deregulation of small banks could be a game changer for the twenty-year bear market in US money velocity.

15. I’ve predicted he ends that bear market by the summer. That would be a game changer for the equally long bear market in gold stocks versus gold. I believe that bear market ended in 2014-2016, but gold stocks need a major money velocity bull cycle to stage serious outperformance against bullion.

16. I expect less useless talk from “Fed speakers” in 2018, and more boots on the ground action from Powell with deregulation.

17. In terms of money velocity, I’ve suggested that gold stocks are probably at a time that can be compared with the 1968 – 1970 period. Inflation is starting to rise, and interest rates are starting to rise. This is exactly what happened from 1968 to 1980, and over the next decade, gold stocks should perform much like they did in the 1970s.

18. Please click here now. Double-click to enlarge this dollar versus yen chart. The dollar broke below another low yesterday. Arguably, it could also be a neckline break on a head and shoulders top pattern.

19. The bottom line for the dollar: It looks like a train wreck against the yen, the yuan, the rupee, and the euro. A rally is expected now, but it should be modest. That fits with my “possible flag for gold” scenario.

20. One of Trump’s campaign promises was to lower the dollar against the fiat of other major economies. A bullish bet on the dollar is a bet against the president of the United States. I wouldn’t recommend taking that bet.

21. Please click here now. Double-click to enlarge this exciting Ripple blockchain currency chart. I tend to approach blockchain investing much like junior gold stocks; I buy a grub stake with 20% – 30% of the total fiat capital I’m willing to commit to the asset, hold 20% to buy at higher prices on pullbacks, and keep 50% to buy at much lower prices.

22. Right now, I’m a ripple buyer of all 10 cent pullbacks, with a $5 target for the next major move higher.

23. Please click here now. Double-click to enlarge. GDX looks like a technical “wonder kid” right now. Note the massive volume on the upside breakout from the rectangular drift pattern that is almost a flag! I expect India to provide the higher price gold floor foundation for a possible surge to the $1500 area for bullion.

24. In turn, Powell’s deregulation should make GDX look like bullion on steroids, and I expect it could stun most investors by making a new all-time high long before bullion does!

The rebound in the precious metals sector continues. Friday, Gold pushed to another new high, near $1340/oz. Gold stocks led by the HUI Gold Bugs Index and GDX also made a new high with juniors and Silver right behind. The greatest traders say the move comes first and then the reason later. When it comes to Gold we are always analyzing the reason behind the moves so we can distinguish between reactions and reflex moves and those moves that are part of a real bull market. The market may be starting to sniff out a potential big catalyst for Gold that could drive its breakout in 2018.

With respect to Gold and Bonds an important change has taken place in recent months. The two asset classes had been positively correlated. When rates declined, Gold moved higher. When rates rebounded, Gold struggled. That is what happens when inflation is low and not trending. However, now we see long-term Bonds (specifically the 10-year Bond) moving towards a breakdown while Gold is not far from a breakout. Look at the rolling 50-day and 200-day correlations at the bottom of the chart.

As we’ve written in the past, higher long-term yields are bullish when they rise faster than short-term yields. That is a steepening of the yield curve and indication of inflation.

At present, higher long-term rates could help bid Gold in a few different ways. First, for those who are seeking income they enhance the appeal of bonds relative to stocks. Second and more importantly, higher long-term rates will hurt what is an over-indebted economy and government at somepoint. Debt payments rise. Credit growth can slow. The threshold of that remains to be seen. Perhaps it could be 3.00% on the 10-year yield.

It is counterintuitive but upward pressure on long-term rates can be very bullish for Gold (in the present environment) as it necessitates the need for lower or stable long-term rates (amid an inflationary environment). It all comes back to debt. At somepoint rising rates negatively impact the economy and the government’s balance sheet. If that creates the need for central bank intervention and monetization while inflation is running then that is what can push Gold to $2000-$3000/oz in the next several years.

The stock markets have rocketed higher since Trump’s election win on hopes for big corporate tax cuts. This extreme rally has left stocks exceedingly overvalued and overbought today. A major selloff is long overdue and likely imminent. When stocks inevitably roll over and mean revert lower to rebalance away euphoric sentiment, gold is the main beneficiary. Gold investment demand soars when stocks materially slide.

Two trading days before the November 2016 presidential election, I published an essay that explored how stock-market action leading into elections really sways their results. Its conclusion based on long market history was “The stock markets overwhelmingly and conclusively predict Donald Trump will win!” That was a hardcore contrarian stance before Election Day, when such an upset seemed impossible to most.

Since Americans voted for our next president, the flagship S&P 500 broad-market stock index (SPX) has soared 28.6% higher in 14.0 months! That extraordinary rally was mostly driven by hopes for big tax cuts soon with Republicans newly controlling the US government. And they indeed delivered last month with a massive corporate tax cut. That sets up a classic buy-the-rumor-sell-the-news scenario for these record markets.

Ever since that election, Wall Street has argued that stocks are surging due to strong corporate-profits growth. But that’s not true according to hard valuation data. In late October 2016 just before Americans voted, the 500 companies of the SPX averaged trailing-twelve-month price-to-earnings ratios of 26.3x. Even before Trump won, stocks were already very expensive and nearing dangerous bubble territory.

For the past century and a quarter, average broad-market TTM P/E ratios have run 14x earnings. That’s fair value for stock markets, and twice that at 28x is formally bubble territory. Rather ironically during his campaign, Trump often warned about the stock-market bubble created by the Fed! While he loves these same stock markets now, they are a lot more expensive after this past year’s massive taxphoria-fueled rally.

2017 indeed proved a strong year for corporate profits as optimistic Americans spent money fast. Yet at the end of December a couple weeks ago, the elite SPX companies were averaging a TTM P/E way up at 30.7x! That’s well into bubble territory, and history has proven stock markets never fare well for long after valuations are bid up to such unsustainable extremes. That guarantees a major stock selloff looms.

Over roughly the same post-election span where the SPX blasted up 28.6%, SPX valuations rose 16.8%. That means about 6/10ths of the rally was driven by multiple expansion, higher valuations. Only 4/10ths can be attributable to rising corporate earnings, and even that is suspect. The economic optimism that was unleashed by the Republican sweep was huge, driving big spending. But that anomaly won’t last for long.

And the Republicans’ corporate tax cuts won’t magically rescue stocks. While good news for the US economy, they won’t do enough to work off today’s extreme bubble valuations. Wall Street estimates are generally for 10% corporate-profits growth this year due to lower taxes. That would merely push the SPX P/E back to 27.6x, near-bubble levels. Stocks are now way too expensive for corporate tax cuts to help much!

As the stock markets surged into the tax-reform bill’s actual passage in recent months, contrarian traders assumed any stock selling was being delayed. Why realize big capital gains in 2017 if tax rates might be significantly lower in 2018? But the stock markets have blasted even higher so far in January, with no meaningful selling yet materializing. That has left the SPX extremely overbought technically, a bearish omen.

In the first 4 trading days of 2018, the SPX surged another 2.6% higher. That’s truly an extreme rate of ascent by any standard. There are about 250 trading days per year, so annualize out these early-year gains and the SPX is skyrocketing at a 163% yearly rate! Obviously there’s zero chance 2018 could see such absurd gains. Ominously such a fast climb looks parabolic for a stock index as enormous as the SPX.

In late December the collective market capitalization of those 500 SPX companies was $24.4t. Such a vast number gives the stock markets great inertia. So a parabolic surge in the general stock markets will always be relatively muted. Unlike vastly-smaller assets like bitcoin, stock markets are far too large to catapult higher in the terminal phases of bull markets. The SPX’s early-2018 action has truly been extreme.

The stock markets are now dangerously overbought, implying a major selloff is probable and imminent. Overboughtness happens when stock markets surge too far too fast to be sustainable. There are many ways to measure overboughtness, but one of the best is looking at price levels relative to their own key moving averages. Well over a decade ago I developed Relativity Trading to empirically define this state.

200-day moving averages are probably the best price baselines over time, striking an excellent balance between filtering out daily noise and following long-term trends in force. A construct I call the Relative SPX looks at this dominant stock index as a multiple of its 200dma. It is simply calculated by dividing the SPX by its underlying 200dma each day. Charting the results over time yields illuminating trading insights.

In any trending market, prices tend to meander in well-defined ranges relative to their 200dmas. When they stretch too far above their 200dmas by their own historical standards, sharp selloffs soon follow to restore normalcy and rebalance sentiment. This chart superimposes the SPX itself in blue over the rSPX in red, highlighting the extreme overboughtness in the stock markets after early January’s euphoric surge.

The Relative SPX effectively flattens the SPX’s black 200dma line at 1.00x, and shows where the SPX is trading relative to that 200dma in perfectly-comparable percentage terms over time. As of this week, the rSPX soared as high as 1.103x! In other words, the mighty S&P 500 was stretched 10.3% above its key 200dma. Such extremes are very unusual and never sustainable for long, signaling major selloffs looming.

Relativity Trading looks at the past five calendar years’ trading action to define a relative range. For the SPX that now runs from 0.94x to 1.08x. When the SPX falls down near or under 94% of its 200dma, it’s very oversold so a major rally is very likely soon. But when the SPX climbs up near or over 108% of its 200dma, it’s very overbought heralding an imminent major selloff. Such fast price rises simply can’t persist.

This week’s rSPX levels hit a 4.4-year high, which might not sound too extreme. But other things need to be taken into consideration when high rSPX levels are reached. The trajectory of the 200dma is one of the most important. While 200dmas mostly rise in bull markets, that’s not always the case. Early in young bull markets 200dmas are still falling from the preceding bears. 200dmas can also drift lower in major corrections.

The last SPX corrections erupted in mid-2015 and early 2016, when the stock markets fell 12.4% in 3.2 months followed by another 13.3% in 3.3 months. A correction is technically a 10%+ SPX selloff. That pushed SPX levels low enough for long enough to drag its 200dma lower for the better part of several quarters. When stocks started rallying again, the rSPX shot to high levels before the 200dma fully turned higher.

Most rSPX extremes are seen early in bull markets or after corrections when stock prices surge higher before a declining or flat 200dma has time to catch up. But that certainly isn’t the case this year. The SPX’s 200dma has been rising sharply ever since Trump won the election in November 2016. Today’s rSPX extreme is much worse than it sounds because it’s coming from a high 200dma after a powerful rally!

Normal healthy bull markets see corrections once a year or so, when prices fall back to their 200dmas to work off greed and restore sentiment balance. Today’s SPX would have to drop more than 10% just to revisit its 200dma, a major selloff by recent standards. It’s been 1.9 years since the end of the SPX’s last correction, so the next one is long overdue. Extremely-overbought conditions like today help birth major corrections.

Considering how far and fast stock markets have rallied, how euphoric and complacent traders are today, and how extremely expensive today’s bubble-valued stock markets are, it’s hard to imagine the overdue and coming major selloff not at least testing the upper limits of corrections. That portends a selloff that nears 20%, which is probably the best-case scenario for the bulls. Anything beyond 20% is a new bear market.

And unfortunately that new-bear scenario is far more likely. As of this week this SPX bull has rocketed up an extreme 306.7% in 8.8 years, making for the third-largest and second-longest stock bull in all of US history! Much of those gains were fueled by epic central-bank easing far beyond anything ever before seen in world history. This year both the Federal Reserve and European Central Bank are slamming on the brakes.

The Fed just started its first-ever quantitative-tightening campaign in Q4’17 to unwind years and trillions of dollars of quantitative easing. QT is going to gradually ramp up in 2018 to a powerful $50b-per-month pace starting in Q4 this year. Per the Fed’s schedule, it will effectively destroy $420b of capital in 2018 by letting QE-purchased bonds roll off its balance sheet. Nothing remotely close has ever happened before!

On top of that the ECB just slashed in half its own QE campaign this month to a €30b monthly pace, with a targeted QE end date of September. That means ECB QE will collapse from €720b in 2017 to just €270b in 2018, a radical 5/8ths plunge. Between the Fed’s QT and ECB’s QE tapering, there will be the equivalent of $950b more tightening and less easing in 2018 compared to 2017! That’s going to leave a mark.

The Fed and ECB will literally strangle this stock bull by unwinding and slowing the QE that grew it. And this isn’t just a 2018 thing. In 2019 the Fed and ECB are on track to have another $1450b of tightening compared to 2017. So these stock markets are in real trouble with central-bank liquidity being pulled regardless of their extreme overvaluations and overboughtness. 2018 sure ain’t gonna look like 2017 at all!

Bear markets ultimately tend to cut stock prices in half, literal 50% losses in the SPX. The last couple bears that started in early 2000 and late 2007 saw the SPX drop 49.1% in 2.6 years and 56.8% in 1.4 years! Bear markets are exceedingly dangerous and not to be trifled with. They also tend to grow in size in proportion to their preceding bulls, so the next bear should be bigger than usual after such a massive bull.

A major stock selloff imminent, whether a serious correction or new bear, certainly sounds like bad news for investors. But like everything else in the markets, it offers huge opportunities to profit for contrarians who see it coming and prepare. A great Bible verse that applies to the inexorable stock-market cycles is Proverbs 27:12, “The prudent see danger and take refuge, but the simple keep going and pay the penalty.”

When stock markets start materially weakening, investors return to gold. Gold is the ultimate portfolio diversifier because it tends to move counter to stock markets. Gold is forgotten when stock markets are high and euphoria and complacency abound. But once major selloffs inevitably follow major rallies, gold demand explodes as investors rush to diversify their stock-heavy portfolios. Gold is effectively the anti-stock trade.

As you’d imagine with today’s taxphoria-crazed stock markets, gold investment is really low. One metric to approximate stock investors’ capital deployed in gold is the ratio between the SPX’s market cap and the value of the leading GLD SPDR Gold Shares gold ETF. At the end of December, those 500 elite SPX companies were collectively worth $24,432.5b. That dwarfs the meager capital now deployed in GLD shares.

GLD exited 2017 holding 837.5 metric tons of physical gold bullion in trust for its shareholders. That was worth just $35.1b at $1302 gold. That means only 0.14% of the stock-market capital invested in the SPX companies is invested in the world’s leading gold ETF. I’ve studied the history of this ratio, and it is usually much higher. From 2009 to 2012 for example, GLD holdings’ value averaged 0.48% of SPX market cap.

So there’s no doubt today’s stock investors are radically underinvested in gold. They couldn’t care less about it when stocks apparently do nothing but rally indefinitely. But once the next major stock selloff arrives, gold investment will quickly return to favor. This chart looks at the SPX and gold over the past few years. The last major stock-market correction was actually the catalyst that birthed today’s gold bull!

Mid-2015 was similar to late 2017 in stock-market terms. The SPX was relentlessly powering to endless new record highs while volatility was exceptionally low. Like today, stock traders were excessively bullish and hyper-complacent. It had been a near-record 3.6 years since the last correction, so people foolishly assumed stock-market cycles had vanished. Yet not even extreme central-bank easing can eliminate cycles.

That’s because they are ultimately fueled by the herd behavior of greedy and fearful humans. As long as these powerful warring emotions drive collective trading decisions, stock-market cycles will persist. Gold was despised in that record-stock-market environment, ultimately slumping to a deep 6.1-year secular low late that year. Gold-futures speculators were deeply afraid of the Fed’s coming first rate hike of this cycle.

But when the stock markets finally started falling again, triggered by sharp selloffs in the Chinese stock markets, gold rocketed higher. Stock investors watching their portfolios bleed rushed to get back some gold exposure to mitigate the stock losses. They flooded back into gold with a vengeance, catapulting it 29.9% higher in just 6.7 months in essentially the first half of 2016. That gold-bull uptrend continues today.

In Q4’15 when gold was largely forgotten and despised, GLD’s holdings fell 45.0 metric tons or 6.6%. But in Q1’16 after stock markets corrected sharply, GLD’s holdings soared 176.9t or 27.5% higher! Gold investment demand turned on a dime, and the trigger was the last stock-market correction. Stock selloffs driving surging gold buying is nothing new, so gold will certainly rally again in and after the next SPX correction.

When stock investors want gold exposure fast, they naturally turn to GLD. This gold ETF acts as conduit for the vast pools of stock-market capital to slosh into and out of gold. GLD’s mission is to track the gold price. So when stock investors buy GLD shares at faster rates than gold is rising, this ETF’s price will soon decouple to the upside and fail its mission. GLD’s managers prevent this by shunting that buying into gold.

When GLD-share demand exceeds gold’s own, GLD issues new shares to offset and absorb the excess. The capital raised from these sales is used to directly buy more physical gold bullion for GLD to hold in trust for its shareholders. Big GLD buying by American stock investors alone catapulted gold’s price far higher in Q1’16. That 176.9t surge in GLD’s holdings accounted for 95.2% of the total jump in world gold demand!

So if today’s literally-bubble-valued extremely-overbought hyper-complacent stock markets concern you, start upping your gold allocation before everyone else does. Since gold rallies when stock markets sell off, it’s the ultimate portfolio diversifier. While forgotten when stock markets are high and euphoric, gold is quickly remembered and returned to once material stock selloffs inevitably erupt. Early contrarians win big.

In roughly the first half of 2016 after the last SPX correction, gold again powered 29.9% higher. Investors could’ve easily played that in GLD shares. But when gold rallies significantly, the greatest gains are won in the gold miners’ stocks. Their profits are really leveraged to prevailing gold prices, so their stocks tend to amplify gold gains by 2x to 3x. In roughly the first half of 2016, the leading gold-stock index soared 182.2% higher!

With these taxphoria-inflated stock markets hyper-risky today, the potential upside in gold stocks is huge. This sector is often the only big winner during major stock-market selloffs, whether just bull corrections or full-on bear markets. Gold investment demand surges when stock markets materially sell off, driving gold sharply higher. The great gold miners’ stocks with superior fundamentals greatly leverage gold’s gains.

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 Q3, this has resulted in 967 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 +19.9%!

The bottom line is stock selloffs are great for gold. This leading alternative investment is ignored when stocks are high. But since it rallies when stocks weaken, demand soars for portfolio diversification during material stock selloffs. Gold is ready to power higher again once these extreme stock markets inevitably roll over. The next major selloff is imminent given the bubble valuations and extreme overboughtness today.

Republicans’ new corporate tax cuts are good news for the economy, but they won’t boost profits anywhere near enough to work off these dangerous overvaluations. And with the Fed and ECB both engaging in unprecedented tightening campaigns this year, stock markets face fierce monetary headwinds. Gold is the best place to take refuge and grow wealth as normal stock-market cycles finally resume again.

The rally in Gold and gold mining stocks easily surpassed our expectations and targets. The strength has been far more than we anticipated. The gold stocks blew past their 200-day moving averages while Gold blew past $1300/oz. Now it is time to take a technical look and focus on the key support and resistance targets.

The strength of the rebound pushed the miners well beyond their 200-day moving averages and to their June and October highs. GDX is consolidating just below $24 while GDXJ is consolidating just below $35. If this consolidation turns into a correction then GDX and GDXJ could find support at their 200-day moving averages which are at $22.71 and $33.37 respectively. As you can see, should GDX and GDXJ be able to exceed recent peaks then they could rally towards important resistance levels. Those are $25.50 for GDX and $38 for GDXJ.

