Posted by AGORACOM
at 12:23 PM on Thursday, March 5th, 2020
SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south.Click Here for More Info
Dr. Quinton Hennigh said: “We
at Novo think the Queensway Project represents a very promising new
high-grade gold discovery. It appears the Queensway Project encompasses
an area highly prospective for high-grade, epizonal orogenic gold
mineralization
TSX-listed, Pilbara-focused gold player, Novo Resources, has acquired
15.97 per cent of New Found Gold Corp via a scrip-for-scrip deal that
gives Novo access to New Found’s stellar gold prospect on the east coast
of Canada. Novo says that the New Found tenement package is the largest
in the Province of Newfoundland and Labrador.
A recent drill intercept at New Found’s Queensway project located
near the town of Gander in central Newfoundland returned 19m at 3 ounces
to the tonne from 98m, including 6m at a staggering 9oz/tonne gold.
Novo says the intercept has an estimated true width of around 70 per
cent of the 19m hit, making it an extraordinary hole.
According to New Found’s management, this drill hole is adjacent to
historical surface workings and only 2km from an historical gold
resource.
Novo said that Eric Sprott, a director of Novo, was sitting on 16.79%
of the issued and outstanding shares of New Found immediately prior to
the acquisition. New Found is considered a non-arm’s length party to
Novo pursuant to TSX Venture Exchange policies and the deal is subject
to the approval of the Exchange.
Under the terms of the acquisition, Novo also has the right to
appoint a director to the board of directors of New Found at any time
for a period of three years from the acquisition date provided that the
company holds no less than 10% of New Found’s issued and outstanding
shares. Novo has also agreed to certain voting restrictions for a period
of three years.
President and Chairman of Novo Resources, Dr. Quinton Hennigh said: “We
at Novo think the Queensway Project represents a very promising new
high-grade gold discovery. It appears the Queensway Project encompasses
an area highly prospective for high-grade, epizonal orogenic gold
mineralization. We are very pleased to have the opportunity to be part
of this exciting discovery and, upon completion of the Acquisition, look
forward to supporting New Found as they advance work around hole
NFGC-19-01 and the many other high-grade showings across the Queensway
Project.â€
Whilst Novo has been and remains focused on delivering its
Pilbara-based conglomerate gold project, the acquisition of an interest
in New Found is the second of its kind for Novo. The TSX-listed company
announced back in January this year that it had subscribed for shares in
ASX-listed Kalamazoo Resources in a financing arrangement that will,
upon closing, give Novo 8.17 per cent of Kalamazoo’s issued and
outstanding shares.
Novo said that Kalamazoo has a string of prospects in the
Bendigo-Castlemaine region of Victoria in Australia and its prospects
have strong similarities to the 1Moz Fosterville gold deposit being
mined underground by TSX-listed Kirkland Lake Gold at an average grade
of 31g/t gold.
Interestingly, Eric Sprott, Novo director, is also a shareholder in Kalamazoo.
With a market cap approaching the equivalent of half a billion
Australian dollars, Novo can make scrip-based acquisitions such as New
Found and Kalamazoo with ease.
The impact on its share capital is minimal but the upside is
potentially serious if either of its current or future based bets come
good – and with 19m going 3 ounces to the tonne, New Found just might
fit into that category.
Posted by AGORACOM-JC
at 1:08 PM on Tuesday, March 3rd, 2020
Highlights:
Option to acquire 100% of two licenses from Shawn Ryan in an area of excellent infrastructure.
Licenses cover over 14km of the potential extension of the
Appleton fault zone associated with many of the gold showings, including
the new discovery, on New Found Gold’s Queensway project to the south.
The two licenses represent the most prospective areas for
gold of a 45km by 15km regional till and vegetation sampling program
conducted over 3 years.
VANCOUVER, British Columbia, March 03, 2020 – Labrador Gold Corp. (TSX-V: LAB) (“LabGold†or the “Companyâ€) is pleased to announce the acquisition of two licenses near Gander, Newfoundland from Shawn Ryan. The licenses are along strike to the northeast of the recently announced gold discovery of New Found Gold of 92.86g/t Au over 19 metres in Hole NFGC-01 on their Queensway Project. The licenses, Gander South and Gander North, consist of 264 claims covering an area of 6,600 hectares (66 square kilometres). Note that gold values in adjacent properties in similar rocks are not indicative of mineralization on the Gander licenses.
The company has the option to acquire a 100% interest in the two licenses subject to TSX Venture Exchange approval as follows:
Payment of $1,250,000 cash and issue 2 million shares as follows: $250,000 cash and 400,000 shares following TSX venture exchange approval $150,000 cash and 250,000 shares on the first anniversary of the option agreement; $150,000 cash and 300,000 shares on the second anniversary of the option agreement; $200,000 cash and 350,000 shares on the third anniversary of the option agreement; $250,000 cash and 400,000 shares on the fourth anniversary of the option agreement and $250,000 cash and 300,000 shares on the fifth anniversary of the option agreement.
Additional payments based on exploration expenditures will be made as follows: $750,000 on $10 million expenditure on one of the licenses $750,000 on $20 million expenditure on one of the licenses $750,000 on $30 million expenditure on one of the licenses
The Company will also grant a 1% net smelter return royalty (NSR) to
the Vendor plus $1 per ounce of gold in a measured and indicated
resource. An advance royalty of $50,000 per annum for each property will
be payable starting in 2026.
The Company also undertakes to spend $750,000 on each license over the first four years.
“I am very happy to see this district is getting the attention it
deserves,†said Shawn Ryan, Technical Advisor to LabGold. “I started
with 2,200 claims in 2016, and with over 1700 till samples and 3,700
vegetation samples taken over an area of 45km by 15km in 3 years have
whittled it down to the most prospective 264 claims. I am looking
forward to continuing my relationship with LabGold to aggressively
explore these licenses.â€
The two licenses cover over 14 kilometres of strike length of the
potential Appleton fault zone extension. The Appleton fault zone is
associated with many of the gold showings, including the new discovery,
on New Found Gold’s Queensway project to the south. Exploration over the
past four years including till, vegetation and soil sampling has
demonstrated the prospectivity of the licences, particularly along the
extension of the crustal scale Appleton fault zone.
Roger Moss, President and CEO, stated: “We are very happy to continue
our relationship with Shawn and work together to discover more gold
along the same structural trend that hosts the recent New Found Gold
Discovery. We believe this area has great potential for the discovery of
orogenic gold deposits associated with deep seated structures. Work
already completed on the licenses to date indicates significant gold
anomalies in till, vegetation and soil samples along the extension of
the Appleton fault zone. We intend to systematically explore this very
prospective trend during 2020 to delineate drill targets.â€
The licenses occur in an area of excellent infrastructure, situated
just 16km northwest of the town of Gander with good road access, nearby
electricity and abundant water.
Roger Moss, PhD., P.Geo., is the qualified person responsible for all technical information in this release.
About Labrador Gold:
Labrador Gold is a Canadian based mineral exploration company focused
on the acquisition and exploration of prospective gold projects in the
Americas. In 2017 Labrador Gold signed a Letter of Intent under which
the Company has the option to acquire 100% of the Ashuanipi property in
northwest Labrador and the Hopedale property in eastern Labrador.
