The
gold miners’ stocks surged back mid-week after a major Fed-dovish
inflation report. The latest US consumer-price-index read came in
cooler than expected, continuing this past year’s disinflation
trend. That lowered Fed-rate-hike odds, slamming the US dollar. So
gold-futures buying flared, quickly driving gold and its miners’
stocks sharply higher. Bullish technicals argue this sector’s
autumn rally is getting underway.
Heading into Wednesday morning’s latest June CPI print, traders
figured headline inflation would keep moderating. The prior-year
base effect was very favorable, as the CPI peaked in June 2022
soaring a blistering 9.1% year-over-year! Energy prices have
plunged since, with the Biden Administration’s unprecedented release
of over 230m barrels of crude oil from the emergency
Strategic Petroleum Reserve.
Economists were looking for this new June 2023 headline CPI to climb
0.3% month-on-month and 3.1% YoY. The actuals both came in a tenth
lighter, up 0.2% and 3.0%. Those falling energy prices were the
primary driver, with the CPI’s energy subindex collapsing 16.7%
YoY. June also proved the twelfth month in a row the
headline CPI’s rate of increase had shrunk, tying the longest
disinflation stretch on record in 1921!
While underlying core inflation excluding energy and food remained
sticky up 4.8% YoY, that also came in below +5.0% forecasts. So
futures-implied Fed-rate-hike odds beyond late July’s baked-in
25-basis-point hike plunged. The US Dollar Index was sold hard on
that, falling 1.1% in its worst down day since early January. So
speculators poured into gold futures, pushing gold up an
inversely-proportional 1.3% to $1,958.
While that wasn’t a huge up day by gold standards, it had an
outsized impact on sector sentiment. Gold has been languishing
in a pullback since early May, exacerbated by June’s usual
summer-doldrums apathy. Late last month that total selloff extended
to 6.9% over 1.8 months, which really ramped bearish psychology.
Last week as gold retested that pullback low, I wrote an essay
analyzing gold’s
bullish technicals.
Gold
was due to bounce soon igniting its normal big autumn rally, as
speculators’ gold-futures positioning was really bearish with vast
room for big mean-reversion buying. All that was necessary to spark
those leveraged gold-futures capital inflows was some substantial
Fed-dovish news. This week’s cooler-than-expected June CPI fit
the bill nicely. Gold’s resulting surge shocked gold-stock traders
out of their malaise.
The
leading GDX gold-stock index naturally mirrored and amplified gold’s
healthy mid-upleg pullback, dropping 18.9% at worst between
mid-April to last Thursday. That wasn’t unusual, as the major gold
miners of GDX tend to leverage material gold moves by 2x to 3x.
Their recent 2.7x downside leverage was right in that normal range.
But gold-stock sentiment had been sucked into gold’s weak June
seasonals.
This
updated chart from my latest
summer-doldrums
research in early June shows how major gold stocks have
performed in all modern gold-bull-year summers. Because this
analysis starts years before GDX was born, the older HUI gold-stock
index is used which still closely mirrors GDX. All gold-stock
summer price action is indexed to 100 at May’s final close,
rendering it in perfectly-comparable percentage terms.
The
red line averages together all major-gold-stock summers from 2001 to
2012 and 2016 to 2022, distilling out their gold-bull seasonality.
This sector tends to drift lower into mid-June, and then mostly
grind sideways into early July. During market summers gold stocks
usually meander within 10% either direction from their summer entry
point at the end of May. They did that again this year despite
gold’s pullback.
The
blue line shows how the HUI and GDX are tracking this summer. The
major gold stocks proved slightly stronger than their seasonal
average in the first half of June, but slumped under it in the
second. That breakdown started on June 20th, when gold plunged 1.0%
to its own new pullback low after some Fed-hawkish anomalous
US-housing data. GDX drifted lower into late June, then retested
those lows last week.
But
at worst the HUI was merely down 6.4% summer-to-date, well above
major support at 90 indexed. And because GDX is constructed
differently, it was only down 6.0% since May’s final close. Gold
stocks weren’t having an ugly summer by any means, but traders were
pretty bearish on them after their recent correction. All that
started to change last Friday on more Fed-dovish data in the
latest official US jobs report.