The rally has been just as strong in Gold as it surpassed resistance in the $1300-$1310/oz zone. Gold closed the week at $1322/oz. Should Gold pause or correct here then the sellers could push the market down to previous resistance but now current support at $1300-$1310/oz. Trendline resistance will come into play near $1340/oz while the 2016 and 2017 peaks would provide resistance in the $1350-$1370/oz zone.

While we are at it, let us take a look at Silver which exploded past resistance in the mid $16s. Silver will face resistance first at $17.75 then at $18.50. A break above $17.75 and the red trendline is the first step for Silver. The second would be reaching $18.50, a new 52-week high. Next week Silver will face immediate resistance around $17.30 (the October and November highs) but it will have strong support in the mid to upper $16s.

The precious metals complex has made important progress in recent weeks. Markets have broken key resistance levels and have showed no signs of slipping anytime soon. Gold is holding above previous resistance at $1300-$1310/oz while not being far from multi-year resistance in the mid to upper $1300s. The gold mining stocks have reclaimed their 200-day moving averages while consolidating tightly beneath the June and October highs. If and when GDX and GDXJ break those levels then they will be only one step away from a full blown bull market. That step is breaking above the September highs.

In recent weeks our tone has shifted and as such we have accumulated a few new positions. We seek the juniors that are trading at reasonable values and have technical and fundamental catalysts to drive increased buying. To follow our guidance and learn our favorite juniors for 2018, consider learning more about our premium service.

Jordan@TheDailyGold.com

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Rock My Golden Block!” report. I highlight two key crypto currencies for blockchain beginners, and eight junior gold stocks that are “Must Have” stocks for 2018, with key buy and sell points for each stock!

The gold miners’ stocks have huge upside potential in 2018, likely the best among stock-market sectors. They really lagged gold last year, so a major mean-reversion catch-up rally is coming. The gold miners are universally ignored and deeply undervalued relative to the metal which drives their profits. And gold itself is likely to power dramatically higher this year as euphoric record-high stock markets inevitably start to falter.

Gold has always been the leading contrarian investment, tending to move counter to stock markets. So not surprisingly investment demand stalled last year as the extreme taxphoria-fueled stock surge blasted relentlessly higher. When stock markets apparently do nothing but rally indefinitely, investors feel no need to prudently diversify their portfolios with the anti-stock trade gold. So they ignored the yellow metal in 2017.

That was certainly evident in the leading proxy for gold investment demand, the flagship American GLD SPDR Gold Shares gold ETF. Its physical gold bullion held in trust for shareholders merely grew 1.9% or 15.3 metric tons in 2017. That was a colossal slowdown from 2016’s massive 28.0% or 179.8t growth! Given the weak gold investment demand last year, it’s rather impressive how well gold managed to perform.

Big up-years in the stock markets sometimes drive big down-years in gold, and 2013 was a key case in point. That year extreme Fed easing catapulted the benchmark S&P 500 broad-market stock index (SPX) an amazing 29.6% higher. Exuberant investors wanted nothing to do with gold, and dumped it in droves. So the gold price plummeted 27.9% in 2013, leaving deep psychological damage that persists to this day.

In 2017 the SPX soared 19.4% on hopes for big tax cuts soon from the newly-Republican-controlled US government. Extreme complacency, greed, euphoria, and even hubris ran rampant among investors. It was a perfect scenario to see gold crushed again on a mass exodus of investor capital. Yet despite the stock markets enjoying their best year since 2013, gold was still able to achieve a strong 13.2% gain in 2017!

Nevertheless, the wildly-optimistic stock-market sentiment drowned out everything else so psychology in precious metals remained exceptionally weak. The leading indicators for gold sentiment are this metal’s peripheral leveraged plays of silver and gold miners’ stocks. Both typically amplify gold’s upside by 2x to 3x. But oddly in 2017 despite gold’s big rally, silver and the main gold-stock index only climbed 6.4% and 5.5%.

That index is of course the NYSE Arca Gold BUGS Index, better known by its symbol HUI. It is closely mirrored by the dominant gold-stock ETF, the GDX VanEck Vectors Gold Miners ETF. The composition of these gold-stock trackers is very similar by necessity, as the universe of major gold miners to pick from when building indexes is small. Without scales, it’s impossible to tell the difference between HUI and GDX charts.

In a 13.2% gold up-year like 2017, the HUI really should’ve leveraged that by 2x to 3x to enjoy solid annual gains of 26.4% to 39.7%. Yet because investors weren’t interested in either gold or its miners’ stocks, the HUI languished with that miserable 5.5% gain last year. That made for terrible 0.4x leverage to gold, which is wildly unacceptable. Gold miners must generate greater returns than gold to be viable investments.

Owning gold miners is much riskier than simply owning gold itself. On top of all the price risks that gold faces, the miners heap many additional operational, geological, and geopolitical challenges. They must compensate investors for these considerable added risks relative to owning gold outright, or there is truly no point in owning them at all. 2017 was a rare anomaly where they dramatically lagged gold’s solid rally.

That’s very unlikely to persist into 2018, as we’re already seeing. Since the Fed’s 5th rate hike of this cycle in mid-December, gold and the HUI have rallied 5.5% and 12.8% as of the middle of this week. That makes for solid 2.3x upside leverage, already a vast improvement over last year’s 0.4x. Thus investors are already returning to gold stocks in a meaningful way, and this young trend should accelerate.

The gold miners’ stocks are radically undervalued fundamentally after so horribly underperforming gold last year. Gold mining is a simple business from a profits standpoint. Miners painstakingly wrest gold from the bowels of the Earth, then sell it at prevailing market prices. So their earnings are the differences between current gold prices and mining costs. Gold-mining profitability was actually fairly strong in 2017.

Right after quarterly earnings seasons, I dig into the newest reports from the world’s top gold miners included in that leading GDX gold-stock ETF. In their latest-reported quarter of Q3’17, the top 34 GDX component gold miners averaged all-in sustaining costs of $868 per ounce. AISCs are this industry’s main profitability measure, accounting for not only mining but maintaining production by replenishing reserves.

One of the primary attributes that makes gold stocks so attractive to investors is the fact these costs don’t change much regardless of prevailing gold prices. Over the past 7 quarters ending in Q3’17, GDX’s top-34 gold miners reported average AISC of $833, $886, $855, $875, $878, $867, and $868. That makes for a tight variance, despite gold trading as low as $1074 and as high as $1365 during this same span.

These quarterly major-gold-miner average AISCs within this gold bull have their own mean of $866, so let’s assume this industry can operate at $865 all-in sustaining costs. In 2017 gold averaged $1258 per ounce, so the major gold miners were collectively earning profits of $393 per ounce. That equates to hefty 31% profit margins, levels most industries would die for. Yet gold-mining stocks certainly didn’t reflect this!

The HUI averaged just 196.0 in 2017, incredibly-low levels. This leading gold-stock index first hit 196 in September 2003 when gold was only trading near $375. Back then the major gold miners were far less profitable in both absolute and percentage terms. In 2004 the HUI averaged 212.2, considerably better than 2017 levels despite gold’s super-low average price of $409 that year. Today’s gold-stock prices are absurd!

In 2010 the gold price averaged $1228, a bit below 2017’s $1258. Yet the HUI averaged 471.5, or a whopping 141% higher than last year’s ridiculous levels. The gold miners’ stocks are now priced as if this industry was operating at massive cashflow losses with its very future viability called into question. Yet obviously that isn’t the case, as the gold miners are generating big positive cashflows and profits today.

The only explanation for this epic fundamental anomaly is extreme sentiment, which never lasts for long. Because the stock markets soared in taxphoria last year, investors shunned gold and everything related to it. Thus the gold stocks fell deeply out of favor, universally ignored if not scorned. When that weird psychology inevitably shifts, the beaten-down gold stocks are going to stage a massive catch-up upleg.

There’s plenty of precedent for that. Back in early 2016 when the general stock markets suffered their last correction, gold investment demand exploded for prudently diversifying stock-heavy portfolios. The SPX only fell 13.3% over 3.3 months, but even that minor correction was enough to rekindle big gold buying. That catapulted gold 29.9% higher in 6.7 months, birthing its first new bull market since 2011!

Like today, gold stocks were neglected and anomalously-cheap before that last stock-selloff-driven gold upleg. Then in roughly that same first-half-of-2016 span, the HUI skyrocketed 182.2% higher in just 6.5 months! That made for amazing 6.1x upside leverage to gold. When gold stocks have underperformed their metal, their catch-up rallies are huge and greatly amplify gold’s gains. 2018’s action should echo 2016’s.

Gold stocks certainly have the potential today to see similar fast gains this year to their near-triple in a half-year on gold powering less than a third higher a couple years ago! The lead-in to 2018 was very similar to that lead-in to 2016, with gold stocks deeply out of favor and thus languishing at fundamentally-absurd price levels relative to their profits. But the vast majority of traders haven’t figured this out yet.

Investment is all about buying low then selling high, and that requires buying when assets are unpopular and thus underpriced. Unfortunately most investors ultimately perform poorly because they reverse this. They instead wait to buy until assets are adored, which forces them to buy really high. Then once those assets inevitably mean revert to much-lower levels, investors succumb to popular fear and sell low for big losses.

In late 2015 just like in late 2017, the contrarian gold-stock sector was despised. Few investors were even aware of it, and most of those didn’t want to touch it with a ten-foot pole. Yet in 2016, the gold stocks were the best-performing stock-market sector. The HUI rocketed 64.0% higher that year on a mere 8.5% gold rally, trouncing the SPX’s 9.5% gain! Fighting the crowd to buy low really multiplies wealth.

There’s a high probability the gold miners’ stocks will once again prove the best-performing stock-market sector in 2018. There’s virtually nothing else deeply out of favor and radically undervalued in these entire taxphoria-inflated stock markets! Everything else has already been bid dramatically higher, and thus is susceptible to suffering sharp selloffs as the stock markets roll over. Gold stocks are the only bargains left.

Since prevailing gold prices directly drive gold-mining profitability and hence ultimately stock prices, the HUI/Gold Ratio is a great valuation proxy for this sector. It simply divides the daily HUI close by the daily gold close. When charted over time, this core fundamental relationship reveals when gold stocks are overvalued or undervalued relative to gold. And there’s no doubt the latter is true in spades heading into 2018.

Despite the gold miners’ nice post-FOMC-meeting rally in recent weeks, they left 2017 trading at an HGR of just 0.148x. In other words, the HUI was trading at just under 15% of the gold price. This ratio means nothing in isolation, but years of history shows when gold stocks are high or low compared to gold. And they almost couldn’t be lower today, or more undervalued. Essentially only 2015 saw worse gold-stock prices.

That happened to be the climaxing stretch of a major gold bear that ran 6.1 years leading into the Fed’s first rate hike of this cycle in December 2015. The HGR slumped to all-time lows near 0.09x late that year, extreme and unsustainable. And indeed the gold stocks rallied sharply out of that anomaly, again nearly tripling in a half-year. Gold-stock prices remain super-low, overdue to mean revert dramatically higher.

This long-term HGR chart encompasses a 15-year secular span that included every conceivable market condition for gold and its miners’ stocks. The HGR averaged 0.341x through all of it, or fully 2.3x higher than today’s extreme lows. That means the gold stocks as measured by the HUI ought to be trading at least 127% higher than today’s levels! And that’s assuming gold just stalls out instead of rallying further.

Instead 2018 is almost certain to see gold surge dramatically higher in its next major bull-market upleg. That leaves the gold stocks with early-2016-like potential to skyrocket again, greatly outperforming gold until their stock prices catch up or more likely overshoot to the upside. The driver will once again be these euphoric stock markets rolling over into their next correction or more likely the long-overdue bear market.

Despite the extreme stock euphoria as 2018 dawns, today’s stock markets are hyper-risky. They have powered higher for years now on extreme central-bank easing before the recent taxphoria. But that has forced them to exceedingly-dangerous bubble valuations. The SPX left 2017 with its elite component stocks sporting an average trailing-twelve-month price-to-earnings ratio of 30.7x, above the 28x bubble threshold!

The SPX has now gone 1.9 years without a 10%+ correction, and such selloffs tend to happen at least once a year in healthy bull markets. Now that the highly-anticipated Republican corporate tax cuts have indeed come to pass, 2017’s taxphoria will naturally fade. The more-optimistic Wall Street estimates are for those tax cuts to boost corporate earnings by 10% in 2018, which still won’t justify today’s lofty stock prices.

If this year sees SPX earnings indeed grow 10%, that still leaves its components’ average P/E ratio way up at a near-bubble 27.6x! Stock valuations are so extreme after an extraordinary 8.8-year 301.0% SPX bull market that the biggest US corporate tax cuts ever will barely put a dent in bubble valuations. That leaves stock markets at risk for their first correction-grade selloff since early 2016, which is great news for gold.

But the real coup de grâce to these euphoric record stock markets will be this year’s enormous central-bank tightening radically unprecedented in history. The Fed’s new quantitative-tightening campaign is ramping up in 2018, starting to unwind years of epic quantitative easing. And the European Central Bank is sharply tapering its own QE bond buying by slashing it in half. Together this will strangle this stock bull.

There is nothing more important to the global markets this year than this unparalleled tightening by both the Fed and ECB. I wrote a whole essay analyzing it in depth back in late October, which every investor needs to understand! Compared to 2017, 2018 and 2019 will respectively see $950b and $1450b more tightening and less easing from the Fed and ECB! Nothing remotely like this has ever before been witnessed.

When these central-bank-easing-inflated record stock markets face the biggest central-bank tightening in world history, while trading at bubble valuations no less, the only possible outcome is a serious selloff. At best it will be a major correction approaching 20% in the SPX, but far more likely a new bear market. Those tend to run near 50% losses over a couple years, annihilating wealth of investors who get trapped in them.

Just like in early 2016, the long-overdue next major stock-market selloff will quickly rekindle major gold investment demand. Investors will remember gold when their stock-heavy portfolios start tanking, and rush to diversify into it. The reason gold rallied 29.9% in roughly the first half of 2016 is investors flooded back into gold following the last SPX correction. That was led by American investors heavily buying GLD shares.

This dominant global gold ETF saw its holdings skyrocket 55.7% or 351.1t over that same short span! That was just after a 13.3% SPX correction. Imagine the gold investment demand if we approach 20% or go beyond into the inevitable next bear. The differential GLD-share buying forcing stock-market capital into physical gold bullion could very well be unprecedented. That’s exceedingly bullish for gold stocks!

When this gold-demand-killing stock euphoria inescapably breaks, gold could easily power another 30% higher in 2018. But let’s be conservative and look for a 20% upleg, which would leave gold near $1563. That’s still well below gold’s all-time high of $1894 in August 2011, not extreme by any measure. Gold was above $1550 almost continuously for 1.8 years between July 2011 to April 2013, we’ve seen it before.

At $1565 gold and those top-34 GDX gold miners’ average all-in sustaining costs of $865 during this gold bull, their profits would soar to $700 per ounce! That’s 78% above 2017 levels. There’s nowhere else in all the stock markets where such huge earnings growth is even possible, let alone probable. Such a big surge in profits coupled with excessively-low gold-stock prices would lead to huge fundamentally-driven gains.

At $1565 gold and that 15-year-average 0.341x HGR, that implies the HUI fair value is around 534. That is 170% above this week’s gold-stock levels. Thus much like early 2016, the gold stocks truly have the potential to nearly triple again in 2018 on higher gold prices! Even better, after being excessively low the gold stocks tend to not just mean revert but overshoot to overvaluations. So their upside potential is huge.

The gold stocks are really a coiled spring today, ready to explode higher in 2018 and trounce everything else. They are deeply out of favor, incredibly undervalued, and one of the only sectors that can rally sharply when general stock markets sell off. If you want to multiply your wealth this year by fighting the crowd to buy low then sell high, this small and forgotten contrarian sector is the place to be. Nothing else rivals it.

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

The bottom line is gold-stock upside potential is huge in 2018. The gold miners really lagged gold last year due to the extreme stock euphoria gutting gold sentiment. That left gold stocks deeply out of favor and exceedingly cheap relative to the metal which drives their profits. This extreme anomaly won’t last for long, as investors will flood back into these fundamental bargains as gold starts powering higher again.

Gold investment demand is set to surge again when these euphoric stock markets inevitably roll over into their next major selloff. The likely trigger will be massive central-bank tightening at wildly-unprecedented levels. The last time stock markets corrected, gold shot up almost a third while gold stocks nearly tripled in merely a half-year! 2018 is perfectly set up for a similar scenario, portending massive gold-stock gains.

The geological model Bonterra Resources (TSX-Venture: BTR) is applying to its Gladiator gold project in the Abitibi belt of Quebec is proving to be a reliable predictor of where extensions of the already substantial deposit will appear.

As a result, the Vancouver-based company has been able to quickly expand the known gold mineralization along strike and at depth and is finding multiple new mineralized horizons within the 105 square kilometre land package.

“We let the deposit do the talking,” says Dale Ginn, Bonterra’s Vice-President of Exploration. “It’s a classic stacked vein system that responds well to a combination of till sampling, magnetics, and LIDAR (remote sensing using lasers).”

The Gladiator gold deposit occurs within highly silicified, altered and sheared mafic volcanics, with local intrusions of syenite and quartz porphyry. Smoky quartz veins contain most of the mineralization including free gold, minor pyrite, chalcopyrite and sphalerite, especially in or near the vein contacts.

In 2012 Snowden Mining Industry Consultants identified an inferred resource of 905,000 tonnes grading 9.37 grams gold per tonne (273,000 contained oz.) within a relatively small deposit.

Since then, Bonterra has extended mineralization to a strike length of 1,200 metres and a depth of 1,000 metres below surface. The deposit remains open in all directions and drilling has identified at least five distinct sub-parallel zones.

The Abitibi greenstone belt straddling the mining-friendly jurisdictions of Ontario and Quebec is receiving a great deal of attention these days because of its potential to host more gold deposits such as Gladiator within an already prolific camp with excellent infrastructure. A relatively high gold price, at roughly US$1,300 per oz., is an added incentive.

The Urban-Barry sub-belt that hosts the Gladiator deposit is an underexplored section of the Abitibi. Encouraged by progress at Gladiator, Bonterra has more than doubled its land position along the northeast trending shear structure and its exploration team is consistently intersecting high-grade zones at mineable widths with step out drilling.

“Bonterra has found a new high-grade deposit that looks like it will have some size and that’s a very rare thing, especially within a jurisdiction that is open for business,” says Ginn, an experienced geologist and mine executive who has participated in several gold and base metal discoveries. “Every single drill hole is adding ounces and the mineralization is becoming predictable.”

High profile investors have taken note. In March, Kinross Gold (TSX: K; NYSE: KGC) purchased a 9.5% stake in the company for $5.2 million. Other major shareholders include Eric Sprott, Kirkland Lake Gold (TSX: KL; NYSE: KL) and New York-based Van Eck. Their confidence in the junior has had a domino affect, allowing Bonterra to raise another $35 million through two oversubscribed bought deal financings and one private placement.