The Hopedale property covers much of the Florence Lake greenstone
belt that stretches over 60 km. The belt is typical of greenstone belts
around the world but has been underexplored by comparison. Initial work
by Labrador Gold during 2017 show gold anomalies in soils and lake
sediments over a 3 kilometre section of the northern portion of the
Florence Lake greenstone belt in the vicinity of the known Thurber Dog
gold showing where grab samples assayed up to 7.8g/t gold. In addition,
anomalous gold in soil and lake sediment samples occur over
approximately 40 kilometres along the southern section of the greenstone
belt (see news release dated January 25th, 2018 for more details).
The Ashuanipi gold project is located just 35 km from the historical
iron ore mining community of Schefferville, which is linked by rail to
the port of Sept Iles, Quebec in the south. The claim blocks cover large
lake sediment gold anomalies that, with the exception of local
prospecting, have not seen a systematic modern day exploration program.
Results of the 2017 reconnaissance exploration program following up the
lake sediment anomalies show gold anomalies in soils and lake sediments
over a 15 kilometre long by 2 to 6 kilometre wide north-south trend and
over a 14 kilometre long by 2 to 4 kilometre wide east-west trend. The
anomalies appear to be broadly associated with magnetic highs and do not
show any correlation with specific rock types on a regional scale (see
news release dated January 18th, 2018). This suggests a possible
structural control on the localization of the gold anomalies. Historical
work 30 km north on the Quebec side led to gold intersections of up to
2.23 grams per tonne (g/t) Au over 19.55 metres (not true width)
(Source: IOS Services Geoscientifiques, 2012, Exploration and geological
reconnaissance work in the Goodwood River Area, Sheffor Project, Summer
Field Season 2011). Gold in both areas appears to be associated with
similar rock types.
The Company has 57,039,022 common shares issued and outstanding and trades on the TSX Venture Exchange under the symbol LAB.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of this
release.
Posted by AGORACOM
at 2:47 PM on Friday, February 21st, 2020
SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Click Here for More Info
GDX and GDXJ are consolidating bullishly within a now seven-year-long base
Last week, I covered the historical trajectory of the gold stocks and how today compares to the early 1960s.
The late 2015 to early 2016 period marked one of the three best
buying opportunities of the past 100 years (from a secular standpoint),
and gold stocks are in position for sensational performance over the
next 20 years.
That sounds great, but what matters most is the here and now. We do
not want to get caught in a cyclical downturn (which could occur more
than once during this super bull).
Fortunately, the outlook over the next 12 to 18 months is bullish.
The macro-fundamentals are supportive and improving, and the gold stocks
now have a beautiful technical setup that could lead to massive gains.
GDX and GDXJ are consolidating bullishly within a now seven-year-long
base. They are digesting recent gains while holding well above key
support levels and are in position for an eventual explosive breakout.
Historically, there have not been many multi-year breakouts with the
potential magnitude of this next one. In using the Barron’s Gold Mining
Index, I only find three.
The breakout in 1964 was a historic, multi-decade breakout that
ushered in an enormous bull market in gold stocks. It was the most
significant inflection point ever for gold stocks.
Later during that bull market, the gold stocks broke a 5-year downtrend and 5-year resistance in 1973, exploding higher.
The 2005 breakout compares best with the potential next one.
Like the one in 2005, this next one is setting up several years after
a secular low, following one of the worst bear markets of the past 90
years.
Also, this next breakout could occur following a +7 year-long base,
which is not too far from the +9 year base that was broken in late
2005.
Furthermore, the May 2005 low is similar to September 2018 in that
both followed a mini-bear market that lasted at least 18 months.
We plot the NYSE Arca Gold Miners Index, which is the parent index of GDX.
Since there are similarities in the setup, perhaps the upside
potential from a new breakout could be similar to that which followed
the 2005 breakout.
I want to focus on GDXJ because we invest in juniors and not seniors. The history of GDXJ back to January 2004 is available on this website.
From its May 2005 low to its peak in November 2007, GDXJ advanced
nearly 4-fold. Once GDXJ surpassed its January 2004 peak, it gained 138%
into that 2007 peak.
GDXJ closed last week just below $41. The measured upside target from
a break past $50 is $83. If GDXJ today duplicated its performance
before and after the 2005 breakout, then it would peak at $100 or $115.
If we get the breakout, then $83 becomes the minimum upside target. In that case, $100 or $115 is hardly a stretch.
Posted by AGORACOM
at 3:47 PM on Thursday, February 13th, 2020
Gold will outperform the S&P 500 Index in 2020. That’s one of several projections made by CLSA in its just-released “Global Surprises 2020†report.
The Hong Kong investment firm has an impressive track record when it comes to making market predictions—last year it had a 70 percent hit rate—so it may be prudent to take this one seriously.
CLSA’s
head of research Shaun Cochran: “If investors are concerned about the
role of liquidity in recent equity market strength… gold provides a
hedge that could perform across multiple scenarios.â€
Indeed, gold is one of the most liquid assets in the world with an average daily trading volume of more than $112 billion,
according to the World Gold Council (WGC). That far exceeds the Dow
Jones Industrial Average’s daily volume of approximately $23 billion.
The
yellow metal, Cochran adds, can be particularly useful in an era of
perpetually loose monetary policy: “[I]n the event that growth
disappoints the market’s expectations, gold is positively leveraged to
the inevitable policy response of lower rates and larger central bank
balance sheets.â€
As
I’ve pointed out many times before, gold has traded inversely with
government bond yields. The recent gold rally has largely been driven by
the growing pool of negative-yielding government debt around the world,
now standing at $13 trillion. Here in the U.S., the nominal yield on
the 10-year Treasury has remained positive, but when adjusted for
inflation, it’s recently turned negative, despite a strengthening
economy. What’s more, the Federal Reserve’s balance sheet has begun to
increase again. It now holds about 30 percent of outstanding Treasury
debt, up from about 10 percent prior to the financial crisis.
I
can’t say whether gold will beat the S&P this year or next, but
what I do know is that the yellow metal has been a wise long-term
investment. For the 20-year period through the end of 2019, gold crushed
the market two-to-one, returning 451.8 percent compared to the
S&P’s 223.6 percent. That comes out to a compound annual growth rate
(CAGR) of 8.78 percent for gold, 4.03 percent for the S&P.
Manufacturing Turnaround Has Begun
U.S.
manufacturers started 2020 on stronger footing, a welcome turnaround
after contracting for five straight months. January’s ISM manufacturing
purchasing manager’s index (PMI) clocked in at 50.9, indicating slight
growth. Up from 47.2 in December, this represents the biggest
month-over-month jump since August 2013, when the PMI increased to 55.4
from 50.9 in July.
This
may also mark the end of the recent manufacturing bear market, prompted
by the trade war between the U.S. and China. Although relations between
the world’s two biggest superpowers remain strained, to say the least,
we’ve seen improvements lately that hint at better days. Both sides
signed a “Phase One†agreement in mid-January, and last week, China
announced it would be cutting tariffs in half on as much as $75 billion
of U.S.-imported products.
The
coronavirus is a new development that has disrupted global trade, but
there’s reason to be optimistic, as the PMI makes clear.
To read my full comments on the coronavirus, and its impact on Chinese and Hong Kong stocks, click here!
