The
gold miners’ stocks look to be getting even closer to a crucial
psychological tipping point. After years of being mired in apathy,
this small contrarian sector appears poised to finally return to
popularity. When traders flock to gold stocks to chase their upside
momentum, massive uplegs ensue where doublings-plus aren’t
uncommon. And across entire bull markets, total gold-stock gains
can exceed an order of magnitude.
Eleven weeks ago, I penned my original
gold-stock-tipping-point essay. My thesis then was gold stocks
were on the verge of being noticed by much-broader groups of
speculators and investors. They would increasingly pile in to ride
mounting sector gains, catapulting gold stocks way higher. Gold
miners remain seriously undervalued relative to these record
prevailing gold prices, they need to mean revert and normalize.
Much
has happened in the several months since, making this case even
stronger. The day that essay was published, gold and the leading
GDX gold-stock
ETF were trading at $2,436 and $36.48. Gold’s last nominal
record close of $2,465 was seen several weeks earlier, while GDX’s
upleg-to-date best then ran $39.28. It really felt like traders’
interest in gold and its miners’ stocks was growing, a very-bullish
omen.
While feelings aren’t empirical, decades of experience hones them
into valuable indicators. For a quarter-century now, I’ve been a
financial-newsletter guy researching, writing about, and actively
trading this gold-stock sector. This is my 1,144th
weekly web essay
since mid-2000, and I’ve written 291 monthly and 1,118 weekly
paid-subscription newsletters in that long span! Active real-world
gold-stock trading was a big part.
Both
newsletters have recommended and realized 1,531 stock trades as of
the end of Q3’24. All those including all losers have averaged
excellent +16.0% annualized realized gains! That’s roughly
double the long-term stock-market average. After spending the vast
majority of my professional life deeply immersed in this realm, my
experience and knowledge is world-class. Plenty of signs now point
to improving psychology.
Chief among them is gold and GDX continuing to power higher on
balance despite formidable challenges. Since that original essay,
gold has achieved 14 new
nominal record
closes including midweek’s latest one at $2,673! That’s another
big 9.8% rally despite gold recently facing high odds for a
considerable selloff to rebalance sentiment and technicals.
Strength contrary to probable weakness reveals shifting psychology.
In
early October I wrote an entire essay analyzing
gold’s high
selloff risk. Two dominant factors fueled that, including gold
blasting up to extreme overboughtness. That was driven by massive
gold-futures buying by speculators, leaving their positioning
way-overextended and their likely capital firepower for buying
exhausted. Plenty of catalysts loomed that could spawn cascading
gold-futures selling slamming gold.
Specs look to the US dollar’s fortunes to guide their
wildly-leveraged and super-risky gold-futures trading. And the US
Dollar Index in turn is often bullied around by major US
economic-data releases. Depending on how they come in relative to
economists’ forecasts, they can really move futures-implied expected
Fed rate cuts. Those seemed impossibly-high in early August, at
116 basis points in 2024 then another 100bp in 2025!
That
was almost nine quarter-point cuts over 16 months, pretty
optimistic. While the FOMC did birth this latest cutting cycle with
an outsized 50bp slashing in mid-September, those expected Fed rate
cuts have indeed retreated on better-than-expected key economic
data. Heavy gold-futures selling has often been spawned in recent
years on upside surprises in US jobs, CPI inflation, PPI inflation,
and retail sales.
All
four latest reads proved Fed-hawkish and boosted the US dollar,
which should’ve unleashed big gold-futures dumping! September’s
nonfarm payrolls soared 254k, massively beating the +150k expected
on top of +72k jobs in past-two-month revisions. All four of the
September CPI’s key metrics came in 0.1% hotter than forecasts, and
two of the four PPI ones printed 0.2% above consensus. These meant
slower rate cuts.
Indeed by Wednesday expected Fed rate cuts in 2024 and 2025 had
slumped to 45bp more and 99bp. As of midweek, the USDX had surged
3.2% in several weeks which is a big-and-sharp rally for it. Yet
during that time with everything aligning out of favor for gold, it
still managed to rally 0.4%! While gold did suffer a minor
2.4% pullback into early October, it rapidly rebounded to that
latest record close Wednesday.
September retail sales were released Thursday morning before I
started writing this essay, also proving a Fed-hawkish upside
surprise. So this past month’s major economic data was certainly
dollar-bullish and gold-bearish due to deteriorating expected
Fed rate cuts. Yet gold powered higher anyway, likely on big buying
from Chinese investors, central banks, and Indian brides’ families.
Gold is really defying the odds.
Gold’s defiant march to more record highs is putting it on more
traders’ radars. Financial-media coverage is becoming more-frequent
and more-bullish, building awareness. Even American stock
investors, who
have mostly ignored gold’s monster 46.9% upleg over this past
year, are increasingly nibbling in GLD and IAU gold-ETF shares.
While small, their daily gold-bullion-holdings builds on capital
inflows have been relentless.
So
gold looks to be nearing its own psychological tipping point, where
gains accelerate sparking a fear-of-missing-out rush to pile
in. Seasonal tailwinds will soon turn favorable again too. Gold
tends to suffer a seasonal pullback from late September to late
October, before its
biggest seasonal
rally powers higher into late February. That has averaged 8.4%
over 20 of the last 23 years, which were gold’s bull-market ones.