As a result of the recent deals, Bonterra now has about 162 million shares outstanding and a market capitalization of $65 million. Shares have been trading in a 52-week range of 21-55 cents with recent trades closer to 40 cents.

With exploration financing secured, Bonterra will ramp up its drill program at Gladiator, adding two drills to the four already turning. Some of the work will focus on infill drilling in preparation for an updated National Instrument 43-101 resource estimation in the first half of 2018. The rest will test exploration targets identified along the company’s extensive land package.

If Bonterra continues to demonstrate continuity in the 800 metre long gap (the “Rivage Gap”) between the Rivage Zone — once thought to be a distinct, separate deposit to the west — and Gladiator, resources would increase significantly from the 273,000 ounces identified by Snowden. Recent drill results within the gap include 3.8 metres grading 16.8 gpt and three metres grading 21.5 gpt gold.

Bonterra also has a 100% stake in the Larder Lake project in the Abitibi belt, acquired in 2016 for $4 million in cash and shares, or approximately $4 per ounce of gold in historical resources. The property hosts the Bear Lake, Cheminis and Fernland deposits that occur along 10 kilometres of the Cadillac-Larder break between Kirkland Lake and Virginiatown in Ontario.

Various groups have drilled more than 100,000 metres at Bear Lake over the years and the deposit remains open at depth. It has two shafts and mine development extends to a depth of 330 metres. With access to such an extensive database for modelling, Bonterra intends to conduct a thorough geological review of the historical data and conduct further exploration based on the results.

But for now, all eyes are focused on Gladiator, where an aggressive drilling program is confirming and adding ounces to a gold deposit that drew the attention of sophisticated investors early on and continues to reward them.

— The preceding Joint Venture Article is promoted content sponsored by Bonterra Resources Inc. and written in conjunction with The Northern Miner. Visit bonterraresources.com to learn more

— Bonterra is an advertiser with MiningFeeds.com. MiningFeeds was compensated in cash for marketing services. This article was published with permission from management at Bonterra Resources.

1. The world’s most awesome asset is taking the world gold community into the new year with grand style. Pleaseclick here now. Double-click to enlarge. Gold has stunned most analysts and roared to my $1310 target price without missing a heartbeat!

2. The bull wedge pattern is both majestic and powerful. The ultimate price target of this pattern is a minimum price of $1350 and arguably as high as $1490.

3. When “QE to Infinity” and the death of the American economy was accepted as “the new normal” in both the gold and mainstream communities, I argued vehemently against that view.

4. Instead, I laid out an intense scenario involving an imminent multi-year process that would involve a taper to zero, relentless rate hikes, quantitative tightening, and ultimately a massive reversal in US M2V money velocity.

5. I’ve predicted this reversal will create a powerful bull cycle in gold and silver stocks, making them one of the best performing assets on the planet.

6. Please click here now. I think many gold investors are underestimating just how little inflation it really takes to create an institutional panic in US stock and bond markets.

7. I’ve predicted that this inflation likely happens by mid-2018. Clearly, institutional investors view even a modest rise of inflation as a major concern, if not outright panic. Please click here now. This is the type of statement that entices institutional money managers to buy lots of gold, silver, and mining stocks.

8. They like to see consistent price appreciation with reasonable volatility, and a modest rise in inflation is exactly what the doctor has ordered to make that happen.

9. I realize that the election of President Trump has been wildly celebrated by many gold market investors. They are fed up with the endless socialism and war mongering policies that have hallmarked recent administrations, but I would caution investors that presidents don’t change the nature of business cycles.

10. The policies that presidents enact tend to slightly limit or magnify the business cycle, but most of what happens in business is not related to the actions of the president. It’s related to inflation, wages, interest rates, corporate earnings, demographics, and stock market valuations.

11. There has been a sudden focus in the gold community on US GDP growth being “set to rise” under Trump. In contrast, like myself, most institutional investors are now focused on the rise of inflation in this late stage of the business cycle.

12. This inflation tends to appear suddenly and can cause great harm to stock market investors. At the current point in the business cycle, tax cuts without government revenue cuts are inflationary. Imminent bank deregulation is also inflationary.

13. The bottom line for President Trump: From a fundamental perspective, almost everything he is doing can boost growth in the next business cycle, but it will boost inflation more than growth at this stage in this cycle.

14. Around the world, the situation is similar. The government in India is taking action that should boost growth, but boost inflation more than growth.

15. Inflation is also beginning to pick up in Japan, and the end of QE there could move enormous amounts of capital out of the deflationary hands of the central bank and into the inflationary hands of the fractional reserve commercial banking system.

17. The fact that silver acts and feels timid at the point in the rally is good news. It tends to lead gold near the end of major rallies, and I’ll suggest that this inverse head & shoulders bottom pattern indicates that a major upside inflationary scenario is just beginning. Note my medium term $21 – $22 price target.

18. Silver investors should be going into 2018 with a feeling of great confidence, because this mighty metal tends to get serious amounts of institutional respect when inflation moves higher. For all investors, silver bullion and leading silver stocks should be a key holding now.

19. Please click here now. Double-click to enlarge this ominous dollar versus yen chart. Major FOREX investors flock to gold and the yen when risk in stock and bond markets grows. I believe the head and shoulders topping action on the dollar relates to institutional concern about inflation. This price action is great news for gold investors around the world.

20. Please click here now. Double-click to enlarge. Blockchain (crypto) currencies are consolidating their recent spectacular gains against the government fiat bubble currencies. Blockchain currency is newer, fresher, and better than fiat, and the current consolidation in the sector is very healthy. I was happy to see Mr. James “Gold Is Money” Turk recently call government fiat a bubble against blockchain. He’s a highly respected man whose views carry weight in the gold communy, and it’s great to see him join the “Fiat is the bubble, not blockchain!” team.

21. I highlight the crypto currencies on the move with my www.gublockchain.com newsletter. Ripple is a key currency with major institutional backing. That makes it a solid holding for me. Note the classic bullish technical action occurring on this chart. Volume rose as ripple rallied, and declined as the price softened. Both the price and volume have been quiet over the holiday. Ripple appears poised to surge higher imminently, probably to my five dollar target price zone.

22. Please click here now. Double-click to enlarge this great GDX chart. As inflation rises modestly at first, and then enough to create a stock and bond markets crash, I expect GDX to deliver bitcoin-style performance to the upside.

23. In the short term, the GDX price action is technically powerful. In the long term, I think relentless inflation will help Chindian citizens fall in love with Western gold stocks. While it will take time, that love affair should drive GDX to at least $5000 a share, and perhaps to as high as $20,000.

24. Any right shouldering action that occurs in GDX now is likely to be at a price area well above the left shoulder lows. There’s a flag-like pattern in play as well. This is a truly awesome start to the year for gold, blockchain, and the entire anti-fiat family of assets. My warm wishes go out to all investors, as they prepare to enjoy a very special and profitable year in the gold market!

The US stock markets enjoyed an extraordinary surge in 2017, shattering all kinds of records. This was fueled by hopes for big tax cuts soon since Republicans regained control of the US government. But such relentless rallying has catapulted complacency, euphoria, and valuations to dangerous bull-slaying extremes. This has left today’s beloved and lofty stock markets hyper-risky, with serious selloffs looming large.

History proves that stock markets are forever cyclical, no trend lasts forever. Great bulls and bears alike eventually run their courses and give up their ghosts. Sooner or later every secular trend yields to extreme sentiment peaking, then the markets inevitably reverse. Popular greed late in bulls, and fear late in bears, ultimately hits unsustainable climaxes. All near-term buyers or sellers are sucked in, killing the trend.

This mighty stock bull born way back in March 2009 has proven exceptional in countless ways. As of mid-December, the flagship S&P 500 broad-market stock index (SPX) has powered 297.6% higher over 8.8 years! Investors take this for granted, but it’s far from normal. That makes this bull the third-largest and second-longest in US stock-market history. And the superior bull specimens vividly highlight market cyclicality.

The SPX’s biggest and longest bull on record soared 417% higher between October 1990 and March 2000. After it peaked in epic bubble-grade euphoria, the SPX soon yielded to a brutal 49% bear market over the next 2.6 years. The SPX wouldn’t decisively power above those bull-topping levels until 12.9 years later in early 2013, thanks to the Fed’s unprecedented QE3 campaign! The greatest bull ended in tears.

The second-largest bull was a 325% monster between July 1932 to March 1937. But that illuminated the inexorable cyclicality of stock markets too, as it arose from the ashes of a soul-crushing 89% bear in the aftermath of 1929’s infamous stock-market crash. Seeing today’s central-bank-inflated bull balloon to such monstrous proportions rivaling the greatest stock bulls on record highlights how extreme it has become.

All throughout stock-market history, this binary bull-bear cycle has persisted. Though some bulls grow bigger and last longer than others, all eventually give way to subsequent bears to rebalance sentiment and valuations. So stock investing late in any bull market, which is when investors complacently assume it will last indefinitely, is hyper-risky. Bear markets start at serious 20% SPX losses, and often approach 50%!

Popular psychology in peaking bull markets is well-studied and predictable. Investors universally believe “this time is different”, that some new factor leaves their bull impregnable and able to keep on powering higher indefinitely. This new-era mindset fuels extreme euphoria and complacency, with memories of big selloffs fading. Investors’ hubris swells, as they forget markets are cyclical and ridicule any who dare warn.

To any serious student of stock-market history, there’s little doubt today’s stock-market situation feels exactly like a major bull-market topping. All the necessary ingredients are in place, ranging from extreme greed-drenched sentiment to extreme bubble valuations literally. If this bull was merely normal, the risks of an imminent countertrend bear erupting to eradicate these late-bull excesses would absolutely be stellar.

But the downside risks in the wake of this exceptional bull are far greater than usual. That’s because much of this bull is artificial, essentially a Fed-conjured illusion. And that was even before the incredible 2017 taxphoria surge in the wake of Trump’s surprise victory! Back in early 2013 as the SPX was finally regaining its previous bull’s peak, the Fed unleashed its wildly-unprecedented open-ended QE3 campaign.

Understanding the Fed’s role in fomenting this anomalous stock bull is more important than ever. Not only is the Fed deep into its 12th rate-hike cycle of the past half-century or so, it has begun quantitative tightening for the first time ever. This QT is starting to unwind the trillions of dollars of QE that levitated the stock markets for years. While QT started small in Q4’17, it’s ramping to a $50b-per-month pace in Q4’18!

The Fed’s QE giveth, so the Fed’s QT taketh away. Literally trillions of dollars of capital evoked out of nothing by the Fed to monetize bonds directly and indirectly bid stock markets higher. The Fed’s deep intertwinement in this stock bull’s fortunes is easiest to understand with a chart. Here the SPX in blue is superimposed over its implied-volatility index, the famous VIX that acts as a proxy for popular greed and fear.

This anomalous stock bull was again birthed in March 2009 in the wake of the first true stock panic since 1907. After that epic maelstrom of fear fueled such an extreme plummet to climax a 57% bear market, a new bull was indeed overdue despite rampant bearishness and pessimism. The very trading day before the SPX bottomed, I wrote a hardcore contrarian essay explaining why a major new bull market was imminent.

Back in early 2009 stock-market valuations were so low after the panic that a new bull was fully justified fundamentally. And its first four years or so played out perfectly normally. Between early 2009 to late 2012, this bull market’s trajectory was typical. It rocketed higher initially out of deep bear lows, but those gains moderated as this bull matured. And its upside progress was punctuated by healthy major corrections.

Stock-market selloffs are generally defined in set ranges. Anything under 4% isn’t worth classifying, it is just normal market noise. Then from 4% to 10%, selloffs become pullbacks. Beyond that in the 10%-to-20% range are corrections. Selloffs greater than 20% are formally considered bear markets. In both 2010 and 2011 the SPX suffered major corrections in the upper teens, which are essential to rebalance sentiment.

As bull markets power higher, greed naturally grows among investors and speculators. They start to get very complacent and expect higher stocks indefinitely. Eventually this metastasizes into euphoria and even hubris. Major corrections, big and sharp mid-bull selloffs, rekindle fear to offset excessive greed and keep bulls healthy. Interestingly even in 2010 and 2011 the Fed played a key role in stock-market timing.

Those early bull years’ major corrections coincided exactly with the ends of the Fed’s first and second quantitative-easing campaigns. QE is an extreme monetary-policy measure central banks can use after they force interest rates, their normal tool, down to zero. The Fed’s zero-interest-rate policy went live in mid-December 2008 in response to that first stock panic in a century, and QE1 then QE2 soon followed.

Quantitative easing involves creating new money out of thin air to buy up bonds, effectively monetizing debt. While QE1 and QE2 certainly caused market distortions, both campaigns had predetermined sizes and durations. When traders knew a particular QE campaign was nearing its end, they started selling stocks which drove the major corrections. So the Fed decided to change tactics when it launched QE3.

As the SPX approached 1450 in late 2012, that normal stock-market bull was topping due to expensive valuations. After peaking in April, stock markets started rolling over heading into that year’s presidential election. Stock-market fortunes in the final several months leading into elections can greatly sway their outcomes. So in mid-September 2012 less than 8 weeks before the election, a very-political Fed hatched QE3.

QE3 was radically different from QE1 and QE2 in that it was totally open-ended. Unlike its predecessors, QE3 had no predetermined size or duration! So stock traders couldn’t anticipate when QE3 would end or how big it would get. Stock markets surged on QE3’s announcement and subsequent expansion a few months later. Fed officials started to deftly use QE3’s inherent ambiguity to herd stock traders’ psychology.

Whenever the stock markets started to sell off, Fed officials would rush to their soapboxes to reassure traders that QE3 could be expanded anytime if necessary. Those implicit promises of central-bank intervention quickly truncated all nascent selloffs before they could reach correction territory. Traders realized that the Fed was effectively backstopping the stock markets! So greed flourished unchecked by corrections.

This stock bull went from normal between 2009 to 2012 to literally central-bank conjured from 2013 on! The Fed’s QE3-expansion promises so enthralled traders that the SPX went an astounding 3.6 years without a correction between late 2011 to mid-2015, one of the longest-such spans ever. With the Fed jawboning negating healthy sentiment-rebalancing corrections, sentiment grew ever more greedy and complacent.

QE3 was finally wound down in late 2014, leading to this Fed-goosed stock bull stalling out. Without central-bank money printing behind it, the stock-market levitation between 2013 to 2015 never would’ve happened! One of the most-damning charts of recent years shows the SPX perfectly tracking the growth in the Fed’s balance sheet as its monetized bonds accumulated there. This great stock bull is largely fake.

Without the Fed’s QE firehose blasting new money into the system, stock-market corrections resumed in mid-2015 and early 2016. After topping in May 2015 not much higher than QE3-ending levels, the SPX drifted sideways to lower for fully 13.7 months. That too should’ve proven this artificially-extended bull’s top, giving way to the overdue subsequent bear. But it was miraculously short-circuited by the Brexit vote.

Heading into late June 2016, Wall Street was forecasting a sharp global stock-market selloff if British people actually voted to leave the EU. What was seen as a low-probability outcome promised to unleash all kinds of uncertainty and chaos. And indeed when that Brexit vote surprised and passed, the SPX plunged for a couple trading days. Then meddling central banks stepped in assuring they were ready to intervene.

So this tired old bull again started surging to new record highs in July and August 2016, although they weren’t much better than May 2015’s. After that euphoric surge on hopes for post-Brexit-vote central-bank easings, the SPX started to roll over again heading into the US presidential election. Wall Street warned just like Brexit that a Trump win would ignite a major stock-market selloff, and again proved dead wrong.

The shocking post-election stock surge has been called Trumphoria or taxphoria. Capital flooded into stocks for a variety of reasons. In addition to hopes for far-superior government policies boosting corporate profits, funds rushed to buy to chase good year-end gains to report to their investors. And the resulting stock-market record highs, and fevered anticipation for big tax cuts, started seducing investors back.

This exuberant psychology greatly intensified in 2017, with the SPX periodically surging to series of new record highs on political news fanning investors’ optimism. Since Trump won the election, nearly all of the SPX’s significant daily rallies ignited on news implying big tax cuts were indeed coming soon as widely hoped. The wealth effect from that stock elation unleashed big spending, which really boosted corporate profits.

But this Fed-goosed stock bull was already very long in the tooth, and stock valuations were already near formal bubble territory, even before Trump was elected. The resulting Trumphoria surge on hopes for big tax cuts soon really exacerbated serious pre-election risks. That included extending the span since the end of the last SPX correction to 1.9 years. Normal healthy bull markets see correction-grade selloffs annually.

Between the SPX’s original top in May 2015 soon after QE3 ended and Election Day 2016, at best stock markets simply ground sideways. At worst they were rolling over into what should’ve grown into a major new bear. Trumphoria short-circuited all that, sending stocks sharply higher and delaying the inevitable cyclical reckoning. By mid-December 2017 the SPX had rocketed a crazy 25.7% higher since Election Day alone!

An ominous side effect of that anomalous late-bull surge was extremely-low volatility, with all kinds of low-volatility records set. The VIX S&P 500 implied-volatility index on this chart reflects that, slumping to multi-decade lows throughout 2017! Low volatility reflects low fear and high complacency, the exact herd sentiment ubiquitous at major bull-market toppings. Just like stock markets, volatility is forever cyclical too.

Volatility often skyrockets off exceptional lows, as the great sentiment pendulum must swing back to fear after peaking deep in the greed side of its arc. And the only thing that generates fear late in stock bulls is sharp selloffs. No matter how bad news is, euphoric investors happily ignore it if it doesn’t drive stocks lower. But eventually some catalyst always arrives, usually unforeseen, that finally stakes the geriatric bull.

When the last stock bulls peaked in March 2000 and October 2007, there was no specific news that killed them. Lofty euphoric stock markets simply started gradually rolling over, mostly through relatively-minor down days which generated little fear. These modest grinds lower kept most investors unaware of the waking bears, boiling them slowly like the proverbial frog in the pot. But even little losses eventually add up.

Since nearly all the amazing stock-market gains between late 2012 to mid-2015 were directly fueled by the Fed’s QE3 money printing, fears of the coming quantitative tightening may prove the bull-slaying catalyst. The Fed conjured money out of thin air to buy bonds in QE, and it will destroy that very money by effectively selling bonds in QT. QT’s capital outflows should prove as bearish for stocks as QE’s inflows were bullish!

The FOMC actually started discussing QT at its early-May meeting, and formally announced it at its late-September meeting. QT actually got underway in Q4’17 at a modest $10b-per-month pace. But it’s on autopilot to grow by $10b per month each quarter until it reaches terminal speed at a $50b-per-month pace in Q4’18. That will make for $600b per year of QE-injected capital removed from markets and destroyed.

QT is utterly unprecedented in history, and its acceleration in 2018 has profoundly-bearish implications for these QE-inflated record stock markets. As QT started late in 2017 at low levels, it only totaled $30b this year. But in 2018 alone that will explode 14x higher to a total of $420b of QT! Prudent investors will sell in anticipation of QT hitting full steam, as unwinding the Fed’s huge QE-bloated balance sheet is a grave threat.