The
Dow Jones Industrial Average is a price-weighted average of 30 blue
chip stocks that are generally leaders in their industry. The S&P
500 Stock Index is a widely recognized capitalization-weighted index of
500 common stock prices in U.S. companies. The Purchasing Manager’s
Index is an indicator of the economic health of the manufacturing
sector. The PMI index is based on five major indicators: new orders,
inventory levels, production, supplier deliveries and the employment
environment. Compound annual growth rate (CAGR) is a business and
investing specific term for the geometric progression ratio that
provides a constant rate of return over the time period.
All
opinions expressed and data provided are subject to change without
notice. Some of these opinions may not be appropriate to every investor.
Some links above may be directed to third-party websites. U.S. Global
Investors does not endorse all information supplied by these websites
and is not responsible for their content.
U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission (“SEC”). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC. This commentary should not be considered a solicitation or offering of any investment product. Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.
Posted by AGORACOM
at 1:16 PM on Friday, February 7th, 2020
SPONSOR: Labrador Gold – Two successful gold
explorers lead the way in the Labrador gold rush targeting the
under-explored gold potential of the province. Exploration has already
outlined district scale gold on two projects, including a 40km strike
length of the Florence Lake greenstone belt, one of two greenstone belts
covered by the Hopedale Project. Click Here for More Info
Labrador Gold: District Scale Discovery Potential
First stage drilling on selected targets in 2020 at Hopedale
Large under-explored properties, including the major portion of two greenstone belts
Potential for discovery of new gold district(s)
Experienced exploration success in finding gold deposits (>17 million oz)
First mover advantage
Results of aggressive initial exploration programs already indicate district scale gold targets
Hopedale Project Highlights:
Discovered a new gold showing north of the Thurber Dog gold
occurrence, grab samples from which assayed between 1.67 and 8.26 g/t
Au.
The Thurber Dog gold occurrence has assays in grab and channel
samples from below detection up to 7.866 g/t Au, with 5 samples greater
than 1 g/t Au and 16 samples assaying greater than 0.1 g/t Au.
The discovery extends the potential strike length of gold mineralization by approximately 500 metres along strike to the north.
The new showing occurs within a larger 3km trend of anomalous gold
in rock and soil associated with the contact between mafic/ultramafic
volcanic rocks and felsic volcanic rocks.
Exploration at Hopedale during 2020 will focus on determining the
extent of the Thurber Dog mineralized trend. Such work would aim to fill
in the gaps between showings over the three-kilometre strike length
with sampling and VLF-EM surveys. LabGold also intends to carry out an
initial drill program targeting prospective areas along this trend,
including the new showing.
The Hopedale property covers much of the Hunt River and Florence
Lake greenstone belts that stretch over 80 km. The belts are typical of
greenstone belts around the world but have been underexplored by
comparison. Initial work by Labrador Gold during 2017 show gold
anomalies in soils and lake sediments over a 3 kilometre section of the
northern portion of the Florence Lake greenstone belt in the vicinity of
the known Thurber Dog gold showing where grab samples assayed up to
7.8g/t gold. In addition, anomalous gold in soil and lake sediment
samples occur over approximately 40 kilometres along the southern
section of the greenstone belt (see news release dated January 25th 2018
for more details). Labrador Gold now controls approximately 57km strike
length of the Florence Lake Greenstone Belt.
FULL DISCLOSURE: Labrador Gold is an advertising client of AGORA Internet Relations Corp.
Posted by AGORACOM
at 5:42 PM on Friday, January 31st, 2020
SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Click Here for More Info
We believe that there is a strong case to expect gold mining shares to outperform the metal in the years ahead…
On September 17, 2019, overnight repo rates spiked 121 basis points,
climbing from 2.19% to 3.40%, providing yet another crucial buttress for
the bullish rationale for gold. The spike signaled that the U.S.
Federal Reserve (“Fedâ€) had lost control of the price of money. Without
subsequent massive injections of liquidity by the Fed into the repo
market, out of control, short-term interest rates would have undermined
the leverage that underpins record financial asset valuations. Going
forward, unless the Fed continues to expand its balance sheet, it risks a
meltdown in equity and bond prices that could exceed the damage of the
2008 global financial crisis. Despite consensus expectations, there
appears no escape from this treadmill.
The Fed must monetize deficits because non-U.S. investors are no
longer absorbing the growing supply of U.S. debt. Ultra-low, short-term
interest rates do not compensate foreign investors for the cost of
hedging potential foreign currency (FX) losses (see Figure 1). The U.S.
fiscal deficit is too high and the issuance of new U.S. treasuries is
too great for the market to absorb at such low interest rates. In a free
market, interest rates would rise, the economy would stall and
financial asset valuations would decline sharply.
Figure 1. Treasury Issuance Goes Up, Foreign Purchases Go Down (2010-2019)
Source: Bloomberg. Data as of 12/31/2019.
The predicament facing monetary policy explains why central banks are
buying gold in record quantities, as shown in Figure 2. It also
explains the fourth quarter “melt-up†in the equity market, even with Q4
earnings that are likely to be flat to down versus a year ago (marking
the second quarter in a row for lackluster results) and the weakest
macroeconomic landscape since 2009 (as shown by Figure 3).
Figure 2. Central Banks Purchases of Gold are 12% Higher than Last Year
Source: World Gold Council; Metals Focus; Refinitiv GFMS. Data as of 9/30/2019.
Figure 3. The U.S. ISM PMI Index Indicates Economic Contraction
The U.S. ISM Manufacturing Purchasing Managers Index (PMI)1 ended the
year at 47.2, indicating that the U.S. economy is in contraction
territory (a reading above 50 indicates expansion, while a reading below
50 indicates contraction).
Source: Bloomberg. Data as of 12/31/2019.
Liquidity injections will result in more debt, both public and private sector, but not necessarily enhanced economic growth:
“As these forms of easing (i.e., interest
rate cuts and QE [quantitative easing]) cease to work well and the
problem of there being too much debt and non-debt liabilities (e.g.,
pension and healthcare liabilities) remains, the other forms of easing
(most obviously currency depreciations and fiscal deficits that are
monetized) will become increasingly likely …. [this] will reduce the
value of money and real returns for creditors and will test how far
creditors will let central banks go in providing negative real returns
before moving into other assets [including gold].â€
– Ray Dalio, Paradigm Shifts, Bridgewater Daily Observations, 7/15/2019
Gold Bullion and Miners Shine in 2019
Though overshadowed by the rip-roaring equity market, precious metals
and related mining equities also had significant gains in 2019 (up
43.49%)2. Gold’s 18.31% rise last year was its strongest performance
since 2016. More significantly, after two more years of range-bound
trading, the metal closed out 2019 at its highest level since mid-2013,
and within striking distance of $1,900/oz, the all-time high it reached
in 2011.
The investment world has taken little notice. Despite gold’s strong
performance, GDX3, the best ETF (exchange-traded fund) proxy for
precious metals mining stocks, saw significant outflows over the year as
shares outstanding declined from 502 million to 441 million (or 12%)
over the twelve months, despite posting a 39.73% gain, well ahead of the
31.49% total return for the S&P 500 Total Return Index.4
We believe that there is a strong case to expect gold mining shares to outperform the metal in the years ahead…
It has been our long-held view that until mainstream investment
strategies run aground, interest in precious metals will continue to
simmer on low, notwithstanding the likelihood that 2020 may be another
very good year for the precious metals complex. The many reasons why
mainstream investment strategies could unravel are not difficult to
imagine. They include the emergence of meaningful inflation, further
slippage of the U.S. dollar’s nearly exclusive reserve currency status,
and market-driven interest rate increases or a recession. Any or all of
these could disrupt the continued expansion of the Fed’s balance sheet,
triggering a rapid reversal in financial asset valuations. Each
possibility deserves a more complete discussion than space here allows,
but evidence strongly suggests that none can be ruled out. While timing
the zenith in complacency is risky, we feel confident that a reversal of
fortune for high financial asset valuations awaits unsuspecting
investors sooner than they expect.
