Fundamentally, the gold stock rally was labeled a “bounce only” because it was just another item rising anti-USD in an ‘inflation trade’ revival. Right along with Oil, Copper and the outliers like REE, Lithium, Uranium, etc.
If we are disinterested in commodities (I am and have been), then we were cautious on the precious metals for this reason.
Like it or not, we are in a process of eliminating the inflationist gold bugs, and a lot of ‘inflation trade’ promoters while we’re at it. I guess that is me being “sanctimonious” as one blog described me recently. I prefer ‘overly judgmental’, but whatever.
Moving on, one indicator of the coming problem in the gold sector was the tried and true HUI-Gold ratio (HUI-GLD used here, while NFTRH used a very similar HUI-Gold chart to note the early caution signal on May 17).
There are a lot of things I don’t know. But one thing I do know is that Franco Nevada is looking bullish in relation to fellow gold royalty company, Royal Gold.
Given Steve Saville’s all too accurate portrayal of the gold stock sector as one of big thrills and all too bloody spills (Poor Gold Stock Performance…), I thought I’d put up a chart of one of mine that I have held, traded a little, but mostly held.
Klondex is just a little engine that could and has been able to since establishing a bull market for itself in 2013, long before the sector bottomed (assuming it bottomed).
Here’s the weekly showing the beginning of KDX’s bull market (black arrow).
So if your resident gold stock expert does not have the likes of KDX.TO, KGI.TO, LSG and/or other relatively strong out performers on their recommended list, you might wonder why. These have been among the items I perceive as ‘relative quality’ as listed in NFTRH each week. And I am not a gold stock expert… duhhh.
Here’s a hint though… neither are the gold stock experts, most of the time.
By Steve Saville
The Problematic Comparison With the 1970’s
We suspect that the gold bull market that began in 2001 is, in very rough terms, an elongated version of the 1971-1980 bull market. Part of our reasoning is that there is evidence in the performance of the gold-mining sector of a bullish gold trend beginning in the early-1960s, with gold itself being unable to reflect this bullish trend until 1971 when it was officially untethered from the US$.
At the point when the official link to the US$ was broken, the gold price was like a coiled spring. After it was released it shot upward in spectacular fashion to a high in 1974 and then plummeted to a low in 1976, all as part of trying to find the level that best reflected gold’s value under the new monetary system.
Continue reading Problematic 1970’s Comparison
By Steve Saville
Ignore per-ounce valuations for gold deposits
During 2001-2011, buying exploration-stage gold stocks with large in-ground resources at low per-ounce valuations worked well. It worked well because ‘the market’ was often more concerned about leverage and quantity than economic viability and quality. Since 2012, however, buying an exploration-stage gold-mining stock on the sole basis that owning the stock gave you relatively low-cost exposure to a lot of in-ground gold has generally not worked well, to put it mildly. For the past three years, one of the most important rules to be followed by value-oriented speculators in gold-mining stocks has been: if it ain’t economic, it ain’t worth anything. This rule will probably apply for at least two more years.
Here’s a specific example to illustrate how the per-ounce market value of an exploration-stage gold-mining stock can be very misleading.
Continue reading Gold Deposit Valuations…
How to promo… how to promo? NFTRH 329 took a hard look at the realities of what happened last week and despite an end of week reversal (below SPX key resistance of 2165) it found that at week’s end the bulls and the risk ‘ON’ contingent regained their footing.
Going the other way, the rise in short-term yields vs. long-term yields was gold bearish and not friendly to Team Risk ‘OFF’.
A really good market report doing the work it has to do every step of the way. Of course we are in the volatile ‘swing baby, swing’ market so we’ll be ready to adjust as always over the coming week. The key is to be in proper position for when the ‘swing’ phase consolidation ends.
Another solid report this week. I know that because it helped me out yet again in trying to understand all the components in play across markets; all the tops spinning around on the table.
Stock market sentiment is an issue as markets continue at an important technical decision point. The precious metals have short-term technical parameters but more importantly, they have some pretty important long-term signals coming in. Well, gold and even more so, gold miners. Silver is not something I am personally excited about on the big picture.
The biggest picture view, which has been an uninterrupted global economic contraction is intact and getting stronger. From that spring so many other items for extrapolation and strategy.
They tell me you are supposed to take profits and so that is what I have done with another gold miner, Klondex Mines, because no matter how positive I am on the company a chart like this is vulnerable, too far above the EMA 10, let alone the SMA 50, which is around where I originally bought it.
We had previously advised that traders consider taking profits as GDX hit 23 and HUI hit 210. I did that with some positions, but had wanted to hold this one indefinitely. Well, so much for that. Meanwhile, I’ll get dinged on the ones I decided to hold but with lots of cash am in a position to either take advantage of this pullback or in the less likely (IMO) event it violates certain parameters, avoid most of its damage.
NFTRH analysis fully anticipated the disturbance in the sector and advised profit taking for traders and a probabilities based view of what this pullback is and is not.
Improving Macro Backdrop
In light of a shifting global macro backdrop that we can finally sink our teeth into with respect to a bullish orientation on the gold stock sector, I thought it might be a good idea to publicly post some bottom line thoughts from this week’s NFTRH report.
The report went into great detail to explain why more fundamentals that matter are starting to come in line, after the chart below refused to make a signal against our big picture view of global economic contraction, which has been the biggest key for the counter-cyclical gold mining sector.
During the worst of the gold sector cyclical bear market we used Gold vs. Commodities to gauge a higher low to the 2011 low, which despite perceptions of the time, kept our longest-term macro view intact (as noted to subscribers several times, if Au-CCI had broken down we’d have had to admit that the view had failed, no if’s and’s or but’s).
The moving averages have triggered, a higher low has been made and the long-term thesis is being confirmed.
Hence, a bullish stance on quality gold mining operations (a unique counter-cyclical sector) has finally come about and the relevance of this chart of HUI vs. the S&P 500 now means more than simply one market crashing in terms of the other. It means RISK vs. REWARD is on the side of the counter-cyclical gold mining industry vs. the cyclical broad US stock market.
Continue reading Bottom Line Thoughts on the Gold Sector
Guest Post by Steve Saville
The historical record indicates that the gold-mining sector performs very well during the first 18-24 months of a general equity bear market as long as the average gold-mining stock is not ‘overbought’ and over-valued at the beginning of the bear market. Unfortunately, the historical sample size is small. In fact, since the birth of the current monetary system there have been only two relevant cases.
The first case involves the general equity bear market that began in January of 1973 and continued until late-1974. This bear market resulted in peak-to-trough losses of around 50% for the senior US stock indices.
The following chart comparison of the Barrons Gold Mining Index (BGMI) and the S&P500 Index shows that the gold-mining sector commenced a strong upward trend near the start of the general equity bear market. During the bear market’s first 20 months, the BGMI gained about 300%.
Continue reading Gold Stocks During an Equity Bear Market