Back in the first 8 months of 2008 before that stock panic, the Fed’s balance sheet averaged $849b. By February 2015, it had ballooned to a freakish $4474b. That’s up a staggering 427% or $3625b over 6.5 years of QE! QE levitated the stock markets in two primary ways. That Fed bond buying bullied yields to artificial lows, forcing bond investors starving for yields to buy far-riskier stocks that were paying dividends.

More importantly, those unnatural contrived extremely-low yields courtesy of QE fueled a boom in stock buybacks by corporations unlike anything ever witnessed. American companies took advantage of the crazy-low interest rates to literally borrow trillions of dollars to buy back their own stocks! Between QE3’s launch and Trump’s victory, corporate stock buybacks were the dominant source of stock-market capital inflows.

QT along with the Fed’s current rate-hike cycle will allow bond yields to rise again, eventually greatly retarding corporations’ desire and ability to borrow vast sums of money to use to manipulate their own stock prices higher. In late December, the Fed’s balance sheet was still way up at $4408b. These QE-inflated stock markets have never experienced QT, and it ain’t gonna be pretty no matter how slowly QT is implemented.

While this easy Fed is far too cowardly to fully reverse $3.6t worth of QE since late 2008, even a trillion or two of QT over the coming years is going to wreak havoc on these QE-levitated stock markets! That’s a serious problem for today’s extreme Fed-goosed bull with a rotten fundamental foundation. Underlying corporate earnings never supported such extreme record stock prices, and the coming reckoning is unavoidable.

Regardless of the Fed’s balance sheet, quantitative tightening, or valuations, the near-record-low VIX slumping into the 9s since back in May shows these stock markets are ripe for a major selloff anyway. At absolute minimum, it needs to be a serious correction approaching 20%. But with this stock bull so big, so old, and so fake thanks to the Fed, that selloff is almost certain to snowball into the long-overdue next bear.

And investors aren’t taking the threat of a new bear seriously. Crossing the bear threshold just requires a 20% retreat. Even such a baby bear would erase all SPX gains since mid-2016. A normal bear market at this stage in the Long Valuation Waves is actually 50%, cutting stock prices in half! That would wipe out the great majority of this entire mighty stock bull, dragging the SPX all the way back down to mid-2011 levels.

Even more ominously, bear markets naturally following bulls tend to be proportional. That makes sense since bears’ job is to rebalance sentiment and work off overvalued conditions. So there’s a high chance the coming bear after such an anomalous Fed-goosed bull won’t stop at 50%! The downside risks from here are incredibly dire after such a huge bull driven by extreme central-bank easing instead of corporate profits.

And that finally brings us to valuations, this old stock bull’s core problem. This final chart looks at the SPX superimposed over a couple key valuation metrics. Both are derived from averaging the trailing-twelve-month price-to-earnings ratios of all 500 elite SPX companies. The light-blue line is their simple average, while the dark-blue one is weighted by market capitalization. Today’s valuations ought to terrify investors.

Unfortunately today corporate earnings are intentionally obscured by Wall Street to mask the dangerous overvaluation that is rampant. Analysts make up blatant fictions including forward earnings, which are literally guesses about what companies will earn in the coming year! These almost always prove wildly optimistic. Analysts also look at adjusted earnings, another Pollyannaish farce where companies ignore expenses.

Wall Street also plays a deceptive estimate game to make quarterly-earnings results look way better than they really are. Instead of comparing actual hard quarterly profits with the same quarter a year earlier, they intentionally lowball estimates so companies beat regardless of their actual earnings trends. Investors are being bamboozled, with the only honest way of measuring corporate profits buried and forgotten.

That is based on generally-accepted accounting principles which are required when companies actually report to regulators. The only righteous way to measure price-to-earnings ratios is using the last four quarters of GAAP profits, or trailing twelve months. Those numbers are hard, established in the real world based on real sales and real expenses. They are not mere estimates like totally-bogus forward earnings.

Every month at Zeal we look at the TTM P/Es of all 500 SPX companies. At the end of November, the simple average of all SPX companies actually earning profits so they can have P/Es was an astounding 30.5x! That’s literally in bubble territory, just as Trump had warned about during his campaign. 14x earnings is the historical fair value over a century and a quarter, and double that at 28x is where bubble levels start.

If you study the history of the stock markets, stock prices never do well for long starting from bubble valuations. Such extreme stock prices relative to underlying corporate earnings streams actually herald the births of major new bear markets. Again these usually cut stock prices in half. So buying stocks here, late in a huge old bull market artificially levitated by the Fed, is the height of folly. Massive losses are inevitable.

Remember stock markets perpetually meander through alternating bull-bear cycles. Back in late 2012 before the Fed stepped in to try and brazenly short-circuit these valuation-driven cycles, valuations were actually in a secular-bear downtrend. After secular bulls drive valuations to bubble extremes, with greed forcing stock prices far beyond underlying corporate earnings, secular bears emerge to reverse those excesses.

During secular bears, stock prices grind sideways on balance for long enough for earnings to catch up with lofty stock prices. Before QE3 temporarily broke stock-market cycles, that process had been happening as normal between 2000 to 2012. Secular bears don’t end until valuations get to half fair value, 7x earnings. So instead of being into bubble levels, valuations would normally be between 7x to 10x today.

That’s the massive downside risk stocks face due to their Fed-conjured bubble valuations! While the red line above shows the actual SPX, the white line shows where it would be trading at 14x fair value. Even that is way down around 1235 today, less than half current levels! But mean reversions from extremes nearly always overshoot in the opposite direction, so the potential SPX bear-market bottom is much lower.

Sadly Wall Street will never bother telling investors that valuations matter. Stock-market history proves beyond all doubt that buying stocks high in valuation terms nearly always leads to considerable-to-huge losses. All the financial industry cares about is keeping people fully invested no matter what, since that maximizes their fees derived from percentages of assets under management. Talk about a conflict of interest!

The more expensive stocks are in valuation terms when they are purchased, the worse the subsequent returns will be. And no matter how awesome Trump’s policies may ultimately prove, they aren’t going to rescue corporate profits anytime soon. Republicans’ corporate-tax cuts have long been way more than fully priced in to stock prices. Wall Street analysts love to claim 2017’s extraordinary rally was earnings-driven.

But valuations prove otherwise. By late November the SPX had soared 24.2% since Trump won the US presidency. But during nearly that same span the SPX’s simple-average TTM P/E surged 15.9%. That implies only about a third of the entire Trumphoria rally was driven by higher corporate profits! And even that is suspect, since the wealth effect from this year’s record stock markets fueled exceptionally-high spending.

The stock markets’ lofty valuations before Trumphoria and the bubble valuations since are a very serious problem that can only be resolved by an overdue major bear market! Only that will drag stock prices low enough for existing and future corporate earnings to support reasonable valuations again. Investors sure don’t believe a new bear market is possible, but they never do when bull markets are topping in extreme euphoria.

It’s not just the Fed’s QT that’s coming in 2018 and 2019, but the European Central Bank is also slashing its own QE campaign. That ran at a blistering €60b-per-month pace in 2017, totaling €720b. But it will be cut in half to just €30b a month starting in January. The combination of Fed QT and ECB QE tapering is going to strangle this stock bull! A QE-conjured stock bull can’t persist when QE is reversed and slashed.

Together these leading global central banks so critical to stock-market fortunes are effectively tightening massively in 2018 and 2019 compared to 2017. Next year alone will see the equivalent of $950b more Fed QT and less ECB QE than this year. Can bubble-valued stocks survive nearly a trillion dollars less central-bank liquidity in 2018? And two years from now that will swell to another $1450b less than this year!

Investors really need to lighten up on their stock-heavy portfolios, or put stop losses in place, to protect themselves from the coming central-bank-tightening-triggered valuation mean reversion in the form of a major new stock bear. Cash is king in bear markets, as its buying power grows. Investors who hold cash during a 50% bear market can double their stock holdings at the bottom by buying back their stocks at half price!

Put options on the leading SPY S&P 500 ETF can also be used to hedge downside risks. They are cheap now with euphoria rampant, but their prices will surge quickly when stocks start selling off materially. Even better than cash and SPY puts is gold, the anti-stock trade. Gold is a rare asset that tends to move counter to stock markets, leading to soaring investment demand for portfolio diversification when stocks fall.

Gold surged nearly 30% higher in the first half of 2016 in a new bull run that was initially sparked by the last major correction in stock markets early that year. If the stock markets indeed roll over into a new bear in 2018, gold’s coming gains should be much greater. And they will be dwarfed by those of the best gold miners’ stocks, whose profits leverage gold’s gains. Gold stocks rocketed 182% higher in 2016’s first half!

Absolutely essential in bear markets is cultivating excellent contrarian intelligence sources. That’s our specialty at Zeal. After decades studying the markets and trading, we really walk the contrarian walk. We buy low when few others will, so we can later sell high when few others can. While Wall Street will deny the coming stock-market bear all the way down, we will help you both understand it and prosper during it.

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The bottom line is today’s euphoric record stock markets are hyper-risky. They are trading up at bubble valuations thanks to 2017’s stunning post-election rally. Such lofty stock prices are risky any time, but exceedingly dangerous late in an enormous bull market artificially extended by the Fed. A major new bear market is long overdue that will at least cut stock prices in half. Don’t be fooled by the extreme complacency!

Prudent investors have to overcome this groupthink herd euphoria and protect themselves from what’s coming. That means lightening up on overvalued stocks, building cash, and buying gold. Central banks have a long history of trying and failing to eliminate stock-market cycles. The longer they are artificially suppressed, the worse the inevitable reckoning as these inexorable market cycles resume with a vengeance.

1. While many gold market technicians have been neutral to slightly negative about gold in the short term, I’ve been extremely positive.

2. As of today, I’ve become outrageously more positive. To understand why that is, please click here now. Double click to enlarge this spectacular daily gold chart.

4. As a result of that behaviour, Santa has put a beautiful bull wedge breakout into everybody’s Christmas stocking!

5. The near-immediate price target is $1310, but $1360 should also be hit during what looks to be a very positive Chinese New Year season.

8. GDX is sporting a great looking inverse head and shoulders bottom, and the rally from the head of the pattern has a bull pennant formation breakout in it.

9. This is quite exciting. For gold stock investors around the world, it is really ushering in the new year in a great way.

10. I’ve suggested that the $25 – $26 target zone is likely to turn out to be little more than a pitstop on the road to the $35 area.

11. I’ve argued that the biggest bubble of all time is the bubble of government fiat money, and that bubble has started to burst. The initial bursting of the bubble has seen all global fiat collapse against blockchain currencies like bitcoin.

12. That’s a lot like how the stock market crashes when it becomes a bubble. The initial collapse happens in the most speculative stocks. From there, the collapse spreads to the big Dow Jones Industrial Average component stocks.

13. In the case of the fiat bubble, I’ve predicted that the collapse of fiat against bitcoin is only the very beginning of a horrific collapse that will ultimately see fiat fall hard against gold, silver, and mining stocks.

14. Please click here now. Double-click to enlarge this exciting bitcoin chart. Technically, the double bottom pattern is arguably the most difficult one for investors to handle emotionally.

15. A great double bottom appears to be in play now on this short term bitcoin chart. Note the immense panic volume on the first low, and the much lighter volume on the second one.

16. That’s classic technical action. There’s also a potential flag-like pattern in play, which is quite positive. A breakout above $15,000 is likely, and it would serve as a lead indicator for an imminent and powerful rally in the precious metal markets.

17. The bottom line: gold investors don’t need to be invested in bitcoin, but it’s important to follow the price action as a lead indicator for the spread of the global fiat wildfire.

18. Please click here now. Some heavyweight institutional analysts are concerned that a fall in bitcoin against fiat could trigger a stock market crash.

19. Governments and central banks are becoming pushed into a corner. They need to quickly regulate bitcoin markets so that a rogue bank or other nefarious entity doesn’t try to cause a global markets crash by crashing bitcoin.

20. Please click here now. Tom Lee was head of equities for JP Morgan. He turned bullish on the US stock market at almost the exact low in 2009, and stayed bullish until 2016 when be saw the market as fully valued.

21. He’s started his own firm now. He’s moved his focus to bitcoin and was an eager buyer on Friday, as I was. With heavyweights like Tom in the blockchain house, the global fiat fire is likely to intensify.

22. On that exciting note, please click here now. Double click to enlarge this key money velocity chart. I think most mainstream analysts are underestimating the commitment of Trump and new Fed chair Powell to small bank deregulation.

23. That deregulation can end the twenty-year money velocity bear market, and usher in an era of inflation.

24. Please click here now. Double click to enlarge. Hi ho silver! When inflation becomes widely accepted by institutional investors, they will flock to silver more than gold. This is particularly true if global growth continues. Watch for a trendline breakout fuelled by bank deregulation to send silver soaring to my initial $26 target, and on to higher prices after a brief rest there!

Back in early 2016 as precious metals rebounded, our work showed that gold stocks were arguably the cheapest they had ever been. They had the worst 5-year and 10-year rolling performance ever, they were trading at potentially 40-year lows on a price to cash flow basis, they were the cheapest ever relative to the stock market and Gold and most notably, the Barron’s Gold Mining Index was trading at the same level as 42 years ago! The gold stocks enjoyed a massive recovery in 2016 but it was short lived as the sector corrected and then consolidated (far from the highs) for over a year. Although we have a tendency to be too conservative at times, over a month ago we noted a historical pattern that bodes extremely well for gold stocks over the next few years. That outlook is reinforced by the continued historic value in the gold stocks as exhibited by the following charts.

First, we focus on the long-term rolling performance in the gold stocks. The chart below plots the S&P TSX Gold Index (data obtained from Global Financial Data) along with its rolling 5-year and 10-year performance. By that metric, the gold stocks (going back +80 years) were the most oversold in late 2000 and early 2016. If we were to run a 15-year and 20-year rolling performance then the three most oversold periods would be late 2000, early 2016 and the late 1950s. The gold stocks enjoyed massive long-term returns from the late 1950s and the year 2000.

Next we compare the gold stocks to the stock market. We plot the S&P TSX Gold Index against the S&P 500. The ratio appears to be in position to form a double bottom or a higher low as compared to its 2016 low. The 2016 low (in the chart below) is second by a tick to the 2000 low as to when the gold stocks relative to the stock market were the cheapest ever. (However, the Barron’s Gold Mining Index against the S&P 500 did make an all-time low in January 2016). In any case, the gold stocks right now are likely trading at the 97th percentile (out of 100) as far as value relative to the stock market.

Next is one of my favorite charts. We compare the valuation in the stock market with the performance in the gold stocks. We plot the CAPE Ratio along with the S&P TSX Gold Index. The gold stocks performed fabulously after the CAPE Ratio reached major peaks in 1929, 1966 and 2000. The gold stocks bottomed several years prior to the CAPE peak in 1966 and perhaps we are seeing a repeat of that now. The gold stocks bottomed in early 2016 though the CAPE ratio has continued to rise. We hear plenty of talk about future returns being very low and there being no place to invest. To that, I present this chart!

Next we plot the gold stocks relative to Gold. We use both of the historical gold stock indices, (the S&P TSX Gold Index and the Barron’s Gold Mining Index). By the end of 2015 the gold stocks were historically cheap by many metrics. Interestingly, that includes Gold even though Gold itself at the time was down 45%!

Finally, the last chart shows how cheap Gold potentially is. It’s important because the gold stocks could be very cheap when Gold itself may not be cheap. This was somewhat the case in 2012-2013 and that is why gold stocks remained a deep value for several years. However, since then Gold has become so much cheaper relative to the money supply, monetary base, equities, and even bonds. The chart below is from GoldMoney. They plot Gold against FMQ which is the quantity of fiat money.

When we step back from the day to day and week to week wiggles in the gold stocks, we need to realize that a historic low is in place (January 2016) and after a nearly 18-month long correction and consolidation the sector remains extremely and extraordinary cheap on a historical basis. This, and not the wiggles in charts or market sentiment ensures that forward returns in the sector will be strongly positive. Those tools help with market timing and spotting risks and opportunities. While the recent low in gold stocks may be more significant than we think, history suggests a very strong second half of 2018 for the gold stocks. Moving forward, the key for traders and investors is to find the companies with strong fundamentals with value and catalysts that will drive buying. To follow our guidance and learn our favorite juniors for 2018, consider learning more about our premium service.

The gold miners’ stocks largely ground sideways in 2017, lagging gold’s solid rally. Being trapped in this vexing consolidation has decimated sentiment, leaving a bearish wasteland bereft of hope. But contrary to perceptions, this deeply-out-of-favor sector is actually a coiled spring today. Gold stocks are ready to surge dramatically higher as psychology inevitably shifts, pointing to much higher prices coming in 2018.

The main appeal of gold-mining stocks is their underlying profits’ leverage to gold. The gold miners are much riskier than gold itself, facing many operational, geological, and geopolitical challenges that the metal doesn’t share. Thus investors and speculators alike must be compensated for these large added risks with superior returns to gold. That didn’t happen in 2017, which is why gold stocks are so widely despised.

All year long, the extreme stock-market rally driven by hopes for big tax cuts soon stole the limelight from gold. The flagship S&P 500 stock index has blasted 19.7% higher year-to-date, stoking incredible levels of euphoria. That sucked all the oxygen out of the investment world, overshadowing everything else. So investors have largely shunned gold this year, since it is normally the anti-stock trade moving counter to stocks.

Usually soaring stock markets crush gold, like back in 2013. That year the Fed’s new third quantitative-easing campaign conjured $1020b out of thin air to monetize bonds. The resulting artificially-low interest rates fueled a stock-buyback boom, catapulting the S&P 500 29.6% higher. So investors felt no need to prudently diversify their stock-heavy portfolios with gold, thus this metal plummeted 27.9% lower that year!

Considering gold is often hostage to stock-market fortunes, it performed remarkably well in 2017 despite the endless record highs in major stock indexes. Gold was up 10.0% YTD as of the middle of this week, very impressive considering the circumstances. Gold miners’ inherent profits leverage usually enables their stock prices to amplify underlying gold rallies by 2x to 3x, so they should be up 20% to 30% this year.

The dominant gold-stock index is the HUI NYSE Arca Gold BUGS Index, which is closely mirrored by the leading GDX VanEck Vectors Gold Miners ETF. Unfortunately its performance this year has been utterly dismal compared to gold, with the HUI up just 1.8% YTD! That makes for horrendous leverage of 0.2x, wildly unacceptable considering gold miners’ big additional risks compared to the metal they bring to market.

There have been exceptions, with some miners far outperforming their languishing peers. This Tuesday in our weekly newsletter, we just realized 184% gains on a year-old trade in a leading mid-tier gold miner! The gold stocks have been tradable this year, seeing sizable rallies within their consolidation grind. But overall they’ve been drifting listlessly on balance, naturally wreaking great damage on sector sentiment.

Gold stocks are underperforming so massively this year due to sentiment. Because this small contrarian sector is languishing, traders want nothing to do with it. And because they are widely avoided, the gold stocks are trapped in consolidation hell. The only thing able to start shifting sentiment back to bullish is a meaningful gold rally igniting material gold-stock buying. The resulting gains would win back capital inflows.