We are even more confident that a bear market will generate far
broader investment interest in gold. Considering that institutional
exposure to gold and related mining stocks hovers near multi-decade
lows, the slightest uptick could easily drive the metal and related
precious metals mining shares to historic highs. Today, the aggregate
market capitalization of precious metals equity shares is $400 billion,
an insignificant speck on the current market landscape.
Investors outflows from precious metals mining stocks in 2019, even
as gold rose 18.31%, suggests skepticism that the current rally is
sustainable — perhaps hardened by the wounds of years of middling
performance. Contrarian analysis would regard such bearishness as
grounds to be very bullish. In our opinion, investors have overlooked
that the 2019 rise in gold prices has restored financial health to
sector balance sheets, earnings and cash flow. Gold stocks offer both
relative and absolute fundamental value and growth potential that
compares very favorably to conventional investment strategies
We believe that there is a strong case to expect gold mining shares
to outperform the metal in the years ahead by a substantially wider
margin than they outperformed in 2019. With continued advances in
precious metals prices, the return potential from these still unloved
orphans and pariahs of the investment universe should prove to be very
compelling.
Posted by AGORACOM
at 11:58 AM on Wednesday, January 22nd, 2020
SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Click Here for More Info
At first glance gold looks like it may be about to advance out of a
bull Flag, but there are a number of factors in play that we will
examine which suggest that any near-term advance won’t get far before it
turns and drops again, and that a longer period of consolidation and
perhaps reaction is necessary before it makes significant further
progress.
On the 6-month chart we can see how gold stabbed into a zone of
strong resistance on the Iran crisis around the time Iran’s General was
murdered, but after a couple of bearish looking candles with high upper
shadows formed, it backed off into what many are taking to be a bull
Flag.
The 10-year chart makes it plain why gold is vulnerable here to
reacting back over the short to medium-term, because it has advanced
deep into “enemy territory†– the broad band of heavy resistance
approaching the 2011 highs, with a zone of particularly strong
resistance right where it is now. It would be healthier and increase
gold’s chances of breaking out to new highs if it now backed off into a
trading range for a while to moderate what now looks like excessive
bullishness.
Thus it remains a cause for concern (or it should be for gold
bulls) to see gold’s latest COTs continuing to show high Commercial
short and Large Spec long positions. Is it “going to be different this
time� – the latest Hedgers charts that we are now going to look at
suggest not.
Click on chart to popup a larger, clearer version.
The COT chart only goes back a year. The Hedgers charts shown
below, which are a form of COT chart, go back many years, and frankly,
they look pretty scary.
We’ll start by looking at the Hedger’s chart that goes back to before
the 2011 sector peak. On it we see that current Hedgers positions are
at extremes that way exceed even those at the peak of the 2012 sucker
rally, which was followed by the bulk of the decline in the bearmarket
that followed. Does this mean that we are going to see another
bearmarket like that – no it doesn’t, but it does mean that these
positions will probably need to moderate before we see significant
further gains.
Click on chart to popup a larger, clearer version.
Chart courtesy of sentimentrader.com
Looking at the Hedgers chart going way back to before the year
2000, we see that the current readings are record readings by a
significant margin and obviously increase the risks of a sizeable
reaction. We can speculate about what the reasons for a decline might
be, one possibility being the sector getting dragged down by a
stockmarket crash after its blowoff top, which may be imminent, as
happened in 2008, since it remains to be seen whether investors will
rush into the sector as a safe haven in the event of a market crash.
Click on chart to popup a larger, clearer version.
Chart courtesy of sentimentrader.com
Turning now to Precious Metals stocks, we see on its latest
10-year chart that GDX still looks like it is completing a giant
Head-and-Shoulders bottom pattern. However, it is currently dithering
just beneath resistance at the top of this base pattern, which means
that it is vulnerable to backing off.
So, how then does gold stock sentiment look right now? As we can
see on the 5-year chart for the Gold Miners’ Bullish Percent Index,
bullishness towards the sector is now at a very high level, 84.6%, which
makes it more likely that stocks will drop soon rather than rally, and
what they could do of course is rally some to increase this level of
bullishness still further, and then drop.
Does all this mean that investors in the sector should suddenly
rush for the exits? No, it doesn’t, especially as the charts for many
individual stocks across the sector look very bullish, and it may be
that all that is needed is a cooling period of consolidation. However it
does make sense to use Hedges at extremes, such as leveraged inverse
ETFs and better still options as insurance, which have the advantage of
providing protection for a very small capital outlay, a fine example
being GLD Puts which are liquid with narrow spreads. We did this just ahead of the recent peak
when Iran lobbed a volley of missiles at Iraq. We will not be selling
our strongest gold and silver stocks, but instead look to buy more on
dips.
Posted by AGORACOM
at 4:36 PM on Friday, January 17th, 2020
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From the HRA Journal: Issue 314
The fun doesn’t stop. Waves of liquidity continue to wash traders
cares away. Even assassinations and war mongering generate little more
than half day dips on Wall St. It seems nothing can get in the way of
the bull rally that’s carrying all risk assets higher.
It feels like it could go on for a while, though I think the
liquidity will have to keep coming to sustain it. By most readings,
bullishness on Wall St is at levels that are rarely sustained for more
than a few weeks. Some sort of correction on Wall St seems highly
likely, and soon. Whether its substantial or just another blip on the
way higher remains to be seen.
The resource sector, especially gold and silver stocks, have had
their own rally. Our Santa Claus market was as good or better than Wall
St’s for a change. And I don’t think its over yet. I think we’re in for
the best Q1 we’ve seen for a few years. And we could be in for something
better than that even. I increasingly see signs of a major rally
developing in the gold space. It’s already been pretty good but I think a
multi-quarter, or longer, move may be starting to take shape.
I usually spend time on all the metals in the first issue of the
year. But, because the makings of this gold rally are complex and long
in coming I decided to detail my reasoning. That ended up taking several
pages so I’ll save talk on base metals and other markets for the next
issue.
No, I’m not writing about Louis IV, though there might be some
appropriateness to the analogy, now that I think about it. The quote is
famous, even though there’s no agreement on what it was supposed to
mean. Most figure Louis was referring to the biblical flood, that all
would be chaos once his reign ended.
The deluge I’m referring to isn’t water. It’s the flood of money the
US Fed, and other central banks, continue to unleash to keep markets
stable. Markets, especially stock markets, love liquidity. You can see
the impact of the latest deluge, particularly the US Fed’s in the chart
below that traces both the SPX index value and the level of a “Global
Liquidity Proxy†(“GLPâ€) measuring fiscal/monetary tightness and
weakness.
You can see the GLP moved lower in late 2018 as the Fed tightened and
the impact that had on Wall St. Conversely, you can see the SPX running
higher in the past couple of months as the US backed off rate
increases, increased fiscal deficit expansion, and grew the Fed balance
sheet through, mainly, repo market operations.
Wall St, and most other bourses, are loving these money flows. The
Santa Claus rally discussed in the last issue continued to strengthen
all the way to and through year end. As it turned out, the Fed either
provided enough backstop in advance or the yearend repo issues were
overstated. The repo market itself was calm going through year end and a
lot of the short-term money offered by the Fed during that week wasn’t
taken down.
Everything may have changed in the past couple of days with the
dramatic increase in US-Iran tensions. I don’t know how big an issue
that will be, since no one knows what form Iran’s retaliation will be or
how much things will escalate. I DO think it’s potentially a big deal
with very negative connotations, but it may take time to unfold. Someone
at the Fed thought so too, as the past couple of days saw a return to
large scale Fed lending in the repo market.
I’ve no doubt Iran will try and take revenge for the assassination of
its most famous military commander by the US. But I don’t know what
form it will take and if this means the US has drawn itself into the
Mideast quagmire even more. I fear it has though. The US is already
talking about adding 3,000 troops to its Mideast presence and they’re
just warming up. Even larger scale attacks, if they happen, may not
derail Wall St, but they’re certainly not a positive development at any
level.
We know how stretched both market valuations and sentiment were
before the Suleimani drone strike. The chart below shows a three-year
trace of the “fear/greed indexâ€. You can see that its hardly a stable
reading. It flip flops often and extreme readings rarely hold for long.
At last check, the reading was 94% bullish.
Sentiment almost never gets that bullish and, when it does, nothing
good comes of it for bulls. A reading that close to 100% tells you we’re
just about out of buyers. Whatever happens in and around Iran, I think a
near term correction is inevitable. The only question is whether it’s a
large one or not.
A rapid escalation in US-Iran tensions could certainly make a near
term correction larger. If the flood of liquidity continues though, a
correction could just be another waystation on the road to higher highs.
There are a couple of other dangers Wall St still faces that I’ll touch
on briefly at the end of this article. First however, lets move on to
the main event for us-the gold market.
It wasn’t just the SPX enjoying a Santa rally this year. Gold
experienced the rally we were hoping for that gold miner stocks seemed
to be foretelling early last month. Gold’s been doing well since it
bottomed at $1275 in June, but it didn’t feel that way during the long
hiatus between the early September high and the current move. The gold
price currently sits above September’s multi-year high, after breaching
that high in the wake of the Baghdad drone strike. And the first
retaliatory strike by Iran. Volatility will be very high for a while
going forward.
I think we’ll see more multi-year highs going forward. I hate that
the latest move higher is driven by geopolitics. Scary geopolitics and
military confrontations mean people are dying. We don’t want to profit
from misery. And we won’t anyway, if things get ugly enough in the
Mideast to scare traders out of the market.
Geopolitical price moves almost always unwind quickly. I’d much
prefer to see gold moving higher for macro reasons, not as a political
safety trade. I expect more political/military inspired moves. As the
Iran conflict unfolds. Make no mistake, Iran is NOT Iraq. Its army is
far larger, better trained and better equipped than Iraq. This could get
ugly.
The balance of this piece will deal with my macro argument for higher
gold prices over an extended period. The geopolitical stuff will be
layered on top of that for the next while and could strengthen both gold
prices and the $US in risk-off trading. It should be viewed as a
separate event from the argument laid out below.
What else is driving gold higher? In part, it was gold’s inverse
relationship with the US Dollar. As you already know, I’m not a believer
that “its all about the USD, all the time†when it comes to the gold
market. That’s an over-simplification of a more complex relationship. It
also discounts the idea of gold as its own asset class that trades for
its own reasons.
If you look at the gold chart above, and the USD chart below it, its
immediately apparent that there isn’t a constant negative correlation at
play. Gold rallied during the summer at the same time the USD did and
for the same reason; the world-wide explosion of negative real yields.
Gold weakened a bit when yields reversed to the upside and the USD got a
bit of traction, but things changed again at the start of December.
The USD turned lower and lost two percent during December. US bond
yields were generally rising during the month and the market (right or
wrong) was assuming economic growth was accelerating. So, neither of
those items explains the USD weakness.
If gold was a “risk off†trade, you sure couldn’t see it in the way
any other market was trading. So, is there another explanation for
recent strength in the gold price, and what does it tell us about 2020
and, perhaps, beyond?
Well, I’ve got a theory. If I’m right, it could mean a bull run for gold has a long way to go.
Some of this theory will be no surprise to you because it does
partially hinge on further USD weakness. There are long term structural
reasons why the US currency should weaken. But there are also
fluctuating sources of demand for USDs, particularly from offshore
buyers and borrowers that transact in US currency. That can create
enough demand to strengthen the US over long periods. We just went
though one such period, but it looks like that may have come to an end,
with more bearish forces to the USD reasserting themselves.
How did we get here? Let’s start with the big picture, displayed on
the top chart on the next page. It gives a long-term view of US Federal
deficits and the unemployment rate. Normally, these travel in tandem.
Higher unemployment means more social spending and higher deficits.
Government spending expands during recessions and contracts-or should-
(as a percentage of GDP) during expansions. Classic Keynesian stuff.
You rarely see these two measures diverge. The two times they did
significantly before, on the left side of the chart, was due to “wartime
deficits†which acted (along with conscription) to stimulate the
economy and drive down unemployment.
You can see the Korean and Vietnam war periods pointed out on the chart.
The current period stands out for the extreme size of the divergence.
US unemployment rates are at multi decade lows and yet the fiscal
deficit as a percentage of GDP keeps rising. There has never been a
divergence this large and its due to get larger.
We know why this is. Big tax cuts combined with a budget that is
mostly non-discretionary. And the US is 10 years into an economic
expansion, however weak. Just think what this graph will look like the
next time the US goes into recession.
We can assume US government deficits aren’t going to shrink any time
soon (and I think we can, pun intended, take that to the bank). That
leaves trade in goods to act as a counterbalance to the funding demand
created by fiscal deficits.
The chart above makes it clear the US won’t get much help from
international trade. The US trade balance has been getting increasingly
negative for decades. It’s better recently, but unlikely to turn
positive soon, and maybe not ever.
To be clear, this is not a bad thing in itself, notwithstanding the
view from the White House. The relative strength of the US economy and
the US Dollar and cheaper offshore production costs have driven the
trade balance. It’s grown because Americans found they got more value
buying abroad and the world was happy to help finance it. It’s not a bad
thing, but not a US Dollar support either.
The more complete picture of currency/investment flows is given by
changes in the Current Account. In simplified terms, the Current Account
measures the difference between what a country produces and what it
consumes. For example, if a country’s trade deficit increases, so does
its current account deficit. If there are funds flowing in from overseas
investments on the other hand, this decrease the Current Account
deficit or increase the surplus.
The graph below summarizes quarterly changes in the US current
account. You can see how the balance got increasingly negative in the
mid 2000’s as both imports and foreign investment by US companies
increased.
Not coincidentally, this same period leading up to the Financial
Crisis included a sustained downtrend in the US Dollar Index. The USD
index chart on the bottom of the next page shows the scale of that
decline, from an index value of 120 at the start of 2002 all the way
down to 73 in early 2008.