After 13 consecutive monthly upside surprises including some
suspicious
statistically-impossible ones, headline US jobs finally missed.
The June number came in up 209k jobs, well shy of +240k forecasts.
On top of that there were another -110k in past-month revisions.
That weak data lowered the odds the Fed would keep hiking rates
beyond late July. So gold rallied 0.8% on a parallel 0.8% US Dollar
Index drop.
GDX’s 1.3% bounce that day wasn’t big, but it started to bleed off
excessively-bearish sentiment after a miserable 5.4% two-day
capitulation. Psychology was shifting, as GDX surged another 2.0%
this Monday despite flat gold. That nascent recovery took off like
a rocket on this Wednesday’s cooler CPI, with GDX blasting up a
massive 5.2%! Bullishness is being rekindled with gold
stocks amplifying gold’s upside by 3.9x.
Interestingly this overdue young mean-reversion rebound left GDX and
the HUI 2.9% and 2.4% higher summer-to-date! That’s back above
their seasonal average running +1.8%. So all June’s gold-stock
angst worrying about their correction rolling over into a
more-serious selloff was misguided. Rather than selling low,
traders should have been aggressively buying. We certainly were as
gold and gold stocks bottomed!
Starting on June 20th the very day gold and GDX broke down to new
selloff lows, we began redeploying capital in fundamentally-superior
mid-tier and junior gold stocks. With better production growth and
lower market capitalizations than the majors, smaller gold stocks
usually enjoy bigger gains as gold rallies on balance. Since then
we’ve added 20 new gold-stock trades across both our weekly
and monthly newsletters!
And
their gains are already mounting, supercharged by plenty of massive
8%+ surges Wednesday on that cooler CPI. Our unrealized gains so
far in new late-June trades are already running as high as
+22.6%, +19.0%, and +16.8%! Once this high-potential gold-stock
sector inevitably reverses out of major lows, it moves fast. So it
is foolish for traders to ostrich and back away when gold and gold
stocks are bottoming.
I’ve
been pounding the table about this great opportunity for a month,
trying to drum up newsletter sales to help traders buy in relatively
low. My last four weekly essays were “Gold
Bottoming Despite Fed” in mid-June, then “Gold-Stock
Seasonal Buy”, followed by “Gold
Stocks at Key Support” exiting June, and “Gold
Technicals Bullish” last Friday in a quiet holiday-shortened
week. Gold and GDX surging shouldn’t surprise.
That
latest essay detailing today’s really-bullish setup in gold analyzes
the main reasons. Again the gold-futures speculators have sold lots
of contracts on expectations for more Fed rate hikes. But after an
epic-extreme 500bp of hiking in just 13.6 months, the Fed is
running out of room to keep going. It might have one or two 25bp
ones left, but that’s it. Much more risks plunging the US economy
into a severe recession.
With
the threat of more violent rate hikes vanishing, traders will
increasingly interpret major economic data like jobs reports and
inflation as Fed-dovish. That’s what reignited and fueled
these just-starting mean-reversion rebounds in gold and GDX. During
the last four trading days as of mid-week, they soared 2.5% and
9.5%! And that should only be the beginning given speculators’
latest gold-futures positioning.
As I
analyzed last week, these hyper-leveraged traders still had room to
do a whopping 7/8ths of their likely gold-futures long
buying! After another Commitments of Traders report since that
essay, that was still running 4/5ths remaining. As specs return to
gold futures, the resulting mounting gold gains should increasingly
attract investors. They command far more capital and have barely
started shifting into gold!
As
goes gold, so go the gold stocks at 2x to 3x leverage for majors and
even-better upside for mid-tiers and juniors. It’s unfortunate many
traders ignoring gold stocks today while they are still relatively
low will scramble to start chasing them at way-higher prices in
coming months. Despite this week’s big surge, this sector still has
much room to power higher with gold. GDX remains relatively low and
far from overbought.
This
last chart recasts GDX as a multiple of its all-important trailing
200-day moving average. That tends to form a horizontal trading
range, the basis of my old
Relativity
trading system. The closer to 200dmas gold stocks drift after
selloffs, the greater the odds they will soon start powering to new
highs. GDX fell to just 0.985x its 200dma at last week’s selloff
low, and has since rebounded to only 1.073x that baseline.
