Gold Stocks Are At A Crossroads With Plenty Of Evidence The Next Big Move Will Be Up
As Yogi Berra told us, "When you come to a fork in the road, take it!"
The old stock market saying is that you want to buy low and sell high. The first thing you need to pull that off is to buy low.
The most successful investors in this sector are those that see value when there is blood on the streets. The most successful period for investors in the mining sector was the bull market in metals from 2001 to 2011.
Early in that bull market, nobody believed it. Fundamental reasons to be bullish on gold, silver, copper and other metals was very powerful, yet the mining stocks were trading at record low valuations considering what they had in the ground. Does this sound familiar?!
It should, because we are at that point again. Gold started a new gold bull market in November, 2022.
It had a triple bottom in September, October and November, as the Fed was jacking up interest rates to fight the inflation they caused. Then it aggresively rallied to break through the 50 day moving average (50 DMA) and the 200 day moving average (200 DMA). It had a Golden Cross in January, 2023 and a powerful January Effect.
Nothing goes straight up in a bull market, corrections are normal. We saw a pullback in February, that brought the price down below the 50 DMA. Then in March, when the banking crisis hit, it had another powerful rally. Since the middle of May it has been on a slight correction that has it a little below the 50 DMA.
I would point out that since then it is trending sideways with an average price around the closing price on Friday. The price of gold is at an inflection point. Yet, the fundamental reasons to be bullish haven’t changed.
The government is still spending money like it is going out of style. Debt is explosive only made worse by the Fed actions of rapidly increasing interest rates. The Fed is breaking things including housing and the banking sector. We had a banking crisis caused by many banks holding toxic assets they bought when interest rates were near zero after the 2008 economic crisis. The USD is overvalued due to the aggresive rate increases over the past year. There is a currency war raging with the BRICS nations, wanting an alternative to the world reserve currency the USD to hold in their reserves and to use for international trade.
Many countries are lining up to join the BRICS network and their central bankers are buying gold hand over fist. They want a competitor to the USD and they are backing it up by loading up their accounts with gold.
While all this is happening, the gold stocks are showing weak sentiment. Few believe we are in the early days of a gold bull market that will last for many years.
The GDXJ is an index that tracks the middle tier miners, smaller miners and larger junior explorers. As you can see, it tracks the gold price with outperformance on the way up or down. Right now it is trading in the middle of the 50 DMA and 200 DMA on low volume. It is at an inflection point just like the price of gold.
The Toronto Stock Exchange Venture index is a pretty good indicator of what is happening with the exploration mining stocks. Since the early part of 2022, the volume has dried up and it has been trending sideways for several months. This is a strong signal that the mineral exploration stocks are also at an inflection point.
We are at a juncture with gold stocks and other metals stocks, from the explorers right up to the middle tier producers trading on low volume and oversold. While gold has many arguments for it being very cheap and ready to rally.
The bottom line is the mining stocks and gold are trading with a poor sentiment. When it comes to the gold stocks and other metals stocks, those that like to sell low have sold. The fearfull have been controlling the prices and now it is time to be greedy and take advantage of the cheap valuations.
This upcoming week I expect some of the companies that I follow closely, either as sponsors of my reports or top picks should be putting out news. I will send the news to subscribers and talk about them on my shows. I also have a new pick to discuss and have some interviews to put out.
All the best,
Allan
O ye of little faith...