Spurred again by back and forth conversations with Jordan (Daily Gold) I want to clear the air for a moment about gold stocks and reiterate the ongoing plan, which is bullish.
Now, I’ve made a big deal about the mostly rotten fundamentals over the last year (which is why I don’t suffer well the misleading clowns on Twitter and the gold websites) and a bullish gold stock view will be contingent upon those fundamentals coming back in line. What could bring the funda back in line? Why, the destructive duo known as the 2 Horsemen of the Apocalypse, AKA the Gold/Silver Ratio (GSR) and US dollar would signal the start of such a macro shift. Both continue to look constructive as of this morning.
Personally, I am stuck in a bit of a mental whipsaw in the here and now because the message of rising GSR/USD is the opposite of the message of rising long-term yields and an inflationary yield curve, both of which are also happening at the moment. Something’s got to give.
But here is the point… the liquidity destruction that the 2 Horsemen would bring would also bring gold stock fundamentals back in line after most of the damage is done.
This would be seen in gold out-performing stocks, commodities and other cyclical, reflation-sensitive assets and markets. When confidence in not only the system, but in the inflationist gold bug carnival barkers is shot, the macro will be ready. In short, when the boom busts gold stocks would be a primary area to be positioned in (and best of all, that will include none of the inflationists and their herds). First the inflation bugs, the sloganeering, dogma spewing gold bugs need to be eliminated. The noise needs to be muted and the macro needs to turn.
In the classic sense, that is what would need to happen for the fundamental view to turn. Gold is counter-cyclical and the miners leverage that counter-cyclicality. Let that sink in. They leverage the bad stuff. The alternative (to deflation) is an inflation that morphs to hyper inflation with the effect of wrecking the economy. That’s a wild card that I personally have never experienced but logically feel can be positive for gold and gold stocks as well. It’s all about confidence. When that is lost, gold and the miners leveraging it should benefit.
Now, on to some not bearish views of the gold stock sector. We’ve often reviewed HUI and its ‘A-B-C bear market or 1-2-3-4-5 bull market’ view. As for some of the premier gold stocks, below are what I see on the big picture (pending whatever lows are to come). The charts are stripped down with no markups for a view of their structure and little else.
As noted in a previous update, HUI looks like it is at the beginning of something rather than the end of something. Now, I am someone who wants to see lower prices in the near-term so when I say I see bullish you know it’s coming from a source who’s not wearing rose colored glasses.
It’s a series of higher highs and higher lows since 2016. As you can see, HUI can drop all the way to 150 and still maintain a higher low. Not saying it’ll go that low (targets are 230, 212 & 185), but technically speaking this continues to sport the look of a bull market that began in 2016. Take out the 2015 low and that would kill it and tell us that it will have been an A-B-C bear correction after all.
But there is plenty of time for the inflated, cyclical world to fail while gold stocks bottom out. It’s a plan, anyway.
NEM is bearish? I don’t think so. NEM has significant near-term downside potential but it is in a bull market. It could crash to 38 (not predicting that) and not be broken.
AEM is in a bullish Cup, making a Handle after attaining an all-time high.
KGC is more like HUI, potentially starting something rather than ending it.
GOLD is similar. Notice declining volume on corrective flags. That is positive as well.
Over in the Royalty patch, FNV may or may not be double topping here. But even if it’s a double top there is a ton of downside real estate before FNV would break down.
RGLD has an ugly pattern but also very thick support at 85-90. This is a secular bull market.
WPM… to paraphrase Seinfeld, where is bearish Jerry… SHOW me bearish! It can drop to 30 and be intact.
You are going to hear a lot of angst out there. You are going to hear about the bear market. You are going to hear how gold stocks suck. If positioned well, these are beautiful things to hear. If not, it’s agony. That is why I have clubbed you over the head trying to tell the truth of it when people were bullish and why I am trying to tell the truth of it when people are bearish.
Those following the slogans and buzz phrases need to be eliminated. It’s part of a bullish process. The fundamentals need to reengage as well and they have been missing in action for most of the last year. Speaking of buzz words, “patience” is one I use a lot. And in the gold stock sector you need to have patience (along with a good bullshit detector) most of the time in order to seize the rare opportunities that a failing macro occasionally presents. Such opportunities, though rare, can be intense, even epic.
But first, the drudgery.