Sentiment and technicals are inexorably intertwined. No matter what else is going on, when stocks are high traders get excited and bullish. That’s obviously happened in the stock markets this year, despite the Fed and the ECB on the verge of radical tightenings that will strangle this stock bull. The parabolic bitcoin mania is another wild case in point. But when stocks are down, traders naturally wax sullen and bearish.

As at all sentiment extremes, traders assume gold stocks are doomed to suffer this frustrating weakness indefinitely. But that’s a bad bet, as sentiment perpetually meanders back and forth between excessive greed and fear. The longer psychology remains on one side of that arc, and the more extreme it gets, the greater the odds for an imminent mean-reversion swing back the other way. Those tend to overshoot proportionally.

The last time gold stocks were this out of favor drifting near lows was the second half of 2015. The gold miners were left for dead, with nearly everyone predicting they would spiral lower forever. Yet sentiment shifted out of that bearish echo chamber, and the gold stocks skyrocketed like North Korean ICBMs. In merely 6.5 months, the HUI soared 182.2% higher! That amplified gold’s concurrent 25.2% rally by a big 7.2x.

2017’s painful consolidation is the perfect breeding ground for another monster gold-stock upleg in 2018. After spending a year basing at deeply-undervalued prices relative to today’s gold levels, it shouldn’t take much of a sentiment shift to catapult gold stocks way higher. From a contrarian standpoint this unloved sector’s technicals are actually quite bullish today, with the gold miners’ stocks wound up like a coiled spring.

Last year’s colossal gold-stock upleg that has already been forgotten is crystal-clear here. Contrarians willing to fight the herd and buy low in late 2015 when gold stocks were shunned made out like bandits. They nearly tripled their capital in a half-year! Once this sector starts moving, the resulting uplegs tend to be massive. The key is bucking popular bearish sentiment to get invested early before the crowd rushes back in.

That enormous upleg birthing a mighty new gold-stock bull last year was followed by a huge drop driven by gold. Since prevailing gold prices directly drive miners’ profits, gold stocks follow and amplify moves in the metal they mine. In the second half of 2016, gold plunged sharply thanks to a highly-improbable series of events. That was super-anomalous, thus gold bounced back this year despite the record stock markets.

First gold was hit by gold-futures stop losses being run, then slammed by the Trumphoria stock-market surge in the wake of November 2016’s surprise election results, and finally by the Fed’s second rate hike of this cycle. Seeing an isolated event-driven selloff isn’t unusual, but suffering three in a row back-to-back is unheard of! I explained each anomaly in depth in an April essay if you’re interested in getting up to speed.

Gold dropped 17.3% in 5.3 months, certainly a massive correction but shy of new-bear-market territory at -20%. Gold stocks as measured by the HUI amplified gold’s downside by 2.5x, smack in the middle of that historical 2x-to-3x-leverage range. So the huge gold-stock selloff in the second half of 2016 wasn’t outsized at all compared to the anomalous carnage in gold. That’s the way this sector has always worked.

Once again gold miners’ profits leverage to gold explains their price action. Consider an example, a gold miner producing gold at all-in sustaining costs of $1000 per ounce. At $1250 gold, that yields earnings of $250 per ounce. If gold rallies or falls 10% to $1375 or $1125, this miner’s profits literally soar or plunge 50% to $375 or $125 per ounce! The higher any miner’s costs, the greater its profits leverage to gold prices.

In Q3’17, the major gold miners of GDX reported average all-in sustaining costs of just $868 per ounce. At this week’s $1265 gold levels, that yields major-gold-miner earnings of $397 per ounce. This makes for hefty operating margins of 31%, levels most industries would kill for. Yet the markets are pricing gold stocks today as if they were running catastrophic losses. At the middle of this week, the HUI was near 185.6.

The first time this leading gold-stock index hit these levels in August 2003, gold was only trading in the $360s. Now it is 3.5x higher, the gold miners are far more profitable, yet their stocks are still ludicrously languishing at 14.3-year-old levels! This makes zero sense fundamentally, revealing the gold miners’ radical undervaluations today. Such extremes can only be driven by sentiment, and never last for very long.

The catalyst that will shatter this bearish-sentiment curse is gold rallying. At the GDX major gold miners’ latest average AISC of $868 in the third quarter, a mere 10% gold advance would boost mining earnings by 32% to $524 per ounce. That will rapidly shift psychology back to bullish. Just like in the first half of 2016, these ridiculously-low gold stocks will take off like rockets once gold starts decisively moving higher again.

And that’s likely very soon thanks to major central banks. This quarter the Fed just started quantitative tightening for the first time ever, to begin unwinding the trillions of dollars evoked into existence during its long years of QE. While QT only ran $10b per month in Q4’17, it will gradually ramp up next year to its terminal $50b-per-month pace in Q4’18! QT is exceedingly bearish for these surreal QE-inflated stock markets.

On top of that the European Central Bank will slash in half its own massive QE campaign from €60b per month to €30b monthly starting in January 2018. Between the Fed’s new QT and the ECB’s new QE tapering, 2018 is going to see the equivalent of $950b less central-bank capital injections than enjoyed in 2017! And in 2019 that will keep growing to another $1450b of central-bank tightening compared to this year.

With the Fed and ECB strangling this anomalous QE-levitated stock bull, gold will really shine again. As stock markets grind lower, investors will remember the wisdom of prudently diversifying their stock-heavy portfolios with counter-moving gold. Gold investment demand will soar again like in early 2016 after the last stock-market correction. Once gold resumes powering higher, capital will flood back into its miners’ stocks.

Gold’s potential upside next year is likely much greater than most think possible. This week the famous hedge-fund investor Doug Kass of Seabreeze Partners Management wrote about the 15 surprises that he expects in 2018. He sees these red-hot stock markets steadily declining all year long partially due to extreme overvaluations today. Kass writes, “Dip buying is not rewarded, but shorting the rips is rewarded next year.”

That will help reignite massive investment capital inflows into gold. Kass is forecasting, “Interest in gold, which has been sidelined for months amid the cryptocurrency frenzy, regains popularity, reverses direction from the lower left to the upper right and moves higher in price. In an abrupt and swift flight to alternative safety, gold makes new all-time highs and becomes the single best-performing asset class in 2018.”

That’s a major gold rally next year, as gold’s existing all-time high in nominal terms is $1894 which came in August 2011. That would require a 50% gold surge in 2018, which wouldn’t be outside the realm of plausibility if the stock markets roll over into a new bear market on central banks’ unprecedented radical tightening. Again after that last stock-market correction in early 2016, gold blasted 29.9% higher in just 6.7 months.

Of course the gold-stock upside in such a banner year for gold would be epic, especially starting with this sector so wildly undervalued fundamentally today. While I’m not as bold as Doug Kass to predict new all-time gold highs in 2018, it wouldn’t surprise me one bit to see this metal power 20% to 30% higher next year. That seems fairly conservative if the long-central-bank-delayed stock bear finally starts awakening.

The potential gains in the gold miners’ stocks during such a major new upleg are actually quite easy to estimate fundamentally. This last chart looks at the HUI/Gold Ratio, which simply divides the daily HUI close by the daily gold close. This HGR acts as a proxy for that core fundamental relationship between gold, miners’ profits, and their stock prices. This really drives home the coiled-spring nature of gold stocks today.

This week the HGR was way down near 0.147x, meaning the HUI was running at just over 1/7th of gold’s prevailing price. While that means nothing in isolation, the context provided by this long-term HGR chart reveals how absurdly cheap the gold stocks remain relative to the metal which drives their earnings. The only year in modern history where gold stocks were cheaper was 2015, the end of an exceptional secular bear.

Early in 2016 gold stocks per the HUI yardstick slumped to a fundamentally-absurd 13.5-year secular low as I pointed out in real-time. Though gold was trading near $1087, still way above this industry’s all-in sustaining costs, the HUI was trading at levels last seen when gold was near $305 in July 2002! Such an extreme anomaly couldn’t and didn’t last, resulting in the battered gold stocks nearly tripling in only a half-year.

That coiled-spring reaction perfectly illustrates how explosive gold-stock upside is after this sector suffers a long, low drift resulting in extremely-bearish psychology. If today’s 0.15x HGR was actually righteous, it would’ve been seen plenty of times in modern history. But it wasn’t. Such extremely-low gold-stock price levels relative to gold were only able to persist briefly after a long secular bear, they weren’t sustainable.

Remember the Fed started aggressively levitating the US stock markets in early 2013, wreaking havoc on alternative investments led by gold. The gold market’s last normal years were sandwiched between 2008’s stock panic and 2013’s radical Fed distortions. That’s the best recent baseline for where the HGR ought to trade. And between 2009 to 2012, this key fundamental ratio for gold-stock valuations averaged 0.346x.

To simply mean revert back up to those last normal levels relative to today’s gold prices, the major gold miners dominating the HUI and GDX would have to power 136% higher from here. To merely restore some semblance of normalcy fundamentally, the gold stocks literally need to more than double even at this week’s prevailing $1265 gold levels! Their prices can’t stay disconnected from their earnings forever.

But if gold indeed powers higher in a major new upleg next year as central-bank tightening drags stock markets lower, the gold-stock upside is far greater. At my conservative 20% to 30% gold rally in 2018, this metal would climb to $1518 to $1644. That yields HUI targets from 525 to 569, which are 183% and 206% higher than this week’s low levels. The gold stocks easily have the potential to triple in 2018 alone!

But that’s pretty conservative because it’s purely fundamentally-based, ignoring the impact of sentiment. All markets are cyclical, including gold stocks. Extreme undervaluations relative to gold are followed by overvaluations as the pendulum swings back the other way. Mean reversions after extremes never just stop in the middle at neutral sentiment. Their momentum leads them to overshoot to the opposite extreme.

This natural cyclical reaction makes gold stocks’ potential upside far more impressive. A proportional overshoot in HGR terms heralds radically-higher gold-stock prices ahead. This week the HUI is 0.20x under its post-panic-average 0.346x HGR. As trader psychology gradually swings from extreme fear back to extreme greed as gold stocks climb, it wouldn’t be a stretch at all to see the HGR shoot 0.20x over to 0.546x.

That would likely mark a major topping, not lasting long. But such an overshoot HGR at 20% to 30% higher gold prices would yield gold-stock-bull peak targets of 829 to 898 on the HUI. That’s a staggering 346% to 384% higher than this week’s levels! Where else in all the stock markets does a sector have the potential to quadruple or quintuple in the coming years? Gold and gold stocks climb even during stock bears.

If Doug Kass’s 2018 surprise proves correct and gold regains its all-time high of $1894 with a 50% rally, gold stocks’ probable upside is wealth-multiplying. It yields a neutral-sentiment HUI target at that 0.346x HGR of 656, and a crazy 1036 on a sentiment mean reversion to a 0.546x greed-drenched HGR! These make for respective potential gains of 254% to 458% in the major gold miners’ stocks, dwarfing all other sectors.

Don’t get bogged down in HUI upside targets, they only serve to illustrate a critical point for investors and speculators today. Gold stocks are not only wildly undervalued at today’s gold prices, but even more so compared to where gold is heading in its own still-very-much-alive bull market. Even if you think gold stocks only have 50% to 100% upside, that’s vastly better than everything else in these overvalued stock markets.

Once gold starts powering higher decisively enough to catch investors’ attention, the gold stocks will be off to the races like in early 2016. Like bitcoin this year, the more gold stocks rally the more traders will take notice and deploy capital. This process will soon become self-feeding, with more buying fueling higher prices leading to still more buying. That will yield massive gains to early contrarians who bought in low.

That begs the question what are you going to do about it? Are you tough enough mentally to invest like a contrarian, to buy low and out of favor when few others are willing? Can you handle fighting the crowd, making unpopular investments? Or will you take the mainstream approach, which is waiting to buy gold stocks until they’ve already doubled from here? The biggest gains are won by the early birds who buy the lowest.

While investors and speculators alike can certainly play gold stocks’ coming breakout 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.

The key to this success is staying informed and being contrarian. That means buying low when others are scared, like late in this year’s vexing consolidation. An easy way to keep abreast is through our acclaimed weekly and monthly newsletters. They draw on our 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 the gold stocks still look like a coiled spring today despite the extreme bearishness plaguing them. Following its long drift in 2017, this battered sector is ready to stage a massive breakout upleg in 2018. The gold miners’ stocks remain deeply undervalued relative to current gold prices, let alone where this metal is heading. And gold will likely power much higher next year as stock markets roll over.

These bubble-valued stock markets artificially levitated by the central banks are about to face the largest monetary tightening in world history, literally trillions of dollars in the next couple years alone. Gold will quickly return to favor as usual when stocks materially weaken. The resulting investment capital inflows will lift gold, really boost gold miners’ profits, and motivate traders to return en masse to this abandoned sector.

Sitting in one of the most prolific mining camps, there is a company that has been aggressively expanding its resources through good times and bad. Now with renewed interest in gold mining projects, it is time to look at teams and resources that have weathered the storm and learned discipline to advance their project with current drilling underway.

Bonterra Resources Inc. (BTR: TSX-V) ( BONXF: US) (9BR:FSE) is one such company that exemplifies determination and dedication to their deposit. Bonterra is a Canadian gold exploration company focused on expanding its NI 43-101 compliant gold resource on its properties in the Abitibi Greenstone Belt in the mining-friendly jurisdiction of Quebec.

The company is currently drilling at its 10,541-hectare Gladiator Project. The drill program comprises over 50,000 meters utilizing a minimum of four drill rigs. Using a 4 g/t Au cut-off grade, the project currently contains an inferred resource of 905,000 tonnes, grading 9.37 g/t Au for 273,000 ounces of gold according to a Mineral Resource Estimate and technical report filed July 27, 2012, prepared by Snowden Mining Consultants. The company plans on completing 70,000 metres of drilling this year. With this drilling, expect the resource to expand when the company puts out its updated NI 43-101 Mineral Resource Estimate in mid-2018

Recent drilling from Gladiator has impressed the market by reaching a year high of 72 cents. On Dec. 12, 2017, the company released drill results of 18.5 g/t Au over 4.0 m and 11.9 g/t Au over 3.2 m in the south zone which increased and further defined the size of the high-grade core area. Holes BA-17-42A and BA-17-48 improved the definition of the high-grade core of the footwall zone, with significant grade and width in hole BA-17-48, which intersected 10.1 g/t Au over 6.3 m. Holes BA-17-42, BA-17-43B and BA-17-46 confirmed the eastern continuity of the north zone, with an intersection of 9.6 g/t Au over 3.0 m. This recent drilling also extends the north zone down plunge to the east. Results from these seven recent drill holes have expanded the size and demonstrate the continuity of the north, footwall and south zones.

According to Dale Ginn, vice-president of exploration: “Drill results from Gladiator continue to demonstrate superior widths and grades in all five of our defined zones to date. These mineralized zones are not only visible with sharp contacts, but are continuous and highly predictable. Stand-alone high-grade gold deposits in Canada, especially with extensive infrastructure and easy access, are extremely rare and valuable and we look forward to demonstrating that Gladiator is among that class.”

The company can follow up on these results year round and access some of the more difficult ground with the recent upgrade to its camp to an all-season exploration camp at the Gladiator gold project. The expansion to a larger year-round exploration camp will help advance the company during at time when most explorers are taking time off and their share prices are dropping due to lack of activity. Furthermore, drilling in the winter firms up the ground and allows for improved access and drilling.

Ginn stated, “The expansion and construction of a year-round camp provides the key infrastructure required to ensure we execute our resource development program at the Gladiator gold project on budget and on time to meet the market’s expectations of a mineral resource update in 2018.”

Bonterra plans to mobilize two additional drills (totalling six) in early 2018 for a winter drilling campaign. In an interview with Jay Talyor, President Nav Dhaliwhal stated that they have about $8 to $10 million to spend on the winter campaign.

The Gladiator project has good neighbors with deep pockets and active projects on the go. In addition to good ground and neighbors, the company has a solid shareholder base with Eric Sprott holding 10%, Van Eck Gold Fund with 12% and Kirkland Lake Gold with 9.5%. The company has a cash position of $24,554,809 CAD as of its August 31, 2017 financials. The company has never been in a better cash position.

Ian Telfer once said that he invests in projects that have management who have an unshakable faith in their deposits. Bonterra has demonstrated this faith by weathering one of the longest bear markets for gold; not just weathering the storm, but advancing its project and growing the resource. With depressed gold prices, winter drilling to support share price and prove up the property, and an upcoming resource estimate due in mid-2018, right now presents an attractive entry point for investors to consider acquiring shares.

*Bonterra Resources Inc. is an advertiser with MiningFeeds.com. MiningFeeds was compensated for the creation and distribution of this article. MiningFeeds was paid a fee and does not hold any shares in Bonterra Resources. This is for informational purposes only and should not construed as investment advice.

1. Are government, central banks, and fiat money the three biggest bubbles in the history of the world? I would suggest they are.

2. The rise of private money (bitcoin) combined with the rise of China and India as economic empires is popping these bubbles. Against bitcoin, fiat is now burning like an out of control wildfire.

3. Within a year or two, it could begin disintegrating against gold in a somewhat similar manner. Whether that happens or not depends on whether a blockchain currency backed with gold gets widely accepted in the blockchain community. I predict that it likely happens.

4. Simply put, fiat is a barbaric relic and the younger generation isn’t interested in relics. There are almost three billion citizens in China and India. Many of them are obsessed with gold, and almost all of them respect it as the ultimate asset.

5. There are about 600 million Indian citizens under the age of 35. They are now getting a taste of private money with bitcoin, and they like it! Blockchain is newer than fiat. It’s technologically superior. Fiat is like a rotary phone, and millennials want to trade up for the newest Iphone. In the currency world, that’s blockchain!

6. Many analysts have noted the strong seasonal tendency for gold to rise from late December or early January until mid-February.

7. To understand why that happens, please click here now. About 65% of all gold demand comes from China and India, and that demand increases exponentially with income growth. Incomes are growing, so Chinese New Year gold price rallies are intensifying.

8. The rally begins as Chinese New Year buying begins. It ends when that buying ends, which is in mid-February for 2018.

9. Note that China’s businesses (including gold shops) close for a week as the celebrations end. Commercial traders on the COMEX tend to buy long positions in gold ahead of Chinese New Year (now), and then short it as the demand begins to peak.

10. A huge number of savvy Indian investors will also buy gold ahead of Chinese New Year to get in on the action. The price premium in India tends to rise as that happens.

12. Please click here now. Double-click to enlarge this daily gold chart. Chinese New Year celebratory buying should see the price easily reach my $1310 area target.

13. The bull wedge pattern looks fabulous. The current $1265 area supply zone is likely just a short term pitstop on the way to prices well above $1300 by mid-February.

14. Top analysts at Goldman Sachs are predicting a rise in Indian GDP growth to 8% for 2018. That should be occurring as the Indian gold market restructuring gets completed. In India, as incomes grow, gold demand increases even more exponentially than it does in China.

15. I’ve talked about the importance of getting more global rate hikes to boost inflation and commodity prices in the late stage of the business cycle. Gold stocks can’t really perform well relative to bullion if that doesn’t happen.

