NOTE: DO NOT read this and say, “Nate is calling for $3000 gold, let me take my kid’s college fund and put it into GDX. This article is that by observing the latest banking issues, it appears that the Fed and FDIC are standing ready to unleash paper to the masses. From what I read, the Fed added $300b to their balance sheet last week.

IF gold does run to $3000 or so in the next 6-18 months or so, what kind of prices from miners can we expect?

The body of evidence is very strong for gold’s macro case now, and we have a tinderbox with the banking system as we speak. Next month it will be pensions. The month after that derivatives. The current situation now is each and every week there are stressors to the systems failing, and every week we are now seeing people in charge scrambling to then hand out trillions of dollars hand over fist.

I believe the powder keg is getting close.

What killed miners in 2022 with gold holding steady for the year was inflation – of just about everything – for the miners crushed margins. I also believe it was the “death knell” for primary silver producers. But is now a good time to look at miners?

I’m going to use GDX here as a proxy for the gold majors.

I’m a BIG ratios guy. So when you see a chart like this, with gold divided by GDX, you can see a sloping path upwards means that gold is outperforming the miners, and sloping down the miners are outperforming the yellow metal.

You can see the giant crash at 2020, where gold tanked, but miners went to the absolute graveyard, and you can see how gold then miners were bought up on a rebound and outperformed gold. Ever since then, you can see gold outperformed the miners – which is sad, when you consider gold has been pretty much flat for 2 years now – with volatility of course.

One thing you can see is that last year, the price of oil went far higher than gold. Let’s look at that ratio quickly – but also compare it to the price of GDX

The green and red candles is the price of gold divided by the price of oil. This shows you the March 2020 spike, and then how oil went negative. You can see now that had a MONSTER move on GDX, in that a large cost that gold miners have is fuel.

You can see the last few months, oil prices have come down, and with this, the gold to oil ratio increased, and with this, the GDX has ticked up. However, the gold to oil ratio is near a “normal” high, which exempts the spike up on -$27 oil and that debacle.

I believe the CONDITIONS are thus ripe for GDX to begin to outperform gold.

But, not today. Today, we have some muppets coming. FOMC Wednesday. I believe we could be close.

This week, we have the FOMC where a big topic would be…”hold rates or move up 25 to 50 basis points”. IF the Fed feels they mostly contained the contagion here and have provided a backstop for banking – they could point to the 6% inflation and the low unemployment rate and continue the rate rise another quarter of a point.

I don’t think they care if things break, at this point. I wrote in my piece last January, they I believe they had a choice – save the dollar or save the markets, and they needed to save the dollar now, to rescue the markets later. So if you THINK they will now do a 180, I have a bridge to sell you. To me – this then pushes gold back into the 1800s. As a gold bug, I want it to stop at $1900 as a floor. As an investor, I realize this can go back to like $1830, pause, and have a new higher low.

IF we look at the gold price (in log) and pontificate that the 2018 Fed pivot was NOT expected with gold price, but this unexpectedly pushed gold price up, you can then further guess that the last two years of consolidation completed the arc. This THEN led to 7 straight monthly losses for gold to form the handle.

We are now looking to launch.

Could the March highs be in with the candle? Perhaps – but this floor looks to be about 1830.

IF we zoom in on the weekly in the top right of this chart since October, this is what we see…

This COULD suggest, IF you believe in the arc stuff, that our recent blow off top needs to be digested for 1-2 weeks, perhaps take us to $1900-$1930, then we not only break out to the upside (the 5th time breaking $2000 or so) but we are breaking out on an ascending triangle.

What I would then expect, right after this consolidation move, that when gold runs the next time, miners will also run hard with it.

If we are expecting a $2500-$3000 run in the coming 6-12 months, let’s look at the ratios. It sits at 63.8 and could head to about 40 on a manic move. At $3000 gold price, you are looking at $75 GDX. While that sounds unlikely, remember, oil prices are a big factor in miner profits. That’s about a 2.5x move from here.

In a mania like 2011, it went 20:1, which suggests even a $150 GDX price, or about a 5x from here.

I’m not doing price predictions here, only showing you how we COULD get there.

What about the juniors?

Well, if you have GDX going 5x from here, can you imagine mid tiers? Then, consider juniors perhaps with 1m oz deposits? Let’s just take a glance at GDX – when, in fairness, it’s not REALLY a junior miner ETF, but it’s a better approximation than GDX with not quite the massive risk profile with a true junior ETF.

I have a few gold explorers/producers now, but not many. What IDEALLY I would like to do is start to make money on the majors move, and rotate some profits into juniors and mid tiers.

My top holding is a mid-tier gold producer FSM, which is also a mid-tier silver miner. Let’s take a look at how an FSM could perform at $3000 gold?

While a CRAZY price has this at $30 with a 30:1 ratio, how crazy is it?

Assume that FSM book value today is $4.75. That’s also accounting for the gold and silver in the ground, at specific prices. I think the BIG issue here is understanding that a company like FSM wants to re-invest by putting dollars into the ground – but with MANIC prices, you will likely see investors rewarded through bought share buy backs and dividends. IF we see $3000 gold, and FSM share price gets to $15 (note, it was about $10 at the time of the Ukraine invasion when silver was $29 and gold $2088) you can see perhaps a $3000 gold price along with maybe a $45 silver price can really take that stock to $15-$20 easily. But the kicker here is if this company doles out like a $5 dividend – you could see the stock go higher on that alone.

It is NOT pie in the sky to see FSM at $20-$30 per share paying a $5-10 yearly dividend. My dollar cost average for my 10,500 shares is around $4 to make everything simple. If I see a $5 dividend, that’s a $52,000 payout with the stock price around $315,000. So you take the dividends, ride the high price, and IF you think the move is over and IF you think stocks/real estate are severely undervalued to gold – you sell and rotate into those cheaper items and run them back up.

The explosive moves of juniors will make people fortunes. While a majority of my trading portfolio is FSM – one can easily see some of these juniors do a 10-20x. IF you have a mid tier like Fortuna doing a 7x, GDX doing a 5x – how could you not see a rush to juniors making them each go up 10-20x from here?

How crazy could it get?

While I talk about GDX above, GDX the last time I checked don’t give you dividends. I would just buy some of the top names that drive the GDX, and you can then not only get the same effect as GDX, but get the dividends. NOTE – by doing this, you introduce more risk than the GDX.

Let’s just look at Newmont

This could put the gold to Newmont ratio perhaps around 15:1. At $3,000 gold, that’s a $200 Newmont price, which is about $48 today. That’s a 5x move for a major!

So there you have it – miners SUCKED in 2022, namely due to much higher oil prices that appear to be coming off. I believe we are now at the pre-game warm ups not even in the first inning yet. Bombers are on the runway now prepared to backstop every failure.