The
blue line is the normal GDX, while the red line is GDX divided by
its 200dma. The resulting multiples flatten that 200dma to 1.00x,
with major gold stocks oscillating around that. During the past
five calendar years, this rGDX construct has generally meandered in
a trading range from an extremely-oversold 0.80x to an
extremely-overbought 1.35x. Above the latter is when uplegs get too
overextended to continue for long.
Even
at its latest upleg high in mid-April, GDX only stretched 1.295x
over its 200dma which remained well below upleg-slaying levels.
The same was true with gold at its early-May upleg peak, extending
to 1.132x its 200dma which was also well under its 1.16x+ danger
zone. So these strong uplegs in the metal and its miners’ stocks
still have plenty of room to run yet. There’s still time for smart
contrarian traders to buy in.
At
their latest mid-week 200dmas, gold and GDX would have to soar near
$2,160 and $40 to reach those 1.16x+ and 1.35x+ extremely-overbought
zones. That would make for another 10% and 26% upside from
Wednesday’s post-CPI-surge levels. But those targets are
understated, as 200dmas climb accelerating higher as uplegs
mature. Both gold and GDX will have higher 200dmas in coming
months, upping their targets.
And
today’s gold upleg should prove bigger than normal, probably growing
into a monster before giving up its ghost. Soaring 26.3% at best
over 7.2 months into early May, this is already the strongest gold
upleg by far since 2020. That year two monster gold uplegs peaked
at huge 42.7% and 40.0% gains! Ever since today’s gold upleg was
born, I’ve expected it to reach that rarefied 40%+ territory before
petering out.
40%
gains from late September’s deep secular low would extend today’s
upleg near $2,275. That is way over gold’s all-time-record nominal
peak of $2,062 in August 2020. Once gold-futures buying pushes gold
decisively above that, bullish psychology will explode. New
record highs for major assets are big financial news, and
speculators and investors alike love chasing upside breakouts! That
would make GDX soar higher.
During those last two monster gold uplegs, GDX’s own averaged
awesome 105.4% gains! A similar upleg today from September’s
brutal nadir would catapult GDX way up near $45. That’s another 41%
higher from mid-week levels, lots more upside potential from here.
And fundamentally-superior smaller
mid-tier and
junior gold stocks that we’ve long specialized in at Zeal should
well outpace the majors’ gains.
Wednesday’s massive gold-stock surge was a wake-up call to sidelined
traders bearish on gold and its miners’ stocks. Their recent
healthy mid-upleg selloffs served their mission of rebalancing
sentiment, eradicating the excessive greed of early May. Yet both
these gold and GDX uplegs remain intact, still in their upleg
trading ranges carving higher lows and higher highs on
balance! These uplegs are resuming.
Both
gold and gold stocks enjoy strong autumn-rally seasonals really
accelerating in July. I hope to update my
autumn-rally
research thread in coming weeks. While most traders will chase
that and buy in higher later, it makes a lot more sense to deploy
earlier and lower. That’s why we’ve been aggressively refilling
our newsletter trading books after gold’s pullback stopped out
earlier gold-stock trades at good gains.
Excellent times to buy gold stocks occur when gold and GDX are
bottoming after sizable-to-major selloffs. While exact lows can’t
be known in real-time, battered technicals and prevailing bearish
sentiment are big tells that bottomings are underway. The last few
weeks have seen those in spades in both gold and GDX. Gradually
redeploying in great smaller gold and silver miners to straddle
that bottoming is a smart strategy.
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The
bottom line is gold stocks blasted higher mid-week after a
cooler-than-expected US inflation report. That Fed-dovish data
lowered future-rate-hike odds, hitting the US dollar fueling
gold-futures buying. That accelerated gold’s young mean reversion
higher, which gold stocks amplified with outsized gains. That big
buying reflects traders’ psychology on this sector improving, a
bullish omen for mounting capital inflows.
The
higher those push gold stocks in coming months, the more excited
traders will get to chase those gains. Big gold and gold-stock
uplegs are driven by this powerful buying-begetting-buying dynamic.
With gold-futures speculators’ long positioning still really low and
investors barely buying so far, this interrupted gold upleg has lots
of room to run yet. The gold stocks will amplify those gains like
usual, surging way higher. |