16. On that note, please click here now. Goldman analysts clearly agree with my take on the situation for 2018, and a lot of powerful institutional money managers rely on Goldman’s analysis.

17. It should be a great year for commodities in 2018. As the commodities rally, I’m predicting that new ICOs (initial blockchain coin offerings) will occur, featuring coins that are linked to various commodities.

18. If this happens, it could add intensity to the general commodity price rally.

19. Please click here now. All investor eyes should be on key 200 number for the CRB commodity index. There’s a base pattern in play, and a move above 200 would be a major breakout.

20. This base pattern is in sync with the fundamentals. There was a big move higher during the late stages of the last business cycle in 2008. That was a speculative move and OTC derivative bets were rampant.

21. This move higher in commodities should be steadier and continue for a long time. Twenty years of deflation have ended, and a long term upcycle for inflation is beginning.

22. Please click here now. Double-click to enlarge this solid looking GDX chart. GDX should be able to reach my $25 – $26 short term target zone by mid-February.

23. Note the nice inverse head and shoulders bottom pattern in play, with the head forming in a big support area near $21.

24. More importantly, I expect that as the CRB index moves towards 240 – 280, that should trigger enough inflation-oriented institutional buying of gold stocks to send GDX into my medium term $31 – $37 target area. Are all gold bugs taking their seats on the inflationary train? I hope so, because it’s pulling out of the station very soon. All aboard!

In recent days the gold stocks (GDX, GDXJ) traded within 1% of our downside targets of GDX $21.00 and GDXJ $29.50. Last week we wrote: “the miners are getting oversold and a bounce could begin from those levels.” GDXJ troughed first last week at $29.84 while GDX printed a low of $21.27 on Monday. From their September peaks down to those lows, GDX and GDXJ had declined nearly 17% and 21% respectively. They are oversold, nearly touched good support and now the rate hike is behind them. We expect a rally in the sector well into January.

With a rebound underway we should turn our attention to potential upside targets. GDX closed the week at $21.99. It has resistance at $23.00 including its 200-day moving average at $22.83. GDXJ closed at $31.46. It has resistance at $33.00. Its 200-day moving average is at $33.49. In case we are being too conservative, our optimistic upside targets would be GDX $23.50 and GDXJ $33.50.

While mid to late December has been an excellent buy point over each of the past four years, we do not expect the gold stocks (this time) to match those fabulous returns. The gold stocks are not currently as oversold as they were in each of the past four years. The bullish percentage index (BPI), a breadth indicator is currently at 21.4%. Aside from the December 2015 low (which came in January 2016 at a BPI of 12%), the BPI at previous lows did not exceed 10%. Furthermore, a look at the rolling rate of change for 100 days and GDX’s distance from its 100-day exponential moving average shows that GDX currently is nowhere close to as oversold as those four previous points.

Another reason we should not expect a sizeable rebound is metals prices do not have much room to rally before running into strong resistance. Gold closed the week at $1257. It faces long-term moving average resistance at $1266-$1268 and very strong resistance above $1280. Silver meanwhile could find strong resistance at $16.60 to $16.75. Its 200-day moving average is at $17.01 and declining. Silver closed the week at $16.06.

Precious metals and gold stocks especially have begun a rebound that should last at least three or four more weeks. Due to a lack of an extreme “long-term” oversold condition (like in each of the past four December’s) and the presence of nearby overhead resistance, we would not expect sizeable gains. Another reason is strong fundamentals for precious metals (namely declining real interest rates) are not yet in place. With all that being said, some values are starting to emerge in the juniors and the sentiment in the sector has become encouraging from a contrarian standpoint. Conditions are improving but it remains early to be outright bullish on the sector. In the meantime, the key for traders and investors is to find the oversold companies with strong fundamentals with value and catalysts that will drive buying. To follow our guidance and learn our favorite juniors for 2018, consider learning more about our premium service.

Gold has been battered lower in recent months as gold-futures speculators fled in dread of the Fed-rate-hike boogeyman. As universally expected, the Fed’s 5th rate hike of this cycle indeed came to pass this week. When gold didn’t collapse as irrationally feared, the cowering futures traders were quick to start returning. Past Fed rate hikes have actually proven very bullish for gold, and this latest one will be no exception.

Back in early September, gold was sitting pretty near $1348. It had rallied dramatically out of its usual summer-doldrums low in its typical major autumn rally, blasting 11.2% higher in just 2.0 months. But even way back then, Fed-rate-hike fears for the FOMC’s December 13th meeting started creeping in. When gold peaked on September 7th, federal-funds futures implied December rate-hike odds running just 32%.

Over the next 8 trading days leading into the September 20th FOMC meeting where the Fed birthed its unprecedented quantitative-tightening campaign, those rate-hike odds climbed as high as 62%. That day’s FOMC statement and subsequent Janet Yellen press conference blasted the December rate-hike odds even higher to 73%. So gold slumped back down to $1300 as futures speculators sold in trepidation.

By early October as these futures-implied rate-hike odds hit 93%, gold fell as low as $1268. Over the mere one-month span where December rate-hike odds nearly tripled from 32% to 93%, gold dropped 5.9% on heavy spec gold-futures selling. That erased nearly 6/10ths of its autumn rally, which really weighed on sentiment. Gold still managed to stabilize around the $1280s in late October and November.

Starting early last month, federal-funds futures traders became so totally convinced the Fed would hike this week that their implied odds hit 100%. They stayed pegged at total certainty for 27 trading days in a row. Gold was able to stage a minor rally to $1294 surrounding Thanksgiving, but speculators resumed dumping gold futures in early December. Thus gold fell as low as $1242 leading into this week’s FOMC decision.

Gold-futures speculators have always deeply feared Fed rate hikes. Their rationale is simple and sounds logical. Since gold pays no interest or dividends, it will struggle to compete with bonds and stocks in a higher-yielding world following Fed rate hikes. Therefore gold investment demand will wane, leading to lower gold prices. Speculators always attempt to front run their forgone conclusion by selling gold futures.

This scenario has played out for three Decembers in a row now. The Fed kicked off this rate-hike cycle back in mid-December 2015 with its first rate hike in 9.5 years. A year ago in mid-December 2016 the FOMC made its second rate hike. And following two more hikes earlier this year, the Fed’s newest mid-December hike this week was the 5th of its current cycle. Gold-futures speculators sold aggressively into all.

So gold’s slump into this week on more Fed-rate-hike fears is certainly nothing new. The lead in to this December FOMC meeting is starting to feel like that old Bill Murray movie Groundhog Day. So the key question gold investors need to ask today is how did speculators’ excessively-bearish gold-futures bets play out after the prior couple Decembers’ rate hikes? Did gold crumble in the face of higher rates as feared?

This first chart superimposes gold during this current Fed-rate-hike cycle over speculators’ collective long and short positions in gold futures. Gold is rendered in blue, and speculators’ total number of upside and downside contracts in green and red respectively. This gold-futures data comes from the CTFC’s weekly Commitments of Traders reports, which are published every Friday afternoon current to the preceding Tuesday.

Gold-futures speculators have long been utterly convinced gold’s mortal nemesis is Fed rate hikes and the resulting higher prevailing interest rates. They fervently believe a sterile asset like gold simply can’t compete in a rising-rate environment. And to their credit, these elite traders sure aren’t afraid to put their money where their mouths are. Their trading surrounding past December hikes illuminates gold’s path today.

Way back in December 2008, the Federal Reserve panicked and slashed interest rates to zero for the first time in its history. For years after that, top Fed officials talked about normalizing rates but never had the courage to start. But finally in late October 2015, the FOMC started getting serious about ending its ridiculous ZIRP anomaly. The Fed warned it might “be appropriate to raise the target range at its next meeting”.

That would be December 16th, 2015. Since there hadn’t been a Fed rate hike in nearly a decade, the gold-futures speculators freaked out. Extreme selling erupted as they rushed to dump gold-futures long contracts while catapulting their short positions higher. So between mid-October and early December that year, gold plunged 11.4% to a major new secular low. Surely rate hikes doomed zero-yielding gold!

After years of broken promises to end ZIRP, the Fed indeed hiked for the first time in 9.5 years in mid-December 2015. Gold rallied 1.1% that day, but plunged 2.1% the next to edge down to a brutal 6.1-year secular low of $1051. With relatively-low longs and extreme record short positions, speculators had heavily bet that was just the beginning of gold’s woes. Their positions were exceedingly bearish into that hike.

But gold didn’t collapse as they expected, it stabilized. Speculators had sold such huge amounts of gold-futures contracts that their selling was exhausted. Thus they had no choice but to start unwinding their own hyper-leveraged bearish bets. So after that initial Fed rate hike of this cycle, speculators first bought to cover their extreme shorts and then aggressively bought long contracts. This is readily evident in this chart.

So instead of cratering on the brand-new Fed-rate-hike campaign, gold skyrocketed on massive gold-futures buying by the very speculators convinced rate hikes would slaughter it. Over the next 6.7 months gold blasted 29.9% higher into its first new bull market since 2011! One of its primary drivers was these speculators adding 249.2k gold-futures long contracts while cutting 82.8k short ones over that gold-surge span.

Unfortunately gold-futures speculators command a super-disproportional wildly-outsized impact on gold price levels because of these contracts’ extreme inherent leverage. Each contract controls 100 troy ounces of gold, which is worth $125k this week. Yet speculators are now only required to maintain $4450 margin in their accounts for each contract held, which equates to incredible maximum leverage to gold of 28.1x!

That means any amount of capital deployed in gold futures by speculators can have up to 28x the price impact on gold as investors buying it outright. 28x is exceedingly dangerous though, as a mere 3.6% adverse move in gold prices would wipe out 100% of the capital bet by futures speculators. This forces them to have an ultra-short-term focus in order to survive. They can’t afford to be wrong for very long.

While their collective conviction that Fed rate hikes are like Kryptonite for zero-yielding gold might sound logical, history proves just the opposite! Back before that initial Fed rate hike of this cycle, I undertook a comprehensive study of how gold reacted in every Fed-rate-hike cycle in modern history. If speculators were right about Fed rate hikes’ bearish impact on gold, it would be fully confirmed in past Fed-rate-hike cycles.

The history was stunning, as you can read about in an update on this groundbreaking work we published in March 2017. Prior to today’s rate-hike cycle, the Fed had executed fully 11 between 1971 and 2015. They are defined as 3 or more consecutive federal-funds-rate increases with no interrupting decreases. During the exact spans of all 11, gold averaged a strong 26.9% rally! Fed rate hikes are actually bullish for gold.

Breaking down this critical historical precedent further, gold rallied big in 6 of these cycles while slumping in the other 5. It averaged huge gains of 61.0% in the majority in which it powered higher! Generally the lower gold was relative to recent years when entering a new rate-hike cycle, and the more gradual those Fed rate hikes were, the better its upside performance. Both conditions describe today’s 12th cycle perfectly.

And in the other 5 where gold suffered losses, they averaged an asymmetrically-small 13.9% retreat. The futures speculators’ cherished notion that Fed rate hikes crush gold is totally false, an irrational myth they deluded themselves into believing. You’d think with tens of billions of dollars of capital at stake with extreme leverage these elite traders could take the time to study historical precedent on gold and rate hikes.

While gathering and crunching all this data since 1971 certainly isn’t trivial, why not simply look to the last Fed-rate-hike cycle for some guidance? Between June 2004 to June 2006, the FOMC hiked the FFR at every meeting for 17 consecutive hikes. Those totaled 425 basis points, more than quintupling the federal-funds rate to 5.25%. If higher rates and yield differentials slay gold, it should’ve plummeted at 5%+.

Yet during that exact span, gold powered 49.6% higher! There’s literally zero chance today’s hyper-easy Fed will dare hike rates 17 times or get anywhere near 5%. The new Fed chairman Jerome Powell that Trump nominated to replace Janet Yellen in early February is widely viewed as a Republican clone of the Democratic Yellen. Powell will stay Yellen’s course, gradually hiking to new norms way below past FFR levels.

But gold-futures speculators didn’t learn their lesson after getting massively burned by their excessively-bearish bets leading into this 12th modern Fed-rate-hike cycle’s opening increase. They did the same thing again a year later leading into the Fed’s heavily-telegraphed second hike in mid-December 2016. They aggressively dumped gold-futures longs, and ramped shorts, leading into the FOMC’s year-ago decision.

While irrational rate-hike fears remained a prime motivator to sell gold futures, those decisions certainly were aided by the stock markets. After Trump’s surprise election win in early November last year, the stock markets rocketed higher in Trumphoria on hopes for big tax cuts soon. Gold investment demand really wanes when record-high stock markets generate much euphoria, killing demand for alternatives led by gold.

So just like a year earlier, following last December’s second Fed rate hike of this cycle gold dropped to a major low of $1128 the very next day. In 5.3 months gold had plunged 17.3% partially thanks to gold-futures speculators dumping 164.5k long contracts while adding 25.8k short ones. But yet again just as their collective bets hit peak bearishness on another Fed rate hike, gold was ready to reverse sharply higher.

The reason is excessive gold-futures selling by speculators is self-limiting. Despite the market power their extreme leverage grants them, their capital is finite. They only have so many long contracts they are willing and able to sell, and only so much capital available to short sell gold futures. So once they near those limits, a reversal is inevitable. They soon have to resume buying longs again while covering shorts.

So for the second year in a row, gold blasted higher out of its major lows immediately after a December Fed rate hike. Over the next 8.7 months leading into early September, gold powered 19.5% higher with speculators adding 111.0k long contracts. They were starting to learn their lesson on shorting a young bull market though, as their total shorts fell just 1.0k contracts over that span. This 2017 gold upleg was impressive.

Gold not only rallied on balance through the 3rd and 4th Fed rate hikes of this cycle in mid-March and mid-June, but climbed despite this year’s extreme stock-market euphoria generated by the endless new record highs. Speculators temporarily shorted gold-futures to near-record levels leading into gold’s usual summer doldrums, but that artificial low soon gave way to a powerful autumn rally. Gold has held strong.

Despite surging Fed-rate-hike odds leading into this week’s universally-expected 5th hike of this cycle, gold was even able to stabilize from early October to early December. But as the third Fed rate hike in as many Decembers loomed closer, gold-futures speculators again lost their nerve in recent weeks. That’s readily evident in the newest CoT report before this essay was published, current to Tuesday December 5th.

As another December rate hike looked certain, gold-futures speculators jettisoned 39.2k long contracts and short sold another 17.4k more in a single CoT week! That total selling of 56.7k contracts was the equivalent of a staggering 176.2 metric tons of gold. That ranked as the third-largest CoT week of spec gold-futures selling out of the 988 since early 1999. These goofy traders were freaking out again over a rate hike.

The Fed indeed hiked for the 5th time in this 12th modern cycle as widely forecast, taking the FFR up to a range between 1.25% to 1.50%. I suspect gold-futures speculators expected top Fed officials’ outlook for 2018 rate hikes to rise from the prior dot plot’s three published a quarter earlier. But 2018 rate-hike projections didn’t budge, holding at exactly the same average in this week’s newest mostly-neutral dot plot.

So speculators resumed buying gold futures right as the FOMC released its decision and rate-hike projections at 2pm this past Wednesday. Gold surged 1.0% higher that day, paralleling its 1.1% rate-hike-day gains two years earlier that was about to kick off a major new bull market. Gold remained up 18.3% in the Fed’s current rate-hike cycle to date, solid gains considering futures speculators’ erroneous beliefs.

Odds are their excessively-bearish bets battering gold in recent months will prove every bit as wrong this December as they did in the last couple years’ Decembers! Gold will likely again stage a powerful rebound rally into 2018 as these hyper-leveraged traders reestablish long positions. They don’t have many short contracts to cover, continuing last year’s trend. Leveraged shorting of a healthy bull market is suicidal.

Just like following the prior couple Decembers’ Fed rate hikes, gold investment buying will likely resume as well. Through speculators’ collective trading’s adverse impact on gold leading into hikes, investors too get worried about gold in higher-rate environments. But once another Fed rate hike passes and gold doesn’t collapse on cue as expected, investors resume buying. Their inflows are the most important of all.

While gold investment is usually done outright with no leverage, investors’ vast pools of capital dwarf the gold-futures speculators’ limited firepower. So gold investment trumps gold-futures speculation. This final chart looks at the best daily approximation of investment available, the holdings of the leading GLD SPDR Gold Shares gold ETF. When its holdings are rising, American stock-market capital is returning to gold.

When investors aren’t interested in gold, their lack of buying allows gold-futures speculators to dominate short-term price action. But once investors buy or sell gold en masse, that easily overpowers whatever the futures traders are up to. The main reason gold exploded into a new bull market after that initial rate hike in December 2015 was massive differential GLD-share buying by American stock investors in early 2016.

During that same 6.7-month span where gold rocketed 29.9% higher in a new bull, GLD’s physical gold bullion held in trust for shareholders soared 55.7% or 351.1t! Gold then collapsed after Trump’s election win as GLD’s holdings shrunk 14.2% or 138.9t in 5.3 months leading into last December. While GLD’s holdings kept slumping after the December 2016 hike, they soon climbed modestly and stabilized in 2017.

Early 2018 is likely to see big gold investment buying much closer to early 2016’s than early 2017’s, which will help catapult gold dramatically higher again. The extreme record stock-market rally of 2017 that generated such epic euphoria isn’t likely to persist into 2018. As stock markets finally roll over into a long overdue major correction or more likely new bear market, investment capital will flood back into gold again.

Though few investors realize it yet, 2018 is going to look radically different from 2017. The major central banks that have injected trillions of dollars of capital since 2008’s stock panic that levitated stock markets are slamming on the brakes. The Fed is ramping its new quantitative-tightening campaign that destroys the QE money created out of nothing to a $50b-per-month pace by Q4’18, something never before witnessed.

At the same time the European Central Bank is slashing its own quantitative-easing campaign from this year’s €60b-per-month pace to just €30b monthly starting in January. Together Fed QT and ECB QE tapering will drive $950b of central-bank tightening in 2018 and then another $1450b in 2019 compared to this year! I explained all this in depth in late October in a critical essay for all investors to fully digest.

As the Fed and ECB reverse sharply from their unprecedented easing of recent years to unprecedented tightening in the coming years, these record-high, euphoric, bubble-valued stock markets are in serious trouble. As they roll over and sell off, investors will rush to prudently diversify their stock-heavy portfolios with counter-moving gold. There’s nothing more bullish for gold investment demand than weakening stocks.

So contrary to recent weeks’ and months’ erroneous view that Fed rate hikes are bearish for gold, history proves just the opposite is true. Gold has thrived in the 11 modern Fed-rate-hike cycles before today’s, and it has powered higher on balance in this 12th one. While you wouldn’t know it after this past year’s extreme Trumphoria rally, Fed rate hikes are actually bearish for stocks and thus quite bullish for gold.

The last time investors flooded into gold in early 2016 after that initial December rate hike, gold powered 29.9% higher in 6.7 months. The beaten-down gold miners’ stocks greatly amplified those gains, with the leading HUI gold-stock index soaring 182.2% higher over roughly that same span! Gold stocks are again deeply undervalued relative to gold, a coiled spring ready to explode higher in this gold bull’s next major upleg.

