I have written about some of these before, but with maybe 2000 more Twitter followers since then and perhaps a real gold bull starting this coming week or so, it might be time to review what it is I’m looking at.
Many people look at moving averages to tell how good something is doing. The shorter time frame on the moving averages, the more it is a shorter “trade”. For example, you can trade with moving averages and MACD (Moving Average Convergence/Divergence) to gauge momentum of a trade. Catch it on an up move, sell in a down move. Now, the longer you stretch this time frame out of a moving average, the more you are looking at a longer term investment.
So when we want to know what might happen in the next week or two with trades, maybe we are looking at the 20dma or 50dma. Many times you will hear of a “golden cross” with the 50 day moving UP through the 200dma. Since about 85% of trades are algo driven these days, these “bots” find these technical indicators and trade them. OR they can be set up to “monkey hammer” (as Andrew Maguire calls it) you out of a trade. Meaning, you see a cross coming, you pile in, and the bots that have billions behind them short you into the abyss.
But I also said the longer the time period, the longer the “investment”. I like to look at shorter times as “tactical trading” versus longer term “strategic investment”. So with my Fortuna Silver Mines, I had perhaps 10,000 shares for a LONG HOLD that I did not want to touch. Perhaps I was then in and out of 2,000-10,000 shares on trading shorter periods of time.
But when do you know to get in to a LONG trade and not catch a falling knife? I would posit “big investment” funds like the pension funds want to have things de-risked the best they can. These funds do not care about finding the bottoms or tops, they want the meat and potatoes in between.
It’s about to be meat and potatoes time.
Above, you can see in the green circle that fun is starting. and the MACD is about to turn up. As a breakout from a triangle happened.
Why? Because of a measure I’ve been looking at with the 400dma and the 200dma. It’s a longer MACD, if you will. I went back several iterations of this, and you can see when this thing moves, it can create massive earthquakes up in the price of gold.
Let’s review some of these time periods and try to draw some form of thesis as to what we are seeing.
2019 to confirm bull market and run up of $700 in 18 months.
It then ran back $200 until the 400/200 crossed down in September 2021. You could see with the move down in June 2021 that the 400/200 crossing down was imminent. My belief was that this signal that gold was about to cross down below this is when the miners got slaughtered.
When you see this converging is about when you saw the miners have a strong capitulation in mid 2021 – this is GDX.
It would seem as if this death cross coming was a way to say “the market may be over, get on the sidelines”. Now, with the 400/200 about to have a golden cross, and the convergence clearly showing this, this is when you saw Newmont get red hot. This to me was REALLY big money seeing gold is de-risked, and piling in. This also correlates with the big inflows you are hearing about with GLD.
If we look back to several major bull runs, what do we see?
2009 ran up $1000
However, you see the 400/200 cross back $250 and this is about where the miners had a capitulation.
You could see big money then exit Newmont at this time and not come back.
2001 up $800, then pull back about $200
Now what was “different this time” was that the global financial crisis hit in 2008 and in this case, it was pretty clear gold was going to go back up over the 400/200 very quickly so there was no full capitulation with the miners. So this was sort of like the March 2020 event in 2008, where there was a brief delay to the bigger pull from 2001 to 2011.
For the next big leg up, we have to go back to the 1970s.
1977 up $700
This then pulled back about $400 but that sharp pullback STILL had the price of gold over the 200dma. See how the green circle stopped there?
Gold crossing down under the 200dma probably signaled the end of this run.
With NEM, you can see this as well. Gold still appeared to be profitable, so NEM didn’t cliff dive, and it looks like it caught a bid with the crash of 1987.
If you then look at the gold to Newmont chart, you can see there are times gold is overvalued to NEM and times NEM is overvalued to gold.
What this chart is telling me above is….
- NEM can run a little higher yet relative to gold
- Gold may about to have a strong run up relative to NEM. Gold may have a strong run up yet like in 2020.
- NEM is about to crash relative to gold. If a stock market crash happened, now, NEM would go down a lot faster relative to gold
With the 400/200 golden cross about to happen, I have made some guess and inferences about the above.
- Once the 400/200 golden cross happens, you may have a $700+ move ahead. It looks like that day starts Monday. It would not be unreal to expect $2400-$3000 gold out of this leg through 2023.
- As long as the price of gold stays above the 200dma, you will continue with the long bull
- It appears to me gold is about to outperform NEM, signaling an explosion up ahead.
- IF the price of gold goes below the 200dma, miners may STILL be extremely profitable for a period of time.
- If you see the 200dma cross DOWN into the 400dma, it may be time to get out of miners when your favorite miner dips below their 200dma.
I think in today’s climate with the bonds where they are, and Japan now saying they may stop buying, the Chinese and Saudis getting out of buying our debt, and the Fed saying they want to draw the balance sheet down, one has to ask….who the hell is going to buy our debt and fund the government?
With 16% inflation, it is not hard to see people stepping back and letting rates run hot to try and draw in big money there. They have already seemed to come out and say they want to break the stock market, so it is reasonable to see Michael Oliver’s arm wrestling playing out where money rotates from the stock market to higher yield bonds. However, it is also reasonable to see with high inflation and the global economic picture with the gold/oil/ruble situation and central banks owning a lot of gold to gold catching fire right now. With a lot of the general equities about to dive, it is also reasonable to see gold going up and miners being extremely profitable to be a place where a lot of money goes.
The big problem with miners is that the three biggest gold miners combined might have a market cap of $150b. What I’m saying is, is that it’s possible Apple’s cash alone could buy up all gold and silver miners at today’s prices. Furthermore, you may run into a situation where you have a Tesla start to buy nickel and lithium miners to ensure supplies. A Samsung might buy Aya Gold and silver to secure silver. You get the idea.
With a lot of these big companies now worried about supply chains, they have the worry of trying to keep earnings up with a recession ahead, but also realizing they die if they cannot sell products. They cannot sell products if they cannot get raw materials.
While gold miners right now are my major focus, to me the resource investment industry is going to have a spotlight on it soon. Nickel miners, lithium miners, copper, silver, cobalt, uranium, oil, gas. I feel there is a move away from NASDAQ companies with a 200x P/E ratio into companies that are stupidly profitable here (Vale has a 4x P/E ratio as an iron/nickel miner).
The question is, when to get out of the gold miner trade and rotate into other things? Right NOW, this WEEK, I believe with the 400/200dma golden cross, big money is collectively rotating into gold now. Gold is kicking in the door, and his crazy friends are about to clear the room. I’m out of gold when it makes a nice run up and starts to not be able to hold the 200dma. When the 200dma crosses back into the 400dma, I’m out of gold miners, that day. Period. It might also mean I can catch strong up waves of nickel, copper etc that may still run for years. I can make a lot of bones with gold, then find a rotation play into others that still are over their 200 dmas.