The most hated sector right now might be precious metals. All time highs daily in the markets. Crypto making a rebound.
And there is a pet rock.
Luckily, my pet rock has been money for 5,000 years and don’t look now, but central banks have been accumulating this lately – a lot. If it’s not worth anything, why are they buying tons upon tons of it?
Why is palantir buy $50m in gold?
I don’t want to go over the 800 things I have gone over in my blog repeatedly, but within the precious metals sector, I am strongly looking at GDX and am now heavily invested in it.
Take a look at this….
This is gold versus GDX since 2008.
You can see with gold’s rise up in 2011, GDX outperformed it. I wasn’t investing then, but I had heard all of the majors went crazy with buying and spent the next 8 years trying to undo the damage of this.
What has come out of that debacle are companies that print cash. Like, a lot of it. Newmont can make a good profit and pay a dividend at $1200. Gold is $1800. So they are making $600 per oz OVER their normal profit. This is the same story up and down the majors and mid tiers.
From what I have heard from those in the know, and in these industries, is that all of these guys cleaned up their balance sheets. Many are debt free and just literally printing money.
Lots of these miners do have risks, but have mines all over the world. Consider PNA shutting down Barrick’s mine for awhile last year. Jurisdiction risk exists, yes, but you can then say that with copper, lithium, uranium, and even the rare earths.
Why GDX? look at their top holdings.
All of these top companies are stupid flush with cash. You see a lot of mid tiers in here as well.
Now – WHY.
I think us guys who like junior gold and silver miners jumped the line. We screwed up. Last year many of us heard about how in 2011 the juniors went crazy, so we jumped the gun and bought in to a lot of them. I witnessed the uranium people do that this year. 2022 I was planning on getting involved in uranium, and this year I’m seeing people posting 300-400% profits. many are now coming back down to earth.
I am now seeing GR silver at $.27. Can’t believe my eyes. I did sell a lot of my juniors for profits, break even, or slight loss – but only a few I’m at a high percentage loss – most of these are high quality projects I got with the GV sitfolio and bought in right before the rug was pulled out June 17th. He also gave me Aya gold which is crazy awesome, so it depends. Seems a lot of people cashed out of the juniors.
I bring this up because this is how it’s supposed to work…
Money flows to majors –> flows to mid tiers –> flows to juniors.
See, the issue is the majors never really got the bid yet. So I’m refocused.
Rick Rule states that currently, big money only allocates .5% of their wealth towards gold. The 40 year mean was 1.5%. He states that if we simply have this number revert to mean, that that is 3x the money hitting the sector.
I believe gold is a $6T market, and our stock markets are like $20T. I don’t know how big our debt market is, but it’s bigger than the stock markets.
The gold MINERS are tiny. Silver miners even smaller. Newmont and Barrick last year were like $60B market cap companies. I believe if you add up all of the majors and miners in gold and silver you might be looking at $1T? I think Apple has that much cash on hand.
My point is this….I believe you are going to be seeing index funds, pension funds, and other large wealth funds start to pour into the majors like NEM, Barrick – and by proxy, the GDX as an ETF of all of these.
I am seeing three schools of thought upcoming with market crashes/corrections.
- In corner 1, michael Oliver talks about an arm wrestling event. Money will roll out of tech into gold and gold equities
- In corner 2, you have Michael Gentile, who talks maybe a 10-20% correction, (spec items may drop 80-90%), and from here, money will go into gold and gold equities
- In corner 3, you have David Hunter who talks about a 65-80% wipe out of equities over a year and gold will rise from these ashes – but a massive blow off top is yet to come.
Once again – I’ll quickly review. If you are dealing with high inflation – perhaps 5-8%, eventually, rates need to rise to slow down the economy. Or, you run the risk of eventual hyper inflation.
IF these rates rise, it causes a market sell off….
IF they do NOT rise, inflation accelerates unchecked and this might crash the dollar
Essentially, IF you sell equities off, this puts you into the dollar. For how long? an hour? a day? A week? This may have a rise in the DXY – temporarily – but the milkshake people are missing one thing, I think. If you are sitting on cash with 12% inflation, it is sort of silly to sit on this cash, as it loses value every day.
Do you put it into 30 year bonds at 3% if inflation is 7%? That sounds silly too.
If you put it into gold, it’s not “yield bearing”, but the numbers prove out that over 50 years, it comes out to average a 10% return yearly. This is your inflation hedge, and we are looking now at a replay of the 1970s.
So let’s say there’s a sell off for a few days or weeks. DXY goes up. Margin calls. Metals dinged.
But if you cannot hold cash, and you cannot hold bonds, you must hold gold. Or, gold equities.
And thus, I believe – gold fever starts. However, if there is no mad correction, I’m in GDX now. If Michael Oliver is correct, then my GDX goes to the moon. If Gentile is right, then I might have a hard down month followed by strong recovery. If Hunter is right, it’s the same as Gentile.
Should I have SOME cash around to buy stuff cheap? Yeah.
But I think I need to focus on riding the big wave in with the majors, then on a pull back, evaluate my wonderful juniors. I have some now I’m not selling, but man, I think many of us were early on them.
Consider GDX since June 17th….
Then, let’s take a look at the gold to GDX ratio over the last year…
This is telling me that to revert to the mean, GDX will outperform gold.
If you look at the gold chart, it just cleared the 20, 50, 100, and stuck at 200dma now. Cleared this morning, bounced off of it.
The above suggests that once gold can clear the 200dma, the bots and algos may pick this up….
Below – you can see the GDX had a double bottom and is working its way up. It recently cleared the 20 dma and is working north bound.
I think GDX is the most hated stock in the most hated sector. And for that, I see a rubber band about to sling shot this up.
Big money is coming. I’m patient.