The current account deficit (and value of the USD) improved markedly
up to the end of the Financial Crisis as money poured into the US as a
safe haven and consumers cut back on imports. The current account
deficit bas been relatively stable since then, running at about
$100bn/quarter until it dipped a bit again last year.
Trade, funds flows and changes in money supply have the largest
long-term impacts on currency values. When the US Fed ended QE and
started tightening monetary conditions in 2014, the USD enjoyed a strong
rally. The USD Index was back to 100 by early 2015 and stayed there
until loosening monetary conditions-and lots of jawboning from
Washington-led to pullback. Things reversed again and the USD maintained
a mild uptrend from early 2018 until now.
There are still plenty of US Dollar bulls around, and their arguments
have short-term merit. Yes, the US has higher real interest rates and
somewhat higher growth. Both are important to relative currency
valuations as I’ve said in the past. Longer term however, the “twin
deficits†-fiscal and current account-should underpin the fundamental
value of the currency.
Movements don’t happen overnight, especially when you’re talking
about the worlds reserve currency that has the deepest and largest
market supporting it. Changing the overall trend for the USD is like
turning a supertanker. I think it’s happening though, and it has big
potential implications for commodities, especially gold.
Dollar bulls will tell you the USD is the “cleanest shirt in the
laundry hamperâ€, referring to the relative strength of the growth rate
and interest rates compared to other major currencies. That’s true if we
just look at those measures but definitely not true when we look at the
longer term-fiscal and current account deficits.
In fact, the US has about the worst combined fiscal/current account deficit in the G7. The chart at the bottom of this page, from lynalden.com
shows the 2018 values for Current Account and Trade balances for a
number of major economies, as a percentage of their GDP. It’s not a
handsome group.
Both the trade and current account deficits are negative for most of
them. In terms of G7 economies, the US has the worst combined
Current/Trade deficit at 6% of GDP annually. You may be surprised to
note that the Current/Trade balance for the Euro zone is much better
than the US, thanks to a large Trade surplus. Much of that is generated
by Germany. Indeed, this chart explains Germanys defense of the Euro.
It’s combined Trade/Current Account surplus is so large it’s currency
would be skyrocketing if it still used the Deutschmark.
Because the current account deficit is cumulative, the overall
international investment position of the US has continued to worsen. The
US has gone from being an international creditor to an international
debtor, and the scale if its debt keeps increasing. That means it’s
getting harder every year to reverse the current account position as the
US borrows ever more abroad to cover its trade and fiscal deficits.
Interest outflows keep growing and investment inflows shrinking.
Something has to give.
The US has to borrow overseas, as private domestic demand for
Treasury bonds isn’t high enough to fund the twin deficits. In the past,
whenever the US Dollar got too high, offshore demand for US government
debt diminished. It’s not clear why. Maybe the higher dollar made
raising enough foreign funds difficult, or perhaps buyers started
worrying about the USD dropping after they bought when it got too
expensive. Whatever the reason, foreign holdings of US Treasuries have
been declining, forcing the US to find new, domestic, buyers.
Last year, the US Fed stopped its quantitative tightening program,
due to concerns about Dollar liquidity. Then came the repo market. Since
September, the Fed’s balance sheet has expanded by over $400 billion,
mainly due to repo market transactions.
The Fed maintains this “isn’t QE†because these are very short duration transactions but, cumulatively, the total Fed balance sheet keeps expanding. The “QE/no QE†debate is just semantics.
What do these transactions look like? Mostly, its Primary Dealers,
banks that also take part in Treasury auctions, in the repo market. The
Fed buys bonds, usually Treasuries, from these banks and pays for them
in newly printed Dollars. That injects money into the system, helps hold
down interest rates in the repo market and, not coincidentally,
effectively helps fund the US fiscal deficit. To put the series of
transactions in their simplest form, the US is effectively monetizing its deficit with a lot of these transactions.
The chart below illustrates the problem for the Primary Dealer US
banks. They’ve got to buy Treasuries when they’re auctioned-that is
their commitment as Primary Dealers. They also need to hold minimum cash
balances as a percentage of assets under Basel II bank regulations.
Cash balances fell to the minimum mandated level by late 2019- the
horizontal black line on the chart. That’s when the trouble started.
These banks are so stuffed with Treasuries that they didn’t have
excess cash reserves to lend into the repo market. Hence the blow up
back in September and the need for the Fed to inject cash by buying
Treasuries. The point, however, is that this isn’t really a “repo market
issueâ€, that’s just where it reared its head. It’s a “too many
Treasuries and not enough buyers†problem.
It will be tough for the Treasury to attract more offshore buyers
unless the USD weakens, or interest rates rise enough to make them
irresistible. Or a big drop in the federal deficit reduces the supply of
Treasuries itself.
I doubt we’ll see interest rates move up significantly. I don’t think
the economy could handle it and it would be self-defeating anyway, as
the government deficit would explode because of interest expenses. And
that’s not even taking into account the fact that President Trump would
be freaking out daily.
Based on recent history and political expediency, I’d say the odds of
significant budget deficit reductions are slim and none. That’s
especially true going into an election year. There’s just no way we’re
going to see spending restraint or tax increases in the next couple of
years. Indeed, the supply of Treasuries will keep growing even if the US
economy grows too. If there is any sort of significant slowdown or
recession the Federal deficit will explode and so will the new supply of
Treasures. Not an easy fix.
Barring new haven demand for US Treasuries, odds are the Fed will
have to keep sopping up excess supply. That means expanding its balance
sheet and, in so doing, effectively increasing the US money supply.
That brings us (finally!) to the “money shot†chart that appears
above. It compares changes in the size of the Fed balance sheet and the
US Dollar Index. To make it readable and allow me to match the scales, I
generated a chart that tracks annual percentage changes.
The chart shows a strong inverse correlation between changes in the
size of the Fed balance sheet and the value of the USD. This is
unsurprising as most transactions that expand the Fed balance sheet also
expand the money supply.
It’s impossible to tell how long the repo market transactions will
continue but, after three months, they aren’t feeling very “temporaryâ€.
To me, it increasingly looks like these market operations are “debt
monetization in dragâ€.
I don’t know if that’s the Fed’s real intent or just a side effect.
It doesn’t really matter if the funding and money printing continues at
scale. Even if the repo market calms completely, the odds are good we
see some sort of “new QE†start up. Whatever official reason is given
for it; I think it will happen mainly to soak up the excess supply of
Treasuries fiscal deficits are creating.
I don’t blame the FOMC if they’re being disingenuous about it. That’s
their job after all. If you’re a central banker, the LAST thing you’re
going to say is “our government is having trouble finding buyers for its
debtâ€, especially if its true.
With no prospect of lower deficits and apparent continued reduction
in offshore Treasury holdings, this could develop into long-term
sustained trend. I don’t expect it to move in a straight line, markets
never do. A severe escalation in Mideast tensions or the start of a
serious recession could both generate safe-haven Treasury buying. Money
flows from that would take the pressure off the Fed and would be US
Dollar supportive too.
That said, it seems the US has reached the point where a substantial
increase in its central bank’s balance sheet is inevitable. Both Japan
and the Eurozone have gotten there before the Fed, but it looks like it
won’t be immune.
The Eurozone at least has a “Twin surplus†to help cushion things.