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The bottom line is Fed rate hikes are bullish for gold, and this week’s is no exception. Gold has not only powered higher on average in past Fed-rate-hike cycles, but has rallied strongly in the current one. After each past December rate hike which gold-futures speculators sold aggressively into, gold dramatically surged in the subsequent months. These guys always buy after getting excessively bearish, forcing gold higher.

Gold’s next upleg following the Fed’s 5th rate hike since late 2015 is likely to get a massive boost from weaker stock markets. The same thing happened a couple years ago during the last US stock-market correction. As the Fed and ECB drastically reverse and slash their liquidity injections in 2018, these wild central-bank-inflated stock markets are in serious trouble. Gold investment demand surges when stocks weaken.

1. Please click here now. I’ve predicted that a long period of deflation in the Western world would end with a Fed taper, rate hikes, and quantitative tightening.

2. That’s clearly in play now, and the deregulation of America’s thousands of small banks is perhaps the most exciting event taking place on this new “inflationary frontier”. Because of these powerful monetary trends, I’ve predicted big problems ahead for Wall Street and somewhat better times for Main Street.

3. Having said, that, I think investors would be making a major mistake to assume America is going to experience any kind of fabulous rebirth and relive an economic growth era like the 1950s, let alone the Golden Age of the 1880s.

4. The country now sports some of the worst demographics on the planet with horrific debt levels that are still growing under a president who is a spectacularly successful businessman.

5. What happens when President Businessman is replaced with President Socialist? Some sort of currency revaluation endgame is what happens. The problems of America and most of the Western world are not going to be solved with pump-up speeches, sporadic tax cuts, and insane “good guys versus bad guys” wars.

6. American GDP growth is going to continue to wallow at low levels while China and India blast into what I call the “bull era” at very high velocity.

7. Global investors need to make themselves great, and the blockchain/crypto asset class is one way to do it with style. I view blockchain as a sub-sector of the gold asset class. Importantly, blockchain trading is set to become more regulated very quickly.

8. Promoting regulation that doesn’t interfere with a market’s price discovery process appears to be a key goal of the Trump administration. It looks like new bitcoin regulation will be focused mainly on specific criminal schemes. That won’t stop the great upside price action taking place now on the legitimate exchanges. That price action is defined by great demand and rock solid fixed supply.

9. Institutional-grade trading of the cryptos is already beginning to happen, as demonstrated with the superb launch of fully regulated bitcoin futures on Sunday night.

10. The launch proved that institutional money managers view the $16,000 price area as solid.

11. My long term price target is two million US dollars per bitcoin. At www.gublockchain.com I analyse the main cryptos that are ready for serious upside action. A week ago, I highlighted key currency Litecoin at $100 for the gold community, issued a $1200 target, and showed potential subscribers a solid-looking chart.

12. To view that chart, please click here now. Double-click to enlarge. To view the updated price action since then, please click here now. Double-click to enlarge.

13. Even after this mighty blast higher, the $250 area for Litecoin should probably not be viewed as anything but a minor pitstop on a rocket ride to $1200.

14. I’ll be highlighting what could be the “next Litecoin” for profit-hungry blockchain subscribers today. It’s critical for investors and freedom fighters to understand that in the big picture, both gold and bitcoin will remain investments that only create huge fiat money profits… until they are widely used in daily life for payment of regular goods and services.

15. Then they can begin to compete with fiat money as the money of choice for citizens in a very serious way. I’ve predicted that this will happen because of the ability of blockchain technology to create digital gold-backed currency. That currency can be kept in a regulated and insured account, like a bank account.

16. Debit and credit cards based on these accounts are coming, and when that happens I’ll dare to suggest that Mr. and Mrs. Fiat are going to start feeling very uncomfortable. If these blockchain payment systems go mainstream, government could soon find itself becoming obsolete in many ways.

17. I predict that central banks will begin buying bitcoin as an asset to hold once it hits $2 trillion in “market cap”.

18. The US Treasury should have initiated a bitcoin buy program years ago to help fix the government’s balance sheet. Instead it wasted precious time playing stock market cheerleader, government bond enthusiast, and ruined the bank account income of ageing citizens. That was a truly horrific mistake, one that all the citizens of the world can only hope never happens again.

19. Please click here now. Double-click to enlarge this superb daily gold chart. Gold has a rough general tendency to rally after the US jobs report, unless a Fed rate hike is upcoming. In that case, gold often stagnates until the rate hike is announced, and then surges higher.

20. The Fed is scheduled to hike rates tomorrow, and gold is now poised magnificently inside a bull wedge, ready to stage a mighty blast higher if a hike is announcedtomorrow.

21. Also, Chinese New Year buying will begin very soon. That tends to bring enormous demand from not only Chinese citizens, but also from gold-obsessed Indians who want to get in on the action. The combined population of these two countries is about three billion people. Please click here now. Goldman analysts just released a key study of gold and blockchain liquidity flows. I’ll take it a step further, and state adamantly that blockchain will increase demand for gold. Indian investors will seek to put a portion of their huge blockchain profits into physical gold because they are essentially mandated to do so by their Hindu religion. Western investors will do the same thing when the stock market finally rolls over. If gold-backed blockchain currency goes mainstream, demand for gold would increase even more significantly, and do so in a sustained way. I think it will happen.

22. Regardless of whether it happens or not, when Chindians get serious about buying gold, the most powerful traders in the West also quickly position themselves to profit from the inevitable upside price action. On that note, please click here now. Next, please click here now. The powerful commercial traders have covered huge amounts of short positions and are eagerly racing to buy longs.

23. What’s particularly exciting about these two COT reports is that the reports only cover the flows through last Tuesday. It’s highly probably that the commercial traders have taken even bigger buy-side action with gold and silver since the reports came out.

24. Please click here now. Double-click to enlarge this key GDX chart. I’ve outlined the $23 – $18 area as a vital buy zone for gold stock enthusiasts. Within that price area, the $21 and $18 price points are most technically significant. The tiny bear flag in play suggests that investors will get a chance to buy the $21 area before an imminent major gold price rally carries GDX much higher. Investors can join me in placing some larger buy orders at both price points now, to be sure we’re all poised to participate in the ensuing rally time fun!

We’ve been persistently bearish on precious metals since September and that has annoyed our readers. The weak price action, negative divergences and bearish fundamentals are too much to currently overcome for the time being. The gold stocks finally cracked this week and have lost another 7%-8% in only the past seven trading sessions. Silver and Gold denominated in foreign currencies have joined the breakdown. Gold meanwhile has not broken down yet but all indications are that it will soon.

The chart below shows the daily candle charts for GDX and GDXJ which began their breakdown on Monday. They have declined sharply over the past seven trading days and are due for a bounce. A ~3% decline would take both GDX and GDXJ down to key support at GDX $21.00 and GDXJ $29.50. The miners are getting oversold and a bounce could begin from those levels.

Unlike the rest of the sector, Gold has yet to crack as it maintains $1260/oz. As we can see below, Gold/FC lost support and traded down to a 4-month low. This, after Gold/FC tested its 200-day moving average seven times. Gold has held above a confluence of major support that includes lateral support and the 200-day and 400-day moving averages. All indications are that Gold will break below $1260 and if it does, look for support at $1205-$1220.

The 30,000 foot, bird’s eye view for miners remains encouraging but they need first to get through the next several months. Initial support levels (for GDX and GDXJ) are $21.00 and $29.50 while future support levels (perhaps in Q1 2018) are around the December 2016 lows. Generally speaking, I’d much rather be a buyer around those levels and not current levels.

As we publish this article, Gold has broken below $1260/oz and the gold stocks have moved quite close to the initial support levels. I would not be surprised to see the gold stocks and Silver begin to bounce as Gold moves closer to strong support at $1220/oz. That being said, we are not expecting to turn bullish on the sector as a whole until sentiment worsens and the gold stocks approach strong support at their December 2016 lows. Values are starting to emerge in the juniors but it may be too early to be bullish. In the meantime, the key for traders and investors is to find the oversold companies with strong fundamentals with value and catalysts that will drive buying. To follow our guidance and learn our favorite juniors for 2018, consider learning more about our premium service.

Day 3 of my Newfoundland trip started at the crack of dawn, when I was awakened before 4am by the alarm of the logger in the room next to me at the Lakeview Inn in Millertown. I tossed and turned for the next hour and a half and then made my way downstairs, where I had a terrific breakfast with Antler Gold’s exploration team. After breakfast, we headed to the team’s exploration home base, a rented cabin a few blocks away from the Inn.

For the exploration team, each day starts here with a safety review and a delegation of assignments by Exploration Manager, Dave Evans. By about 7 am, we were on the road headed south of Millertown, down a set of logging roads, to Antler’s Wilding Lake Gold Project.

Before getting any further into my site visit report, I’m going to share some interesting facts about the history of Millertown.

Millertown

Just south of Buchans junction, which sits at the north end of Red Indian Lake in central Newfoundland, is Millertown. Millertown was established in about 1900 by Lewis Miller, a timber baron and merchant from Crieff, Scotland.

Having exhausted his timber lands in Sweden, Miller brought a team of Scots and 100 Swedish lumberman to the Red Indian Lake area, in an effort to establish a logging operation that could supply the British Empire with pine timber.

The town was created to house this team of lumbermen as they built 80 Swedish style, two-room cottages along the shores of the lake. Additionally, they constructed a school and a church on the hill overlooking the lake, which still stands today.

During my visit, I asked about the logging industry in the area, and was told that since the closure of the pulp and paper mill in Grand Falls, logging in the area has really declined with only a small number of companies still in operation. Unfortunately, the industry’s decline has had a major effect on the town and many younger families have left.

With the area’s great geology and the access provided by the logging roads, however, a mining renaissance could be coming to Millertown and the surrounding area. Companies such as Antler Gold, Marathon Gold and Torq Resources are exploring heavily in this general region. A large discovery and the development of a mine could bring much needed cash and jobs to this beautiful area in central Newfoundland.

The Wilding Lake Gold Project

After driving for about an hour on the rough logging roads, we arrived at the point of the original Wilding Lake gold mineralization discovery, which occurred just a few years ago. The gold was found in 2015 by prospectors, Brian Jones and Gary Rowsell, in quartz boulders alongside a new logging road. Grab samples from these boulders assayed up to 74.8 g/ton gold.

Jones and Rowsell eventually sold the property to Altius Minerals, which is a large mining royalty company based in St. John’s, Newfoundland and Labrador. Altius then carried out further exploration activities in the fall of 2016, such as soil and basal till sampling, airborne and ground geophysics.

Fast-forwarding to today, Altius has since optioned the property to Antler Gold, who is currently conducting a systematic exploration program of the property with soil sampling, trenching and, most recently, a 2,500m drill program of some highly prospective targets.

To note, Antler’s Wilding Lake Project covers 215 sq. km and more than 50 km of strike length of the projected structural trend that is believed to control the regional gold mineralization. This trend is the same as Marathon Gold’s Valentine Lake Gold Camp, which currently boasts a total over 2 million ounces of 43-101 compliant gold resources in the Measured and Indicated, and Inferred Resource categories.

Gold Mineralization Zones

In 2016, 5 gold mineralization zones – Alder, Taz, Elm, Cedar and Dogberry – were found by Atlius’ exploration team. The gold showings mainly consist of quartz-tourmaline veins containing clots of coarse-grained chalcopyrite, hematite, malachite and visible gold is hosted by the Rogerson Lake Conglomerate.

In the picture below, the purplish coloured rock is the Rogerson Lake Conglomerate. As the conglomerate nears the quartz veining, its colour changes to brownish. The Elm Zone was the most developed trench I saw, and the focus of drilling at the time of my visit.

Systematic Exploration

The drive down the logging roads to Wilding Lake gave Exploration Manager Dave Evans and I a chance to talk about the project, and the systematic approach they are using to find gold mineralization on the property. In the mining industry, a systematic approach is paramount to conserving capital and making every dollar count.

Beginning in the summer, Evans and his team set out to explore as much of the property as possible, taking soil samples and mapping the property, in hopes of identifying further targets for this fall’s 2,500m drill program.

This systematic approach is particularly important for exploration in Central Newfoundland and Labrador because of the amount of overburden which masks most outcroppings. This overburden layer can vary in depth from 0.5m to 15m throughout Newfoundland and Labrador.

The layering of the soil can be seen when standing in the dug trenches, as the top thin layer of organics clearly sticks out on top, followed by an overburden blanket of varying thickness, which is followed by basal till along the top of the rock.

Evans pointed out that the key to proper soil sampling is to get a sample below the organics in the A horizon, down to the brownish soil, where there is the possibility for gold to be present. When high potential soil samples or boulders are found, the geologists identify the path of the glaciers, which would have worn the mineralized outcrops as they moved across, many years ago. The exploration team then moves up ice of the high gold in soil or boulder samples to (hopefully) find the buried quartz vein outcrops.

By overlaying soil and till sampling data with the geophysical data, followed by trenching and channel sampling along the quartz veins in each zone, the team has identified high potential targets which, at the time of my visit, were the focus of the drilling.

Evans told me that, to date, they have collected over 6000 samples across the property. In the July 26^th, 2017 news release, Antler released the gold soil geochemistry diagram seen below.

Further in the August 30^th, 2017 news release, Antler announced the discovery of new mineralized zones, Red Ochre and Raven. The Red Ochre Zone is located roughly 900 meters to the southwest of the Alder Zone, while the Raven Zone is located 400m to the northeast of the Red Ochre Zone.

Antler’s systematic approach to exploration is clearly working and makes me confident that if there is more gold mineralization within their claim boundaries, they will find it!

Trenching Work

I have included a few pictures from my visit and a few images produced by Antler depicting the Elm Zone, Alder Zone and Dogberry Zone trenches, which have channel sampling data included from the quartz veins. These were a part of a January 24, 2017 news release.

Newfoundland and Labrador – A New Frontier for Gold Exploration

Finally, for those who haven’t read my article on Newfoundland and Labrador as a mining jurisdiction, and/or don’t know much about this great province on Canada’s East Coast, you can find it here.

Concluding Remarks

Touring the property with Exploration Manager, Dave Evans, was an exciting and very insightful experience. In any mineral exploration endeavour, a systematic approach that ensures dollars are spent wisely is vital to the success of the operation. In the case of Antler, I had the chance to see, first hand, the dividends that are paid when you have a defined process that’s performed by an experienced team.

Secondly, having met Antler CEO, Dan Whittaker, this past summer in Toronto, I’m confident Antler shareholders, including myself, are in good hands moving forward. I am a buyer of Antler Gold and look forward to the first round of drill results in the coming weeks.

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics used in this report. I do own Antler Gold shares. I have NOT been compensated to write this article and have No business relationship with Antler Gold.

1. For the past few weeks I’ve suggested that a modest US dollar rally against the yen (and thus gold) was due, and now it’s here.

2. Please click here now. Double-click to enlarge. The dollar’s right shoulder rally fits with the US senate’s decision to finally pass some corporate tax cuts. That’s modestly good news for “risk-on” investors.

3. It’s modest because it comes at a late stage in the business cycle. Many institutional money managers are trimming US stock market holdings. They are investing the proceeds into key Asian markets where corporate profits are rising but P/E ratios are lower.

4. Please click here now. This is typical market action in the late stages of the US business cycle; the Dow stocks keep rallying, and the growth stocks stumble.

5. Please click here now. I’m pretty comfortable with my Chinese stock market holdings. If there is a crash, I’ll simply buy more and urge savvy investors to do so too.

6. Please click here now. In the big picture, American citizens are outnumbered by Asians. There are about eight Chindians for every American.

7. Cars are turning into moving offices. Business owners will be happy to sit in rush hour in their electric self-driving cars, because they will be able to work.

8. Many workers will get paid the moment they leave their house and start their car engines. They will work in self-driving company cars on the way to their workplace.

10. Please click here now. Gold is in “mellow” mode here, but some (Western) investors are disheartened.

11. New surveys show that institutional money managers now expect three rate hikes in 2018, yet gold barely swoons on the news. In India and China, investors buy gold in both good times and bad. Rate hikes are viewed as almost irrelevant to gold price discovery.

12. Price discovery continues to move from the West to the East, and that means rate hikes will soon become even more irrelevant to gold than they are now.

13. I expect a surge in private equity deals as rate hikes cause institutional investors to look outside of the US stock market arena for capital gains.

14. Tax cuts are inflationary and good for small business. The new Fed chair stands ready to chop the red tape that has handcuffed small bank lending.

15. Regardless, just as wise equity market investors hold gold as a hedge, gold investors should hold some alternative assets as their hedge.

17. Litecoin is my third largest blockchain currency holding. It’s soared from about $1 to $100 in a very short period of time. My long term target is $1200 per coin.

18. If it hits the target, that would make it a “twelve hundred bagger”. Gold stock investors who need some blockchain currency to diversify can use my wealth building www.gublockchain.comnewsletter to get started.

19. Please click here now. GDX continues to consolidate in the $25 – $21 price zone.

20. The market feels solid, but gold stocks are well below their February high, while gold bullion sits near the levels it acquired then.

21. It’s disappointing that the market has not rewarded shareholders for backing companies that have achieved significant cuts in AISC (all-in sustaining costs).

22. In a perfect world, GDX would be trading at about $30 (or higher) right now. Unfortunately, it’s not a perfect world. The good news is that from a technical perspective, the odds of a move above $25 to $28 are about 67%, while the odds of a move under $21 to $18 are about 33%.

23. GDX and associated gold stocks are quite firm given that strong Chinese New Year buying has yet to commence. That buying should start soon after the Fed’s next rate hike. In this hiking cycle, gold has staged fabulous rallies after almost all the hikes.

24. Will the next rally be the biggest of them all? Perhaps, but if it happens, only investors with substantial “skin in the gold stocks game” will get to smile!

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The junior gold miners’ stocks have spent months grinding sideways near lows, sapping confidence and breeding widespread bearishness. The entire precious-metals sector has been left for dead, eclipsed by the dazzling Trumphoria stock-market rally. But traders need to keep their eyes on the fundamental ball so herd sentiment doesn’t mislead them. The juniors recently reported Q3 earnings, and enjoyed strong results.

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 used to come from the world’s most-popular junior-gold-stock investment vehicle. This week the GDXJ VanEck Vectors Junior Gold Miners ETF reported $4.4b in net assets. Among all gold-stock ETFs, that was only second to GDX’s $8.1b. 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 has recently created major problems severely hobbling the usefulness of GDXJ. This sector ETF has shifted from being beneficial for junior gold miners to outright harming them. GDXJ is literally advertised as a “Junior Gold Miners ETF”. Investors only buy GDXJ shares because they think this ETF gives them direct exposure to junior gold miners’ stocks. But unfortunately that’s no longer true!

GDXJ is quite literally the victim of its own success. This ETF 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 law. Most of the world’s junior gold miners and explorers trade in Canada. In that country once any investor including an ETF goes over 20% ownership in any stock, it is deemed a takeover offer that must be extended to all shareholders!

