Gold Is In The Midst Of A Remarkable Rally While Gold Stocks Are Coiled Springs Ready To Rally
Since the big rally in gold started to push it up to new record highs, I’ve been noticing a trend reversal that has caught my attention. When looking at the futures price of gold, for a long time gold would strengthen after the US market closed, and then weaken during the US market trading. Recently, I’ve seen futures prices solid in overnight trading and then trade stronger in the US market trading.
The normal action was a sign that gold was being shifted from the West to the East. But, lately it looks like some Western investors are getting more aggressive on gold due to the strength during US market trading.
I have my suspects. Stanley Duckenmiller and other huge investors have been clearly making public statements that they are positioning themselves into major gold mining companies. They stick to the household names because they move massive amounts of money into trades, and the majors allow them the ability to do that due to their liquidity.
They clearly understand that for their gold stock holdings to move up, they need gold to also move higher. Derivatives are a good way for them to move the price of gold higher as they get added leverage on their money. Derivatives can be used with gold and other assets to cap prices or to move them up or down.
I don’t think they are moving into gold stocks for small moves, they can see how compressed they are compared to the price of gold. I also believe they are bullish on the gold price going much higher for them to make remarkable gains.
So they have been buying gold stocks, are bullish on gold, why not use the derivatives to enhance their positions? I think that is exactly what they are doing.
That type of investor has to go into the household names in gold stocks because if they went down the food chain into the mid-tiers, small miners, developers and explorers with their bets, it would be hard for them to get big positions without driving the prices a lot higher.
Institutions are in a similar position, so they also need to focus on the household names. But, the retail and generalist investors don’t have those constraints. Which gives them a distinct advantage because as you go down the food chain in gold stocks, they are coiled springs that are so compressed that when they break out, the gains will be much larger than in the household names.
McEwen Mining is a perfect example of why investors should look down the food chain. Since gold started its recent big rally, it bottomed at CAD $8.05 and almost hit $12 today. They have gold mines with the potential to increase production and bring down costs of production. Plus, they own 47% of McEwen Copper, which has an exceptional copper project.
All the major gold miners want to add copper to their mix of assets and McEwen Mining is ahead of the curve. They also benefit from being listed on the NYSE, so when generalist investors are looking for gold stocks trading on the NYSE, they are one of a small number of gold companies that show up.
We are at a seminal moment in the price of gold and the gold stocks. Gold has broken out above $2100 which was a psychological barrier. It could easily see free wheeling movement to $2500 and then $3000. I believe we will see those milestones reached in 2024.
Yet, while gold is performing very well, due to the gold stocks having been in a bear market for a considerable amount of time, few believe the gold stocks are primed to move aggressively higher. This disconnect could change rapidly because the valuations of gold stocks are so depressed. They are coming from very low bases and it would not take a lot of buying pressure to see them go from coiled springs to fear of missing out trades.
In the Western world, there are a lot of momentum traders that move around from hot sector to hot sector. Lately, they have been piling into AI stocks and Bitcoin. It would not surprise me to see when gold stocks start improving, first we will see contrarian retail investors get into gold stocks and then the Momo Traders.
Obviously this hasn’t happened yet, but I do think it is right around the corner. The bearishness in gold stocks is overdone, considering the strength in gold and the bullish outlook for gold.
I have the privilege of being able to talk to a wide spectrum of gold stock investors. Even the most bullish of them are only cautiously optimistic because they have been beaten down so badly through several false starts. Many of the rest are nonbelievers until they see it happen in the gold stocks they own.
I get it. I have been in the gold market for decades and have seen many cycles. This one reminds of the two or so years prior to the 2001 to 2011 gold bull market. That was a magical time that saw outsized gains for many gold stock investors that took up Mr. Market when the gold stocks were depressed.
The turns in markets always happen when few believe it will. We are at that point now. This is why I’m extremely bullish on gold stocks.
All the best,
Allan Barry Laboucan
Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes.