Gold Bug Survivors Prepare to Capitalize

It has been a classic washout in the gold stock sector, but if positioned correctly opportunity is setting up.

  • The ‘macro’ and sector fundamentals have been incomplete.
  • The technicals have advised a downtrend since mid-2020 with the exception of one head fake in March-April, 2022.
  • Sentiment, which was over-bullish in mid-2020 and April 2022 is now opposite, and very bullish on a contrarian basis.
  • The sector is deeply oversold as evidenced by an extreme in the Gold Miners Bullish Percent Index (BPGDM).
  • Commitments of Traders data for gold and silver are positive and very positive, respectively on a contrarian basis.
  • As has been proven by the facts of recent history, the view of cyclical (as opposed to ‘stag’) inflation being terrible for gold stocks was correct, even as this view was lost in the din of opposing – and tragically wrong – opinions by heavily followed Twitter ‘influencers’ and other dignitaries.

So here we are, intact.

What have you done for me lately, smart guy? Err, not much. There has been a lot of waiting, biding time, trading other areas and sitting on cash; a high percentage of it.

But as speculators, traders and/or investors are we not called upon to never set our views in stone? Are we not called upon to be ready to capitalize on extreme events within the markets? When the herds run one way we need to be ready to go the other. The herds are not prepared because they’re either already deployed or too busy running from losing positions.

Gold bug herds, AKA less experienced or analytically critical precious metals bulls, are currently running that way, over that cliff over there. They have been herding since August 2020, when we first noted the danger.

Such events climaxed in 2008 and 2020 too. In each of those instances a crash took place and it coincided with fundamentals slamming into place. Crashing gold stocks + ramping fundamentals = big time buy opportunity.

As noted in the first bullet point above, the fundamentals have not slammed into place on this cycle. They are grinding into place, slowly and outside the limits of the average market participant’s patience. But that is exactly why contrarian investing is so difficult. It is very hard to have patience when time takes what it takes for an opportunity to play out, especially when your viewpoint is not reinforced by a majority.

So that is the background. We have been more than prepared in managing risk. That is how markets often go… manage risk > manage risk some more > manage risk for so long you almost lose sight – in real time – of why you’re there and what your job is > and then PREPARE TO CAPITALIZE.

Intact players should now be considering the big sentiment event on tap for next week as the Fed, which was jerked kicking and screaming into hawk mode by the bond market, prepares to render its big decision (on July 27 they will either hike the Fed Funds by .75% per 71% of CME traders or 1% per 29% of CME traders).

Meanwhile, the Gold Bugs index is tanking toward a higher low to the 2018 low, which is really all it needs to do to keep the volatile series of higher highs and higher lows (AKA a bull market) intact.

I use shorter-term charts and of course the ‘macro’ and sector fundamentals and sentiment to fine tune the situation, but this general monthly chart picture should not only cause no concern for would-be buyers who are well prepared; it should stimulate greed while a majority of bugs are gripped in fear.

Gold Bugs Index Chart


Gary Tanashian

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It's January 2013, With A Twist

The title was not meant as a play on words in reference to Operation Twist, but now that I think about it, maybe it should be.  The Post-Twist financial world is far different than it was before the genius that is Ben Bernanke’s ‘bigger than yours or mine’ brain concocted a maniacal plan that would “sanitize inflation” signals from the bond market and break the then highly elevated yield curve.*

So, why is today like early 2013 and why is there a twist to that view?  Because two indicators have come together to point to economic stability (at least) in the US, with the twist being that other indicators are pointing to a potential unchaining of inflation this time, unlike the 2013 time frame, which was in the grips of global deflation (and Goldilocks in the US).

So gold bugs, don’t get too concerned just yet.  The sector has been overdue for a correction and that is what it has been getting.  Speaking of sanitizing things, over bullish gold sector sentiment has needed a good clean out.  The 2013 signal immediately preceded the worst of the precious metals bear market, but the 2016 signal need not for reasons explained later in the article. Continue reading "It's January 2013, With A Twist"

Sentiment Shifting for Gold Bugs

From a post on the HUI at the site last week:

“There are worse things that could happen than filling a gap and scattering the wrong kind of gold bugs back out.  Then it would be up to the longer-term charts to do the heavy lifting if the daily does fulfill this downside potential.”