And Japan, considered a basket case economically, had an extremely deep
pool of domestic savings (far deeper than the US) to draw on. Until very
recently, Japan also ran massive Current Account surpluses thanks to
decades of heavy investments overseas by Japanese entities. Those
advantages allowed the ECB and especially the BoJ to massively expand
their balance sheets without generating a huge run up in interest rates
or currency collapse.
I don’t know how far the US Fed can expand its balance sheet before
bond yields start getting away from it. I think pretty far though.
Having the world’s reserve currency is a massive advantage. There is
huge built in demand for US Dollars and US denominated debt. That gives
the Fed some runway if it must keep buying US Treasuries.
Assuming a run on yields doesn’t spoil the party, continued balance
sheet and money supply expansion should put increasing downward pressure
on the US Dollar. I don’t know if we’ll see a move as large as the
mid-2000s but a move down to the low 80s for the USD Index over the
course of two or three years wouldn’t be surprising.
It won’t be a straight-line move. A recession could derail things,
though the bear market on Wall St that would generate would support
bullion. Currency markets tend to be self-correcting over extended
periods. If the USD Index falls enough and there is a bump in US real
interest rates offshore demand for Treasuries should increase again.
The bottom line is that this is, and will continue to be, a very
dynamic system. Even so, I think we’ve reached a major inflection point
for the US currency. The 2000s were pretty good for the gold market and
gold stocks. We started from a much lower base of $300/oz on the gold
price. Starting at a $1200-1300 base this time, I think a price above
$2000/oz is a real possibility over the next year or two.
It’s not hard to extrapolate prices higher than that, but I’m not
looking or hoping for those. I prefer to see a longer, steadier move
that brings traders along rather than freaking them out.
This prediction isn’t a sure thing. Predictions never are. But I
think the probabilities now favor an extended bull run in the gold
price. Assuming stock markets don’t blow up (though I still expect that
correction), gold stocks should put in a leveraged performance much more
impressive than the bullion price itself.
There will be consolidations and corrections along the way, but I
think there will be many gold explorers and developers that rack up
share price gains in the hundreds of percent. That doesn’t mean buying
blindly and never trading. We still need to adjust when a stock gets
overweight and manage risk around major exploration campaigns. The last
few weeks has been a lot more fun in the resource space. I don’t think
the fun’s over yet. Enjoy the ride.
Like any good contrarian, a 10-year bull market makes me alert of
signs of potential trouble. As noted at the start of this editorial, I’m
expecting continues floods of liquidity. That may simply overwhelm
everything else for a while and allow Wall St to keep rallying, come
what may.
That said, a couple of data points recently got my attention. One is
more of a sentiment indicator, seen in the chart below. More than one
wag has joked that the Fed need only worry about Wall St, since the
stock market is the economy now. Turns out there is more than a bit of
truth to that.
The chart shows the US Leading Indicator reading with the level of
the stock market (which is a component of the official Leading
Indicator) removed. As you can see, without Wall St, the indicator
implies zero growth going forward. I’m mainly showing it as evidence of
just how surreal things have become.
The chart above is something to keep an eye on going forward. It
shows weekly State unemployment claims for several major sectors of the
economy. What’s interesting about this chart is that claims have been
climbing rapidly over the past few weeks. Doubly interesting is that the
increase in claims is broad, both within and across several sectors of
the economy.
I take the monthly Non-Farm Payroll number less seriously than most,
because it’s a backward-looking indicator. This move in unemployment
claims looks increasingly like a trend though. It’s now at its highest
level since the Financial Crisis.
It’s not in the danger zone-yet. But its climbing fast. We may need
to start paying more attention to those payroll numbers. If the chart
below isn’t a statistical fluke, we may start seeing negative surprises
in the NFP soon. That won’t hurt the gold price either.
Source and Thanks: https://www.hraadvisory.com/golds-big-picture
Posted by AGORACOM
at 4:33 PM on Monday, January 13th, 2020
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It has been a week of surprises since the last updates were posted.
First, I had not expected Iran to retaliate following the murder of its
top General by a US drone, but it did, despite the risks, as it was
politically necessary to assuage the extreme anger of its population who
demanded revenge. The next surprise was that Israel and the US did not
use this retaliation as an excuse to bomb Iran back to the Stone Age,
which is what they really want to do. As we know, the long-term goal of
Israel and the US is to subjugate Iran, and they will not stop until
they attain this goal, and so it goes on. It appears that there was a
bit of theater involved in Iran’s retaliation, as it clandestinely
signaled its intentions which allowed US forces to get out of harm’s
way. Perhaps US forces did not then launch a blitzkrieg out of
consideration for this courtesy.
Regardless of the muddled and unpredictable fundamental situation,
which included the accidental downing of a passenger plane by Iranian
defensive missile batteries, the charts allowed us to make a reasonably
accurate prediction regarding what was likely to happen to the gold
price. The call for a near-term top in the PM sector made on the site on
Monday looked incorrect the following evening when gold suddenly surged
about $35 on news of the retaliatory Iranian missile strike, but when
it later became apparent that there were, strangely, no US troop
casualties and no further action against Iran, gold and silver reversed
dramatically and dropped quite hard as the tension then looked set to
ease, at least over the short-term. Technically what happened is that
gold pushed quite deep into heavy overhead resistance, becoming very
overbought at a time when COTs were showing extreme readings, and was
thus vulnerable to a sudden reversal. The action around this time
illustrates an important point, which is that when gold rises due to
sudden geopolitical developments, the gains tend not to stick – what
really matters and is the big driver for gold at this time is the insane
monetary expansion that is going on, which is being undertaken in a
desperate attempt to postpone the systemic implosion that is baked in
for as long as possible. As we have already observed in these updates in
recent weeks, gold is already in a raging bullmarket against a wide
variety of currencies, and it won’t be all that long before it’s in a
raging bullmarket against the dollar too, as the Fed sets the stage for
hyperinflation.
There are two big and compelling reasons for the US government to
tank the dollar. One is that it makes US exporters more competitive, and
the other is that it can use the mechanism of inflation to wipe clean
its colossal debts, by paying them off in devalued coin, printing vast
amounts of money to pay them off, in the process legally swindling the
foolish creditors out of their dues. This is precisely what the Weimar
Republic in Germany did in 1923 to eliminate the unfair reparations
imposed by the Treaty of Versailles, which were unfair also because
Germany didn’t start the 1st World War – it was tricked into it by the
allies, because the British Empire was scared of Germany’s rising
industrial and military might and wanted to destroy it, 100 plus years
of propaganda lies about Germany being responsible for the 1st World War
notwithstanding.
We’ll look at the dollar a little later. First we will review gold’s charts, starting with the 10-year chart.
On the 10-year chart we see that gold is now a bullmarket, even
against the dollar, and is currently challenging the heavy resistance
arising from the 2011 – 2013 top area. The second attack on this
resistance in the space of few months got further because of the Iran
crisis, and if this cools any more short-term, it will probably lead to
gold settling into a trading range before it mounts a more successful
attack on this resistance. A point to note here is that while the
resistance up to the 2011 highs in the $1800 area looks like a major
obstacle, it’s not such a big deal as many think, given the rate at
which the dollar is now being debased.
