Gold Is Basing And Ready For A Big Breakout That Will Bring Bullish Action Into High-Quality Gold Miners, Gold Mine Developers And Gold Explorers With Impressive Discoveries
I’ve written in the past that I pay a lot of attention to pullbacks in the gold bull market as they tell us as much about the strength of the trend as the rallies. Which is why in a bull market with staying power you see a series of higher highs and higher lows. This is exactly what we have been seeing in gold since it made an important breakout above $2100 back in March.
Prior to that breakout, I had reported that I was seeing that gold was primed to make that breakout and then gold would make a series of record highs. The reason that I made that prediction was because I saw another of my favourite technical indicators forming prior to the breakout.
I watch for basing periods as they are the inflection point that can cause important breakouts to the upside when the fundamental drivers are in place. The key fundamental driver for gold is that the Death Spiral of Debt is causing a return to the Gold Standard.
Back before the breakout, I had seen a base building period for gold that had it trading in a range from $2000 to $2100 on the futures market for around 3 months. After the impressive breakout above $2100, we had another basing period between late May until early July, then gold traded very strongly after that to reach $2500. That basing period was around half the time frame as the one earlier in the year.
During the past couple of weeks we are having another basing period with an average price around $2540 on the futures market. This is happening as the Fed is about to raise cut interest rates which will put downward pressure on the US dollar (USD) and drive gold higher.
Lately, the pullbacks in gold are very mild and don’t last very long and settle higher than the previous lows. The summer time base was shorter than the one earlier in the year and the current one looks like it is pretty much finished in even a shorter time frame and has a tighter trading range. It looks like the futures market is primed to drive gold well over $2600.
On the first day of trading after the Labour Day long weekend, Wall Street stocks got hammered pretty good. It looks like they want a half-point cut but are concerned it will only be a quarter-point cut which seems to be the consensus.
This Friday, the unemployment report will come out which will have the Fed and the Fed watchers on alert. This could have a significant influence on the Fed’s decision whether to cut a quarter-point or a half-point.
I will be watching the USD action on gold very closely. The USD traders seem to have a pretty good read on the Fed. They were ahead of the curve before the Fed went into the rate increasing cycle, and they are anticipating the Fed cutting cycle as well.
The steepness of the correction that the USD is having suggests that the traders are anticipating much more than a mild cutting cycle. They are trading like the Fed is going to move back toward the Free Money Era and crank up their balance sheet.
While gold is in a very powerful bull market, the gold stocks are not showing a lot of confidence. So far, it has really only been the big gold miners that have joined the gold bull market. The smaller gold stocks are still only getting off the canvas. On days when gold is down, in unison the gold stocks have been getting sold off.
The smaller gold stocks have seen some improvement, but as of now you can’t see much in the way of confidence.
I am happy to see that the market is pricing quality nicely in the biggest miners, and even in the smaller ones, all the way down to the explorers with a good discernment between quality over everything with gold in its name improving.
It is encouraging to see that as the gold stocks are climbing a wall of worry the allocation is pretty good in that the better the quality of the gold miners, gold mine developers and gold explorers being the ones that see the best performance in their respective categories.
The fact that the gold stocks are still relatively reluctant participants in the gold bull market, is a good sign that we are still in the earliest days of a gold bull market.
The gold bull market is still in stealth mode, smart money has entered, and the generalist investors are only dipping their toes in with no real conviction. Mainstream financial media are still completely focused on Wall Street stocks, and Bitcoin to a lesser degree, with nary a peep out of them on gold.
The Wall Street stocks are extremely stretched on their valuations, up to historical premiums, but I’m not expecting a serious correction as the Fed will cut rates to help them out. Bitcoin looks insanely valued, reminiscent of the valuations in Dot-com stocks prior to the Dot-bomb.
Since the ETF rally for Bitcoin a lot of buyers are in at higher prices than its current price. They should be pretty worried at this point wondering when it is going to the promised moon, or at least what they paid for it. I’m expecting a serious correction in Bitcoin that will cause a cascade of panic selling.
I’ve said for months that Bitcoin buyers will be much better rewarded owning gold. The golden welcome mat is out for them to protect the money they put into Bitcoin from serious devaluation and join the gold bull market.
All signals are green for gold. We are in the earliest stages of a return to the Gold Standard and more investors worldwide coming to terms with the reality that it is the soundest money. Much better than the fiat currencies of the world, including the USD, which have all devastated purchasing power for a long time.
The business of gold mining is doing great as the gap between the average cost of mining gold is wide and rewarding the best in breed gold miners with records in free cash flow. Their shareholders are also being rewarded with their stocks going up at a higher percentage than the price of gold.
M&A activity should increase as well, it should happen at premiums because when the majors look at smaller miners there is only a small menu. The same can be said for the gold mine developers.
What is most needed in the gold supply chain is exploration success that can help the gold miners to replace the gold they are mining in their old mines with new mines. The menu of high-quality gold discoveries that can move the needle for majors or make it into the gold mine development phases is tiny.
All the best,
Allan Barry Laboucan
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