If
gold’s early-October pullback low holds and this year’s winter rally
merely proves average, gold would shoot over $2,825 in coming
months! And as goes gold, so go its miners’ stocks. They
ultimately act like leveraged plays on gold, with the majors
dominating GDX usually amplifying their metal’s upside by 2x to 3x.
Indeed GDX has rallied with gold recently, achieving another
bull-market high of $41.64 in late September.
GDX
has powered 60.7% higher over this past year, a good upleg. But it
remains quite weak relative to gold, with mere 1.3x amplification.
That’s way behind historical precedent. Gold’s last similar monster
uplegs both peaked in 2020, averaging 41.4% gains. GDX averaged
great 105.4% uplegs during those, doublings-plus at 2.5x leverage!
GDX should already be up 95% to 140% in today’s monster gold
upleg.
So
gold stocks have lots more mean-reversion normalization rallying
left to do even at today’s gold levels, let alone where this bull is
heading. And GDX just has to inch a little higher to achieve a
major technical breakout, which will hasten that crucial
psychological tipping point arriving. Forging decisively above $42
ought to fuel increasing and enthusiastic financial-media gold-stock
coverage, building greed-driven momentum.
When
GDX hit $41.64 in late September, those were gold stocks’ best
levels in 4.0 years. As I’m writing this draft midday Thursday, GDX
is trading even higher at $41.86. The last time GDX closed over $42
was in mid-September 2020, six weeks after a powerful gold-stock
upleg catapulted GDX 134.1% higher to $44.48. Exceed that,
and this leading gold-stock benchmark will be at its best levels
since January 2013!
Traders love chasing winners, and the financial media love to cover
them. Decade-plus gold-stock highs less than 9% above midweek
levels should be achieved soon, really boosting popular
awareness of gold miners’ upside momentum. That dynamic can quickly
become self-feeding, ultimately culminating in a popular speculative
mania. It really feels like that process is accelerating, that
sentiment tipping point is nearing.
In
my line of work, I’m deeply immersed in the markets all day every
day. I turn on Bloomberg and CNBC early in the morning when I
hammer the elliptical and lift weights, and always have them on in
my office. While usually muted so I can work, when gold or
gold-stock coverage catches my eye I listen in. The frequency
and bullishness of gold analyses have been mounting recently,
and gold-stock mentions are growing.
And
after spending a quarter-century in the financial-newsletter
business serving tens-of-thousands of paid subscribers, they offer a
fantastic window into prevailing sentiment. I’ve always been
blessed with lots of feedback, endless e-mails reflecting how
traders are feeling about and acting on gold stocks. The overall
tenor of those is definitely growing more bullish as gold and
GDX continue powering higher on balance.
And
that should accelerate over the next month or so as the gold miners
share their new Q3’24 financial and operational results. They are
about to report their fattest and richest quarterly earnings ever
by far! My essay last week dug into these
imminent epic Q3
earnings, which should increasingly attract back institutional
investors. Amazingly gold stocks’ fantastic fundamentals are more
bullish than their lagging technicals!
All
this makes gold stocks’ crucial psychological tipping point look
closer than ever. In financial markets, buying begets buying. The
faster and higher anything rallies, the more interested traders grow
so the more capital they deploy to chase that upside momentum. The
more buying they do, the more that accelerates. This powerful
self-fueling dynamic is born as long-neglected gold stocks start
getting popular again.
While that herd sentiment shift is inexorably nearing, specific
timing is always uncertain. Big gold-futures selling could still
flare anytime, slamming gold and thus its miners’ stocks into
rebalancing selloffs. Gold stocks can temporarily get sucked into
sufficiently-violent general-stock-market selloffs, like when this
AI stock bubble
decisively bursts. So that tipping point may tarry, but eventually
gold stocks must reflect gold.
All
stock-market sectors ultimately normalize at some reasonable
stock-price multiple of its companies’ underlying corporate
profits. And gold-stock prices need to power way higher to align
with the massive and still-fast-growing earnings these miners
are spinning off! To reap these coming big gains, traders need to
do their homework. You need to get informed about and stay abreast
of this high-potential sector.
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The
greatest gains as gold stocks continue mean reverting higher and
normalizing with gold certainly won’t come from GDX. It is
dominated by dead-weight super-majors perpetually struggling to grow
their outputs and lower costs. The smaller
mid-tiers and
juniors well outperform majors during gold uplegs, as
they are better able to consistently boost production and develop.
These are the gold stocks we specialize in.
Successful trading demands always staying informed on markets, to
understand opportunities as they arise. We can help! For decades
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The
bottom line is gold stocks’ crucial psychological tipping point is
nearing, where they start returning to favor. That is well underway
in gold, which is defying high selloff risks to continue powering
higher on balance. Overextended gold-futures speculators aren’t
dumping despite Fed-hawkish key economic data, and investors are
starting to return. This mounting bullishness for gold will
inevitably spill into it miners’ stocks.
They
are nearing a major upside breakout to their best levels in over a
decade, which will generate more and more-bullish financial-media
coverage. Gold stocks returning to traders’ radars should be
hastened by their imminent epic Q3 results. These lofty prevailing
gold prices are generating huge record earnings for the miners, so
gold stocks need to mean revert way higher. Herd psychology
shifting to bullish will fuel that. |