Understanding what happened in GDXJ is exceedingly important for junior-gold-stock investors, and I explained it in depth in my past essay on juniors’ Q1’17 results. GDXJ’s managers were forced to reduce their stakes in leading Canadian juniors. So capital that GDXJ investors intended to deploy in junior gold miners was instead diverted into much-larger gold miners. GDXJ’s effective mission stealthily changed.

Not many are more deeply immersed in the gold-stock sector than me, as I’ve spent decades studying, trading, and writing about this contrarian realm. These huge GDXJ changes weren’t advertised, and it took even me months to put the pieces together to understand what was happening. GDXJ’s managers may have had little choice, but their major direction change has been devastating to true junior gold miners.

Investors naturally pour capital into GDXJ, the “Junior Gold Miners ETF”, expecting to own junior gold miners. But instead of buying junior gold miners’ shares and bidding up their prices, GDXJ is instead shunting those critical inflows to the much-larger mid-tier and even major gold miners. That left the junior gold miners starved of capital, as their share prices they rely heavily upon for financing languished in neglect.

GDXJ’s managers should’ve lobbied Canadian regulators and lawmakers to exempt ETFs from that 20% takeover rule. Hundreds of thousands of investors buying an ETF obviously have no intention of taking over gold-mining companies! And higher junior-gold-stock prices boost the Canadian economy, helping these miners create valuable high-paying jobs. But GDXJ’s managers instead skated perilously close to fraud.

This year they rejiggered their own index underlying GDXJ, greatly demoting most of the junior gold miners! Investors buying GDXJ today are getting very-low junior-gold-miner exposure, which makes the name of this ETF a deliberate deception. I’ve championed GDXJ for years, it is a great idea. But in its current sorry state, I wouldn’t touch it with a ten-foot pole. It is no longer anything close to a junior-gold-miners ETF.

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 years 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 earnings season in mid-November, I dug into the top 34 GDXJ components. That’s just an arbitrary number that fits neatly into the tables below. While GDXJ included a staggering 73 component stocks in mid-November, the top 34 accounted for a commanding 81.1% of its total weighting.

Out of these top 34 GDXJ companies, only 5 primary gold miners met that sub-75k-ounces-per-quarter qualification to be a junior gold miner! Their quarterly production is highlighted in blue below, and they collectively accounted for just 7.1% of GDXJ’s total weighting. But even that isn’t righteous, as these include a 126-year-old silver miner and a mid-tier gold miner suffering temporary production declines.

GDXJ is inarguably now a pure mid-tier gold-miner ETF. That’s great if GDXJ is advertised as such, but terrible if capital investors explicitly intend for junior gold miners is instead being diverted into mid-tiers without their knowledge or consent. The vast majority of GDXJ shareholders have no idea how radically this ETF has changed since early 2016. It is all but unrecognizable, straying greatly from its original mission.

I’ve been doing these deep quarterly dives into GDXJ’s top components for years now. In Q3’17, fully 32 of the top 34 GDXJ components were also GDX components! These ETFs are separate, a “Gold Miners ETF” and a “Junior Gold Miners ETF”. So why on earth should they own many of the same companies? In the tables below I highlighted the rare GDXJ components not also in GDX in yellow in the weightings column.

These 32 GDX components accounted for 78.7% of GDXJ’s total weighting, not just its top 34. They also represented 31.4% of GDX’s total weighting. So almost 4/5ths of the junior gold miners’ ETF is made up of nearly a third of the major gold miners’ ETF! I’ve talked with many GDXJ investors over the years, and have never heard one wish their capital allocated specifically to junior golds would instead go to much-larger miners.

Fully 10 of GDXJ’s top 17 components weren’t even in this ETF a year ago in Q3’16. They alone now account for 34.5% of its total weighting. 16 of the top 34 are new, or 44.4% of the total. In the tables below, I highlighted the symbols of companies that weren’t in GDXJ a year ago in light blue. Today’s GDXJ is a radical departure from last year. Analyzing Q3’17 results largely devoid of real juniors is frustrating.

Nevertheless, GDXJ remains the leading “junior-gold” benchmark. So every quarter I wade through tons of data from its top components’ 10-Qs, and dump it into a big spreadsheet for analysis. The highlights made it into these tables. A blank field means a company didn’t report that data for Q3’17 as of that mid-November 10-Q deadline. Companies have wide variations in reporting styles, data presented, and report timing.

In these tables the first couple columns show each GDXJ component’s symbol and weighting within this ETF as of mid-November. While most of these gold stocks trade in the States, not all of them do. So if you can’t find one of these symbols, it’s a listing from a company’s primary foreign stock exchange. That’s followed by each company’s Q3’17 gold production in ounces, which is mostly reported in pure-gold terms.

Many gold miners also produce byproduct metals like silver and copper. These are valuable, as they are sold to offset some of the considerable costs of gold mining. Some companies report their quarterly gold production including silver, a construct called gold-equivalent ounces. I only included GEOs if no pure-gold numbers were reported. That’s followed by production’s absolute year-over-year change from Q3’16.

Next comes the most-important fundamental data for gold miners, cash costs and all-in sustaining costs per ounce mined. The latter determines their profitability and hence ultimately stock prices. Those are also followed by YoY changes. Finally the YoY changes in cash flows generated from operations, GAAP profits, revenues, and cash on balance sheets are listed. There’s one key exception to these YoY changes.

Percentage changes aren’t relevant or meaningful if data shifted from negative to positive or vice versa. Plenty of GDXJ gold miners that earned profits in Q3’16 suffered net losses in Q3’17. So in cases where data crossed that zero line, I included the raw numbers instead. This whole dataset offers a fantastic high-level fundamental read on how the mid-tier gold miners are faring today, and they’re actually doing quite well.

After spending days digesting these GDXJ gold miners’ latest quarterly reports, it’s fully apparent their vexing consolidation this year isn’t fundamentally righteous at all! Traders have abandoned this sector since the election because the allure of the levitating general stock markets has eclipsed gold. That has left gold stocks exceedingly undervalued, truly the best fundamental bargains out there in all the stock markets!

Once again the light-blue-highlighted symbols are new GDXJ components that weren’t included a year ago in Q3’16. And the meager yellow-highlighted weightings are the only stocks that were not also GDX components in mid-November! GDXJ is increasingly a GDX clone that offers little if any real exposure to true gold juniors’ epic upside potential during gold bulls. GDXJ has become a shadow of its former self.

VanEck owns and manages GDX, GDXJ, and the MVIS indexing company that decides exactly which gold stocks are included in each. With one company in total control, GDX and GDXJ should have zero overlap in underlying companies! GDX or GDXJ inclusion should be mutually-exclusive based on the size of individual miners. That would make both GDX and GDXJ much more targeted and useful for investors.

Two of GDXJ’s heaviest-weighted component choices are mystifying. Sibanye Gold and Gold Fields are major South African gold miners, way bigger than mid-tier status and about as far from junior-dom as you can get. In Q3’17 they both mined way in excess of that 250k-ounce quarterly threshold that is definitely major status. They are among the world’s largest gold miners, so it’s ludicrous to have them in a juniors ETF.

Since gold miners are in the business of wresting gold from the bowels of the Earth, production is the best place to start. These top 34 GDXJ gold miners collectively produced 4352k ounces in Q3’17. That rocketed 121% higher YoY, but that comparison is meaningless given the radical changes in this ETF’s composition since Q3’16. On the bright side, GDXJ’s miners do still remain significantly smaller than GDX’s.

GDX’s top 34 components, fully 20 of which are also top-34 GDXJ components, collectively produced 9947k ounces of gold in Q3. So GDXJ components’ average quarterly gold production of 136k ounces excluding explorers was 55% lower than GDX components’ 301k average. In spite of GDXJ’s very-misleading “Junior” name, it definitely has smaller gold miners even if they’re well above that 75k junior threshold.

Despite GDXJ’s top 34 components looking way different from a year ago, these current gold miners are faring well on the crucial production front. Fully 22 of these mid-tier gold miners enjoyed big average YoY production growth of 18%! Overall average growth excluding explorers was 8.2% YoY, which is far better than world mine production which slumped 1.3% lower YoY in Q3’17 according to the World Gold Council.

These elite GDXJ mid-tier gold miners are really thriving, with production growth way outpacing their industry. That will richly reward investors as sentiment normalizes. Smaller mid-tier gold miners able to grow production are the sweet spot for stock-price upside potential. With market capitalizations much lower than major gold miners, investment capital inflows are relatively larger which bids up stock prices faster.

With today’s set of top-34 GDXJ gold miners achieving such impressive 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.

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 Q3’17, these top-34 GDXJ-component gold miners that reported cash costs averaged just $612 per ounce. That indeed plunged a major 6.9% YoY from Q3’16, and even 2.5% QoQ from Q2’17.

This was really quite impressive, as the mid-tier gold miners’ cash costs were only a little higher than the GDX majors’ $591. That’s despite the mid-tiers each operating fewer gold mines and thus having fewer opportunities to realize cost efficiencies. Traders must recognize these mid-sized gold miners are in zero fundamental peril as long as prevailing gold prices remain well above cash costs. And $612 gold ain’t happening!

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 a gold mine as an ongoing concern. AISC 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.

In Q3’17, these top 34 GDXJ components reporting AISC averaged just $877 per ounce. That’s down a sharp 3.7% YoY and 0.2% QoQ. That also compares very favorably with the GDX majors, which saw nearly-identical average AISC at $868 in Q3. The mid-tier gold miners’ low costs prove they are faring far better fundamentally today than traders think based on this year’s vexing sideways-grinding stock-price action.

All-in sustaining costs are effectively this industry’s breakeven level. As long as gold stays above $877 per ounce, it remains profitable to mine. At Q3’s average gold price of $1279, these top GDXJ gold miners were earning big average profits of $402 per ounce last quarter! That equates to hefty profit margins of 31%, levels most industries would kill for. The mid-tier gold miners aren’t getting credit for that today.

Unfortunately given its largely-junior-less composition, GDXJ remains the leading benchmark for junior gold miners. In Q3’17, GDXJ averaged $33.81 per share. That was down a serious 28.6% from Q3’16’s average of $47.38. Investors have largely abandoned gold miners because they are captivated by the extreme Trumphoria stock-market rally since the election. Yet gold-mining profits certainly didn’t justify this.

A year ago in Q3’16, the top 34 GDXJ components at that time reported average all-in sustaining costs of $911 per ounce. With gold averaging $1334 then which was 4.4% higher, that implies the mid-tier gold miners were running operating profits of $423 per ounce. Thus Q3’17’s $402 merely slumped 5.0% YoY, which definitely isn’t worthy of hammering mid-tier gold miners’ stock prices over a quarter lower over the past year.

Gold miners offer such compelling investment opportunities because of their inherent profits leverage to gold. Gold-mining costs are largely fixed during mine-planning stages, when engineers and geologists decide which ore to mine, how to dig to it, and how to process it. The actual mining generally requires the same levels of infrastructure, equipment, and employees quarter after quarter regardless of gold prices.

With gold-mining costs essentially fixed, higher or lower gold prices flow directly through to the bottom line in amplified fashion. That wasn’t really apparent in GDXJ over this past year since its composition changed so radically. Normally a 4.2% drop in average gold prices would lead to much more than a 5.0% YoY operating-profit decline. Gold-stock profits generally leverage gold price moves by several times.

Gold itself is overdue for a major new upleg driven by investment demand returning. As I discussed several weeks ago, investment demand has stalled thanks to the extreme stock-market euphoria. These bubble-valued stock markets are due to roll over imminently as the Fed and European Central Bank both start aggressively choking off liquidity. That will strangle this stock bull, reigniting big gold investment demand.

The impact of higher gold prices on mid-tier-gold-miner profitability is easy to model. Assuming flat all-in sustaining costs at Q3’17’s $877 per ounce, 10%, 20%, and 30% gold rallies from this week’s levels will lead to collective gold-mining profits surging 36%, 68%, and 100%! And another 30% gold upleg isn’t a stretch at all. In essentially the first half of 2016 alone after the last stock-market correction, gold surged 29.9%.

The major gold stocks as measured by the HUI, which closely mirrors GDX, skyrocketed 182.2% higher in roughly that same span! Gold-mining profits and thus gold-stock prices soar when gold is powering higher. So if you believe gold is heading higher in coming quarters as these crazy stock markets falter, the gold stocks are screaming buys today fundamentally. That’s especially true of the best mid-tier gold miners.

Since today’s bastardized GDXJ mostly devoid of juniors changed so radically since last year, the normal year-over-year comparisons in key financial results aren’t comparable. But here they are for reference. These top 34 GDXJ companies’ cashflows generated from operations soared 65% YoY to $1515m. That was driven by sales up 96% YoY to $4130m. That left miners’ collective cash balances $28% higher YoY at $5672m.

Yet top-34-GDXJ-component profits crumbled 38% YoY to $212m. Again don’t read too much into this since it’s an apples-to-oranges comparison. Interestingly a single company that was in GDXJ in both quarters is responsible for over 2/3rds of that drop. Endeavour Mining’s earnings plunged from +$24m a year ago to -$65m in Q3’17, largely due to a $54m impairment charge in its Nzema mine which is being sold.

GDXJ’s component list was much more consistent between Q2’17 and Q3’17. QoQ these top 34 GDXJ gold miners saw operating cash flows rise 3.9%, sales surge 7.5%, cash on hand fall 7.6%, and profits plummet 72%. Again an anomaly in a single company is responsible for nearly 9/10ths of this sequential decline. In Q2 IAMGOLD reported a gigantic $524m non-cash gain on the reversal of an impairment charge!

The massive non-cash gains and losses flushed through net income are one reason why all-in sustaining costs offer a better read on gold-miner health. If GDXJ’s component list and weightings finally stabilize after this past year’s extreme tumult, we’ll have clean comps again next year. For now these mid-tier gold miners are generally doing far better operationally than their neglected super-low stock prices imply.

So overall the mid-tier gold miners’ fundamentals looked quite impressive in Q3’17, a stark contrast to the miserable sentiment plaguing this sector. Gold stocks’ vexing consolidation this year wasn’t the result of operational struggles, but purely bearish psychology. That will soon shift as the stock markets roll over and gold surges, making the beaten-down gold stocks a coiled spring today. They are overdue to soar again!

Though this contrarian sector is widely despised now, it was the best-performing in all the stock markets last year despite that sharp post-election selloff in Q4. The HUI blasted 64.0% higher in 2016, trouncing the S&P 500’s mere 9.5% gain! Similar huge 50%+ gold-stock gains are likely again in 2018, as gold mean reverts higher on the coming stock-market selloff. The gold miners’ strong Q3 fundamentals prove this.

Given GDXJ’s serious problems, leading to diverting most of its capital inflows into larger gold miners that definitely aren’t juniors, you won’t find sufficient junior-gold exposure in this troubled ETF. Instead traders should prudently deploy capital in the better individual mid-tier and junior gold miners’ stocks with superior fundamentals. Their upside is vast, and would trounce GDXJ’s even if it was still working as advertised.

The key to this success is staying informed and being contrarian. That means buying low when others are scared, like late in this year’s vexing consolidation. 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. Easy to read and affordable, they’ll help you learn to think, trade, and thrive like contrarians. Subscribe today, and get deployed in the great gold stocks on our trading books before they surge far higher!

The bottom line is the mid-tier gold miners now dominating GDXJ enjoyed strong fundamentals in their recently-reported Q3 results. While GDXJ’s radical composition changes since last year muddy annual comparisons, today’s components mined lots more gold at lower costs. These gold miners continued to earn hefty operating profits while generating strong cash flows. Sooner or later stock prices must reflect fundamentals.

As gold itself continues mean reverting higher, these mid-tier gold miners will see their profits soar due to their big inherent leverage to gold. GDXJ now offers excellent exposure to mid-tier gold miners, which will see gains well outpacing the majors. All it will take to ignite gold stocks’ overdue mean-reversion rally is gold investment demand returning. The resulting higher gold prices will attract investors back to gold miners.

With the recent close of the sale of the company’s Crucero property to GoldMining (TSX-V: GOLD), Lupaka Gold Corp. (TSX-V: LPK) has secured the funds to take the next step with its Invicta Gold project. Today, the company announced the commissioning of a Preliminary Economic Assessment “PEA” for the Invicta Gold Project.

With the backing of Pandion Finance and its gold purchase agreement providing the necessary funding, Lupaka is motivated to meet its obligations which makes now an exciting time for the company and its shareholders.

The company has hired SRK to prepare the PEA. This provides a continuity of project knowledge as the project’s 2012 resources estimate was prepared by SRK and the company’s own internal mining studies of Invicta were prepared with assistance from SVS Ingenieros of Lima “SVS”, Peru, a subsidiary of the SRK Consulting Group. The company plans the completion of the PEA technical report in the first quarter of 2018.

The initial six-year mine plan that was developed and prepared by SVS, which outlined ~735,000 tonnes at a grade of ~6.1 g/t AuEq. for 23,000 oz. of gold equivalent a year, according to a rough calculation. The plan was developed from the 3,400-metre level and extends up 120 metres.

Drill results indicated that the mineralization extends at least as far below the 3,400 level as it does above. In addition, there is a well-defined section of measured and indicated directly along strike to the northeast that is within a few hundred metres, and of the same characteristics as the segment in the mine plan.

The first bulk sample in October 2015 produced a copper, lead and zinc concentrate that was sold to an off-taker. The concentrate was exceptionally clean and was absent of any penalty elements, so buyers could pay well for it because they can mix it with less clean concentrate and blend it.

The company completed its second run-of-mine bulk test in February 2016 and achieved good recoveries in concentrate streams — returning 87.5% gold, 91.2% silver, 91.5% copper, 90.03% lead and 90.1% zinc. The sample was a blend of approximately 80 % run-of-mine material and 20 % from a low grade stockpile derived from development.

The bulk sample was processed with the prime objective of producing a saleable concentrate and no effort was made to optimize content of specific metals, according to the company. The resulting concentrate was clean, with few penalty elements which is ideal for sale and blending with other concentrates.

Once in production, the hope is that cash flow from Invicta will be used to grow the operation. There are numerous zones outside of the Atenea vein that contain mineralization, and the targeted Atenea resource could increase, as development offers access to high-grade intercepts and underground drill sites. In addition, based on gold and copper within the under-explored quartz-sulphide vein zones, the company believes the Invicta resource could expand.

At 350 tonnes per day, Invicta could operate for between 10 and 15 years based on the current measured and indicated resource in the Atenea zone. However, the project is permitted to operate at 1,000 tonnes per day and the company would like to increase their resources through drilling, expand operations to the 1,000 tpd rate and build their own mill on site but for the time being will use third party transport and processing contractors. All of this could take production to over 70,000 AuEq. oz/yr, according to a cocktail napkin calculation.

Proceeds from Invicta will also be used for more exploration at its other projects in Peru — Josnitaro which is a whole other story, worthy of an update of its own.

***MiningFeeds was compensated to provide marketing services. As always, do your own diligence. The writer of this article, Nicholas LePan does own shares.


Metalex Ventures Ltd.	MTX.V	+50.00%
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