Gold

If it wasn't for the gold and silver price rising, and having better looking charts, I'd say buying here is bottom-fishing and borderline knife catching. There's still risk that miners get pummeled in a sell-off. Gold, unlike silver, might have made a higher low compared to the March 2020 low.

 

Silver Miner Update

Back in February, I said the low was in on silver. The silver miner ETF (SIL) bottomed on January 28. The first candle below is from the day of the post.

Relative to gold miners, silver miners only started outperforming in April.

The big upside will begin when SLV clears $28 per share.

The Low is In: Silver Joins Gold in a Breakout

Here is the ratio of SIL to GDX. I'm looking for this to turn higher, and that will ignite the primary engines on this bull move. Options on SIL are cheaper than GDX here assuming silver's higher volatility.

Gold and Silver Miners Bottoming

As in December 2015, the first rate hike could well mark the bottom. The long-term picture looks bullish. Silver miners are still lagging. The possibility of a puke low is definitely in the cards, as the silver chart shows. I will be putting my buy list together and adding aggressively if silver sinks into the buy zone.

Gold Miners Fill Gap and Reverse

Not bullish for the short-term.

Bearish Short-Term Outlook for Miners, Utilities

GDX has more room to drop as does gold, and that would break support for GDXJ. Some miners with nice charts such as 1911 are also developing short-term topping patterns and breaking some support. Long-term the outlook is still very bullish. The broader market sentiment is at euphoria levels though, and downturns in teh broader market typically whack precious metals at the start.

Real yields are on the rise. The utilities sector has bearish potential. A spike in rates could be the trigger for a broad market sell-off because it would signal the Fed losing control over the market or that bond vigilantes returned from the gulag.

Added SIL Puts Today

Sold my TLT puts.

Silver Remains Bearish

I'm seeing some individual strength in mining stocks, but gold and silver still look bearish to me in the very short-term. Unless there's a high inflation reading coming, a potential breakout in long-term interest rates will rain all over the precious metal parade. The 10-year could breakout towards the 200-day MA and a test of 1.00 percent if it moves past 0.75 percent.

Gold Charts Galore and All-In on GDXJ

By a fortuitous (I hope) series of events on Friday, I found myself looking at GDXJ's net asset value. As I was investigating, GDXJ started plunging. It was trading nearly $7 below its net asset value.

I looked at the charts of some top holdings to see if they were also plunging. The IV is delayed, maybe the real info wasn't coming through. But there was no similar late plunge:

There was another symbol getting blown out and it played a role in causing the "flash crash" in GDXJ (indirectly causing a similar move in GDX and SIL by the way) that dislocated these ETFs from their underlying net asset value.

GDXJ closed the day at a 13.8 percent discount to NAV. A 16.1 percent rally is needed to close this gap as of the Friday close.

I plowed into call options on GDXJ on the assumption a tradable bounce is underway in the market. Even better, it's possible the worst is over for the miners. Gold and miners bottomed early during the 2008 panic, along with China and emerging markets.

Of course, the bottom may not be in. A drop all the way to 2015 lows is possible. I never rule anything out in a panic because rational behavior goes out the window. However, gold traded far lower in late 2015, near $1000 an ounce. Today, it is still at $1500. There is a gap on GLD and GC, $127.99 and $1344 respectively. There is risk that this gap closes, but if gold is going to test the breakout from the $1375 area, it could easily close the gap on a panic finish. That would still leave it up about 30 percent from the 2015 low. For many miners, that $300 increase is the difference between profitability and loss. A producer with a production cost of $900 earns $100 per ounce at $1000 and $400 at $1300. Would investors sell gold mining shares at levels priced for $1000 gold, at $1350 gold? Yes, they might in a panic.

The other side of the ledger is government and central bank action. Gold and emerging markets bottomed early in 2008 because investors realized the fundamentals were improving for gold (and China's massive stimulus lifted the EM and commodity complex). Many people are pitching depression scenarios today, but I maintain there's still potential for a "Y2K" rebound if the virus lifts sooner than anticipated. Any stimulus or money/credit creation will have instant impact on the CPI because supply chain disruptions will last longer than the virus itself. That pricing pressure will look like a "boom" to businesses. Panic today will turn to relief and euphoria in the markets and the whole society.

Even if virus related slowdown/shutdowns last longer than expected, government action will exacerbate or create new problems. The best action government can take is follow in China's footsteps and delay debt repayment. Hit pause in the credit market to avoid a wave of default caused solely because of a 2 to 8 week shutdown/slowdown in economic activity. But instead of preventing negative outcomes, it looks like they'll try to cause good outcomes, creating new problems down the road. Problems that will be good for gold.

There is already a bullish cash for GDXJ as soon as Monday. The net asset value of the fund is above the blue horizontal. If gold stabilizes and miners turn higher, there's a good case for Friday being the panic low. It will return to its basing pattern next week and resume a consolidation phase before breaking out around $49, with an initial target around $80 from there.

Below are some of the mining charts I keep track of. Some larger miners did not break support. More than a few exploration companies have broken down. The ultra bear care for juniors and explorers is a full blow depression. Companies with debt will go bust, it will be very difficult to raise capital as financial companies go bust, gold price will keep falling, etc. The bull case is the majors are showing this is a drawdown within an emergent bull market. Either way, the safer play right now is buying companies with good balance sheets, adequate cash and ability to earn positive cash flow at lower prices.

Finally, this is a high risk situation. I'm not convinced the lows are in as I was in 2018. There is definitely the whiff of an unfolding 1929 scenario, or perhaps the forgotten depression of 1920. I can change my mind by the Monday open if conditions change in an unfavorable direction. Nothing here should be construed as a trading advice or a recommendation to sell or buy anything.

Notes on some charts. Kirkland (KL). The blue horizontal up top has a measured move that was hit on Friday. As long at this isn't a larger topping pattern (the target for that would be $8 per share, for those in the doom camp), this would be a great place for a bottom.

Newmont (NEM) could fall another 20 percent and I'd still call that a great bullish setup.

New Gold (NGD) is my lotto play, I added to my position on Friday. It has a lot of debt, but higher gold prices would solve that. Obviously, it blew through its low given the current conditions.

03 Mining (OIII.TO). Added a lot over the past two days.

Osisno (OSI.V). Did not add but will if that support holds. Looks great.

Global X Silver Miners (SIL). NAV of the fund is above the green trendline and SLV still well within its basing pattern.

Some of these charts are busted. I have drawn trendlines to the Friday low, but those will only be validated if future price action that confirms a low.

Charts are after the jump.

Precious Metals Charts

A sampling, not exhaustive. Own a few of these, and many more not listed below.