From Taylor Dart: Gold (GLD) was the shining star by a mile in Q2 of the two most sought after precious metals, but silver (SLV) looks like it might finally be ready to join the party.
NYSE:GDX July 18, 2019 1:56pm
One of the stories gold bulls like to tell is the decline of the US Dollar as the world reserve currency. This story usually runs along the following lines: The US is overspending massively, thus the US is a debtor nation. Debtor nations don't last forever, thus the US is heading for collapse. When countries collapse, their currency becomes worthless. Since gold has never been worthless in the history of modern civilization, trade Dollars for gold now so you'll preserve value heading into that uncertain future.
That's it in a nutshell, isn't it? When the cow excrement hits the rotating blades you want to hold on to the value you've created in the past. And you want whatever the best form of money is. And because gold has always preserved its value well during such crises, you should choose gold. Simple. Gold will protect you against the collapse of your country.
The modern reality is more complex than that. In today's world, there is more than one country, and countries don't all collapse at once. When one country collapses there are other countries still standing, and that provides a framework of support that can be used to set your country up again. New deals can be signed, loans can be made with international money, banks can be restarted and linked into the world banking network - it's pretty amazing. We'll see with Venezuela how quickly this can happen, once the question of who's in charge there is settled.
Plus there's the inconvenient fact that gold is difficult to fractionalize. That means a hunk of gold is often worth more than you need for a purchase. Imagine wanting to buy a single shopping bag of food in a time when the local currency is worthless, and you are holding your bar of gold. How do you shave off "the right amount" for your purchase? Even a dime-sized gold coin is worth hundreds of dollars today, much more than your typical food purchase.
So the reality is that gold is indeed a great store of value, but there are still issues with using it directly as currency. What we really need is currency we can both fractionalize and trust - thus the idea of gold-backed currency. Or, as it's better known, a gold standard.
Your Gold Enthusiast is not saying this is the best answer, however. It is possible to be a gold bug AND realize there is a better solution than going to 100% gold-backed currency. What we are looking for is currency whose value we can trust, and it doesn't have to be 100% gold backed. All that's needed is a good percentage of gold backing. Whether that's 25% or 50% or even 10% we don't know, we'll leave that to others to debate while we spin some numbers and do some pondering.
What we do know is that the US is heading deeper down the rabbit hole of debt. That's not good. And especially it's not good that two of the other superpowers in the world - China and Russia - are digging themselves slowly out of their own debt rabbit holes, AND accumulating gold. They are putting their currencies in positions of superior economic strength compared to the US Dollar.
And the rest of the world is watching.
Both countries are also forming trading alliances with other countries that are not based in US Dollars. China has both their own gold- and petro-dollar based trading contracts. Russia has been trading natural gas with other countries for years as well. And let's not forget the EU, which has the purpose of making trade between member countries possible without relying on external currencies or markets.
This is all leading to a new multi-polar world, where there are several large superpowers (if you will). Just 10 years ago the US could say it was the world's biggest superpower. Now China is a viable contender for the crown, and while Russia is much smaller than the US or China it has positioned itself as a rising economic superpower.
While the EU is currently caught up in the Brexit battle with England it is also not out of the discussion - just distracted at the moment.
Your Gold Enthusiast is watching all this happen and is fascinated by the idea of a multi-polar world. It is a step closer in evolution to everyone getting along, so that is good. There are still borders and differences, but wars are increasing being fought with sanctions and tariffs rather than shooting, and that's a step in the right direction.
Right now the US Dollar is still the #1 currency in world transactions. It's dominance is shrinking however, and we may yet see the day when gold prices shoot up in US Dollar terms as it already has in many other world currencies.
Another writer wrote this very good article about this possible multi-polar world, looking at whether it could be backed by gold. You'll have to read it to discover his answers, and his discussion is well worth understanding. Because of all the variables I don't think anyone can make exact predictions; what we're after is the direction things are likely to go, and where the decision points are that tell us if we're right or not.
Why does all this matter? Because as time passes the future has a way of becoming the present - and then we're living in it.
The Gold Enthusiast
DISCLAIMER: No specific securities were mentioned in this article. The author is long the gold sector via small positions in NUGT, JNUG, a few junior miners, and covered calls on part of the NUGT position. He has no plans to trade the shares in the next 24 hours.
About the Author
For 30-plus years, MikeHammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.
Gold (GLD) has enjoyed a huge run off of its June lows, thanks to a complete U-turn in Fed Policy. Initially, 2019 was expected to be the year of three rate cuts and a continued effort to cool off inflation, but Powell has walked back all of his comments, and 50 basis points of cuts before year-end are now on the table.
While this is a boon for the stock market (SPY) that was dealing with recession worries up until just recently, it's an even bigger help to the yellow metal. The good news for the bulls is that this spike higher in gold has two significant differences between past $100/oz moves higher since 2016.
The first is that this move is showing follow-through as gold is not melting off of its highs like it has been accustomed to doing in the past. The second and more meaningful change of character is that sentiment has heated up to extreme levels, and while this may seem like a bad thing, it's actually the complete opposite.
I have worked with Daily Sentiment Index [DSI] data for several years and found some interesting nuances that are counter to what common sense might be. I constantly see some analysts harping on the fact that high readings of sentiment are bearish, and low readings for sentiment are bullish. While this is generally true, it is essential to know where these readings are coming within a general trend.
The 2011 top in gold occurred with several readings above the 95% level for bullish sentiment, telling us that more than 19 out of 20 market participants were bullish on gold for a full week near the $1,900/oz top. However, this type of bullish sentiment was occurring after an accelerating three-year uptrend, and therefore, this final spike sentiment was buyers capitulation. However, when we get these same type of readings after a multi-year consolidation, this sentiment is telling us something completely different. In this case, it is telling us that market participants are finally warming up to the metal again after a frustrating and lengthy period of disinterest the past few years.
The point being is that the 5-year high in bullish sentiment for gold we registered on June 24th was the best thing that gold bulls could have asked for. As can be seen in the below chart, both the December 2017 spike to 91% bulls and the Q1 2019 spike to 90% bulls were unable to eclipse the prior sentiment high of 95% bulls.
So what else can this chart of Daily Sentiment Index tell us?
As we can see from the red line on the chart, which is a sentiment moving average, gold is trending higher and above its vital sentiment moving average. This is a positive sign as it shows that more bulls are entering the market on an intermediate-term basis. When more bulls enter a market after a period of disinterest, this typically leads to any sharp dips being bought up quickly. This moving average is also nowhere near overbought at current levels near 60% bulls. As long as this moving average can stay away from the 80% bulls level, the gold bulls don't have anything to worry about here from an exuberance standpoint.
Based on this new multi-year high in bullish sentiment that accompanied the recent $1,365/oz breakout, I would expect the most likely scenario is for gold to build a new base between $1,350/oz and $1,450/oz. Breakouts from multi-year bases typically either correct through time or price, and thus far it's looking like gold might end up correcting through time. This would be the best-case scenario as it would allow the metal to build a new launchpad above its prior multi-year resistance.I would consider any pullbacks down to the $1,370/oz area to be buying opportunities, especially if these dips are coupled with bullish sentiment falling below the 50% bulls level. As long as gold defends the $1,325/oz on a weekly close, I would consider any pullbacks to be buying opportunities. The next real resistance for gold doesn't come in until $1,560/oz.
About the Author Taylor Dart has over 10 years of experience in active & passive investing specializing in mid-cap growth stocks, as well as the precious metals sector. He has been writing on Seeking Alpha for four years, and managing his own portfolios since 2008. His main focus is on growth stocks outperforming the market and their peers. In addition to looking at the fundamentals, he uses different timing models for industry groups, and scans upwards of 2000 stocks daily to identify the best fundamental opportunities with the timeliest technical setups. Taylor is a huge proponent of Trend Following and the "Turtles" who enjoyed compound annual growth rates of over 50 percent per year.
Even though the month of June is not over yet, the technical action in gold, as well as some of the gold stocks, have been impressive. So far in June the Spyder Gold Trust (GLD), which reflects the performance of gold bullion, is up 2.5%. In contrast, the Dow Jones US Gold Mining Index ($DSUSPM) is up 8.5% with the VanEck Gold Miners (GDX) up just over 9.6%.
Gold miners are returning to life after a long slumber and could reward gold bugs and other bulls with superior returns in coming months. Sector gains may be widespread, with participation at all capitalization levels and the potential for the strongest components to post six- and seven-year highs. Better yet, there's no rush to get on board because major mining funds are now trading at resistance and could offer more advantageous entries at lower prices.
The gold futures contract is trading above $1,350 for the first time since February 2019. More importantly, it has now completed a six-year basing pattern that will set off major buying signals when the uptick lifts above the 2018 high near $1,400, or $130 on SPDR Gold Trust (GLD). (See also: Gold Completes 6-Year Basing Pattern.) However, the breakout could take time to unfold, allowing sector aficionados to place limit orders at lower levels on major funds or their favorite miners.
The VanEck Vectors Gold Miners ETF (GDX) came public in the mid-$30s in May 2006 and entered a narrow trading range, ahead of a 2007 breakout that reached $56.87 in March 2008. It crashed with world markets during the economic collapse, bottoming out at an all-time low in the mid-teens, ahead of a 2009 recovery wave that reached the prior high at yeas end. The fund broke out in the fourth quarter of 2010 and eased into a volatile pattern that posted an all-time high in the upper $60s in September 2011.
A 2012 breakdown signaled the start of a multi-year decline that continued into January 2016's bottom at $12.40. The fund posted exceptionally strong upside into the summer of 2016, more than doubling in price into a three-year high in the lower $30s. Price action since that time has been sandwiched between the 2016 high and low, while the pattern since 2017 has carved a long trendline of slightly lower highs.
The latest bounce has reached this resistance level for the fifth time, raising odds for a breakout at the same time as the underlying commodity. The first upside target lies at the 2016 high, offering a potential 33% profit after a breakout, but the monthly stochastic oscillator has crossed into a sell cycle, predicting that it's too early to buy the fund or popular components. As a result, it makes sense to sit on our hands and wait for lower prices.
The VanEck Vectors Junior Gold Miners ETF (GDXJ) entered the public exchanges at $104 in November 2009 and topped out at $118.76 a month later. It cleared that resistance level in September 2010 and exploded to the upside, posting an all-time high at $179.44 in December. The fund carved a topping pattern into September 2011 and broke down, entering a severe downtrend that yielded a one-for-four reverse stock split in July 2013.
The fund bottomed out at $16.87 in January 2016 and turned sharply higher into August, topping out at a three-year high in the low $50s. Bearish price action since that time has carved a long and lazy series of marginally lower highs and lows that have held above the .618 rally retracement level, keeping the bullish 2016 buying impulse in play. However, unlike GDX, it's hard to draw a trendline of highs that define a narrow breakout level.
The monthly stochastic oscillator shows a more advanced sell cycle than the larger-cap fund and has now dropped into the lower half of the panel. This is a "no buy" zone because it predicts that prices will drop further when the indicator approaches the oversold line. Taken together with the missing trendline, it makes sense to avoid junior miners except for group leaders, at least until the fund mounts the 50-month exponential moving average (EMA) in the mid-$30s.
The Bottom Line
Gold miners have turned higher in sympathy with the gold futures contract and could hit multi-year highs in the coming months.
The VanEck Vectors Gold Miners ETF (GDX) fell $0.01 (-0.04%) in after-hours trading Friday. Year-to-date, GDX has gained 0.39%, versus a 8.83% rise in the benchmark S&P 500 index during the same period.
GDX currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #8 of 34 ETFs in the Precious Metals ETFs category.
This article is brought to you courtesy of Investopedia.NYSE:GDX June 14, 2019 5:31pm
Gold has long enjoyed deep cultural significance in China, which holds the title for being both the world's largest gold consumer and its largest producer. Demand for the yellow metal in China looks like it will continue to rise, driven by a combination of increasing levels of wealth, global economic uncertainty and changing central bank policy.
From Sarah Abu-Shaaban: (Kitco News) - Amidst market pessimism, one expert sees gold prices climbing to record heights of $3,000-$4,000 an ounce in the future."When gold launches higher, they're all going to be winners," said Daniel Oliver, founder and managing director of Myrmikan Capital, referring to gold investors.
NYSE:GDX May 7, 2019 1:49pm
From Reuters: Gold rose to its highest in more than a week on Tuesday as the dollar and equities weakened after the International Monetary Fund cut its global economic growth forecasts for the year, with increased buying by central banks lending further support. NYSE:GDX April 9, 2019 1:56pm