This week it’s worth also taking a quick look at a 3-year chart
for added perspective. This chart shows us that since the bullmarket
started in mid-Summer, we have seen 3 sharp runups punctuated by 2 bull
Flags. While the 2nd of these Flags targets the $1800 area, we have to
factor in that gold now has much more overhanging supply to contend with
than on the 1st runup, and this, coupled with quite extreme COT
readings, inclines to the view that this will need to be worked off.
Hence the interpretation that it will probably need to consolidate for a
while before it makes significant further progress, although it
obviously won’t if the US starts a serious bombing campaign against
Iran. The Fed’s increasingly manic money printing will eventually drive
it higher, of course
On the 6-month chart we can see the interesting price action
around the Iran crisis over the past week or so. A bearish “shooting
star†appeared on the chart last Monday, which we took as a sign that gold was forming a short-term top,
but then overnight on the 7th to the 8th it surged briefly above $1610
when Iran lobbed missiles at US bases in Iraq, which had many
concluding, not unnaturally that this would trigger a major Israel – US
bombing campaign. When it became apparent that there were no casualties
from the Iranian attack and no US counter strike, tensions quickly
cooled and gold lost ground fast the next day, putting in a big
high-volume reversal candle, approximating to another “shooting starâ€.
Normally such action is followed by a retreat at least for a while, and
some stocks, like silver stock Coeur Mining (CDE), that we ditched a
while ago, got clobbered. This is why gold is expected to settle down
into a trading range for a while before mounting another attack on the
resistance.
Another factor suggesting that gold will consolidate / react
back for a while is the latest COT, which shows still very high
Commercial short and Large Spec long positions…
Click on chart to popup a larger, clearer version.
What about Precious Metals stocks? The latest 10-year chart for
GDX shows that we still have most everything to look forward to, for
despite the rally from the middle of last year, it still hasn’t broken
out of the giant complex Head-and-Shoulders bottom that has been formed
since way back early in 2013. A breakout above the nearby resistance
should lead to a rapid ascent to the next resistance level at the
underside of a large top pattern, and thereafter it will have to work
its way through continuing resistance up to its highs. The strength of
the volume indicators in the recent past are a sign that it “means
businessâ€.
Now we turn our attention to the dollar, which is looking
increasingly frail as we can see on the latest 6-year chart for the
dollar index. It is rolling over beneath resistance and appears to be
breaking down from the 16-month gentle uptrend shown. This is of course
the main reason that gold, shown at the top of this chart, has been
breaking higher again. If it fails to hold up here it could be targeting
the lower boundary of the bullhorn pattern, which would involve a heavy
drop from the current level that would “light a fire†under the
Precious Metals, and many other commodities, notably copper.
A chart that really gives the game away and calls time on the
dollar is the 6-year chart for dollar proxy UUP. As we can see, unlike
the dollar index itself, this has risen up to the upper boundary of its
giant bullhorn pattern and appears to be on the point of breaking down.
Its Accumulation line has been very weak. This chart suggests that the
dollar could be in for a very rough ride before long, which is hardly
surprising considering the lengths to which the Federal Reserve is going
to destroy it. While other countries and trading blocs, most notably
the EU, are making a valiant attempt to destroy their own currencies,
they will be hard put to keep up with the Fed.
And now, for the benefit of anyone who still doubts that gold is
in a bullmarket, I have pleasure in presenting the following 6-year
chart for gold against the Japanese Yen…
Still think gold might be in bearmarket? – no – didn’t think you would.
Although you can never be 100% sure of anything with these
smaller issues, I am sure that you will agree with me that this chart is
not suggestive of a sector that is going anywhere but up.
Conclusion: although last week’s reversal candle and the current rather extreme COT structure mean that gold may react back more near-term, the overall picture is strongly bullish, which is hardly surprising as the fiat money system is fast approaching its nemesis, with the line of least resistance leading to hyperinflation. Our general approach therefore is not to sell PM sector investments, except on a case by case basis where they become critically overbought, but instead buy or add to positions on dips.
Posted by AGORACOM
at 3:34 PM on Friday, January 10th, 2020
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Excerpts from Crescat Capitals November Newsletter:
Precious Metals
Precious metals are poised to benefit from what we consider to be the
best macro set up we’ve seen in our careers. The stars are all
aligning. We believe strongly that this time monetary policy will come
at a cost. Look in the chart below at how the new wave of global money
printing just initiated by the Fed in response to the Treasury market
funding crisis is highly likely to pull depressed gold prices up with
it.
The imbalance between historically depressed commodity prices
relative to record overvalued US stocks remains at the core of our macro
views. On the long side, we believe strongly commodities offer
tremendous upside potential on many fronts. Precious metals remain our
favorite. We view gold as the ultimate haven asset to likely outperform
in an environment of either a downturn in the business cycle, rising
global currency wars, implosion of fiat currencies backed by record
indebted government, or even a full-blown inflationary set up. These
scenarios are all possible. Our base case is that governments and
central banks will keep their pedals to the metal to attempt to fend off
credit implosion or to mop up after one has already occurred until
inflation becomes a persistent problem.
The gold and silver mining industry is precisely where we see one of
the greatest ways to express this investment thesis. These stocks have
been in a severe bear market from 2011 to 2015 and have been formed a
strong base over the last four years. They are offer and incredibly
attractive deep-value opportunity and appear to be just starting to
break out this year. We have done a deep dive in this sector and met
with over 40 different management teams this year. Combining that work
with our proprietary equity models, we are finding some of the greatest
free-cash-flow growth and value opportunities in the market today
unrivaled by any other industry. We have also found undervalued
high-quality exploration assets that will make excellent buyout
candidates.
We recently point out this 12-year breakout in mining stocks relative
to gold now looks as solid as a rock. In our view, this is just the
beginning of a major bull market for this entire industry. We encourage
investors to consider our new Crescat Precious Metals SMA strategy which
is performing extremely well this year.
Zero Discounting for Inflation Risk Today
With historic Federal debt relative to GDP and large deficits into
the future as far as the eye can see, if the global financial markets
cannot absorb the increase in Treasury debt, the Fed will be forced to
monetize it even more. The problem is that the Fed’s panic money
printing at this point in the economic cycle may hasten the unwinding of
the imbalances it is so desperate to maintain because it has perversely
fed the last-gasp melt up of speculation in already record over-valued
and extended equity and corporate credit markets. It is reminiscent of
when the Fed injected emergency cash into the repo market at the peak of
the tech bubble at the end of 1999 to fend off a potential Y2K computer
glitch that led to that market and business cycle top. After 40
years of declining inflation expectations in the US, there is a major
disconnect today between portfolio positioning, valuation, and economic
reality. Too much of the investment world is long the “risk parityâ€
trade to one degree or another, long stocks paired with leveraged long
bonds, a strategy that has back-tested great over the last 40 years, but
one that would be a disaster in a secular rising inflation environment.
With historic Federal debt relative to GDP and large deficits into
the future as far as the eye can see, rising long-term inflation, and
the hidden tax thereon, is the default, bi-partisan plan for the US
government’s future funding regardless of who is in the White House and
Congress after the 2020 elections. The market could start discounting
this sooner rather than later. The Fed’s excessive money printing
may only reinforce the unraveling of financial asset imbalances today as
it leads to rising inflation expectations and thereby a sell-off in
today’s highly over-valued long duration assets including Treasury bonds
and US equities, particularly insanely overvalued growth stocks. We
believe we are in the vicinity of a major US stock market and business
cycle peak.