The gap was filled, the top end of the anticipated support zone was reached and indeed, the wrong [i.e. momentum players] kind of gold bugs are scattering back out.  The hard sell down on Thursday was very likely due in large part to the selling by traders with a fetish about gold as a geopolitical or terror hedge.

We should continue to tune out these people and while we are at it, tune out the ‘Indian wedding season’ and ‘China demand’ pumpers in favor of real fundamentals like gold’s relationship to commodities and the stock market, the Banking sector’s relationship to the broad market, Junk Bond to Quality credit spreads and US Treasury bond yield relationships.

It’s boring stuff compared to all that demand in China, Modi’s pro-gold regime in India and of course how we are all going to go down the drain amidst war, terror and an age of global conflict unless we have a ‘crisis hedge’.  The only terror gold investors should care about is that perpetrated upon paper/digital currencies by global policy makers.

So last week was good in that it blew out those who were hanging on through the 2 month long grind that did indeed turn out to be short-term topping patterns.  I don’t mind telling you that my patience was tested by the bullish spirits, especially on up days with Ukraine in the headlines.  I did not think it would take 2 months to resolve, but every time the sector looked like it would crack, a new geopolitical flashpoint would show up in the mainstream financial media.

That condition is now being closed out.  Taking its place could be a bottom of at least short-term significance (i.e. to a bounce).  We have a fundamental backdrop that is not fully formed and a big picture technical backdrop that has degraded in gold and silver and is not proven in the equities.  So whether we bounce only, go bullish for an extended rally or even bull market, or (and it’s still on the table folks) fail into the ‘final plunge’ scenario, we are dealing in potentials, not confirmed trends.

Moving on let’s check sector sentiment.

The current hook down in gold’s Optix (’s aggregated Public Opinion data) is correcting recent surges in optimism.  This is coming amidst a small positive trend.  ‘Uh oh, dumb money is getting positive!’ think contrarians anxiously.  But the historical view shows that the Optix rises in the initial stages of a bull market. Continue reading "Sentiment Shifting for Gold Bugs"

How to Prosper in the Coming Downturn

The Gold Report: In your latest book, "The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 20142019," you write about the aging of the Baby Boomers and the wave of Gen-X'ers that follows. What does that tell you about the next five years?

Harry Dent: I discovered this relationship, which I call the spending wave, in 1988. Peak spending happens at about age 46 in the U.S., Japan and most developed countries. That is when a generation will earn, spend and borrow the most money. After that age, spending declines.

More than 20 years ago, we predicted Japanese spending would peak in the late 1980s, and U.S. spending around 2007. Now, Europe is hitting its demographic peak and will start dropping off. The drop off will be especially steep in Germany, the United Kingdom, Austria and Switzerland some of the strongest economies in Europe. How will Europe's rebound continue with these countries plunging in the years ahead?

TGR: Much of Germany's economic strength is based on exports. Would that protect Germany through the decline? Continue reading "How to Prosper in the Coming Downturn"

'Mexico Mike' Kachanovsky Believes the Best Cure for Low Prices Is Low Prices

The Gold Report: Mike, the prevailing wisdom in the market favors producers over explorers in the precious metals equities. The thinking seems to be why buy the pasture when entire farms are selling at nearly the same price? What do you think of that strategy?

Mike Kachanovsky: That is a good summary of current affairs. Market values for the entire sector have been trimmed dramatically; even many of the highest rated stocks are down 50% to 60%. From a value perspective, it makes sense to buy higher up the food chain when you have the opportunity, to buy more established companies that offer legitimate earnings and established infrastructure.

TGR: Kenneth Hoffman of Bloomberg Research notes that production from the world's biggest gold mines has dropped 17% since early 2011. He predicts that gold mines, especially high-cost mines in Africa, will start to close as gold hovers around $1,200/ounce ($1,200/oz). Is there a bullish medium-term case to be made for gold given the shrinking supply?

MK: We have been through similar severe price corrections before. At the beginning of this century, gold's market value was below what it cost to produce it. Mines closed and companies went out of business. That scenario evolved into the bull market we have today and the achievement of all-time high metals prices.

TGR: But this is not a bull market. Continue reading "'Mexico Mike' Kachanovsky Believes the Best Cure for Low Prices Is Low Prices"