“Risk can not be eliminated. It can only be shifted in time and redistributed in form” -Chris Chole (Artemis Capital)
Gold and Silver troughed and washed out hard in Q3 2022. Since that point in time a group of senior and mid tier gold and silver producers have performed admirably as another group of senior and mid tier gold and silver producers have underperformed (last chart). Almost all in the green.
Gold has been performing admirably. Since the October 2022 wash out low of about 1600 she has had a 50% rally to 2400. Big move for a global currency. At the end of 2018 we had that reverse repo scam blow up overnight and gold had a big move from about 1200 to 2000 including an butt stomping during the 2020 event. The thing, you know, the thing. Since topping in August of 2020 gold when absolutely no where (except down) until February 2024. In all that time the GDX is badly under performing spot gold prices.
However the gold stocks are beating physical gold prices ~2:1 more recently
The GDX call volumes are encouraging but so were all the call volumes for the January 2023 strikes which all went to zero because precious metals prices tanked December 2023 and January 2024 into expiration so take this data with a grain of salt.
GDX vs Technology
These are the lagging senior and mid tier gold and silver producers. Even though they have poor performance they are not in negative territory save dumpster fire First Majestic.
The United States Treasury has 261 million ounces of gold. At todays gold prices that is worth zero trillion and change. For this quantity of gold reserves to be valued at one trillion dollars (which would cover less than 3% of the 35 trillion dollar debt) gold would need to be at $3,800. If you wanted to back the current debt with 10% of the gold reserves held by the US gold would need to be $13,000. Point is gold is undervalued and I’ve seen gold vs M2 charts that show gold is cheaper today at 2400 than it was in the year 2000 when it was priced at 300.
I have no expectations that the US will return to a gold standard and I’m not arguing for that. I am saying that the bond traders, gold traders and FX traders will bid gold higher and the dollar lower until the treasury departments gold reserves are valued at higher and higher percentages of the national debt.
Central banks NEED gold. And they are price insensitive because they have printing presses.
After another several quarters of earnings beats by the senior gold producers word on the street is going to get out and fund managers will be forced to start allocating capital towards the GDX and seniors and then we work our way down to silver and the juniors from there.
As the seniors and mid tiers earn more and more free cash flow they will start to have the funding to go through a merger and acquisition cycle which is also bullish. Yield curve steepening may challenge the stock market causing a flight to safety bid for gold and imminent Fed rate cuts will for sure be bad for the dollar index where counter algorithms will go after gold.
So keep some powder dry if we have a tank job like we did recently and the GDX washes out again pick up some leaps on the GDX or your favorite senior. I don’t know exactly what happened in the gold market recently but all the price action is very constructive and honestly impressive. Eight all time high weekly closing prices in the past months and all the moving averages are rank stacked, ordered and rising at a 45 degree angle.
Gold is a big exhaustive topic so I’ll stop here and remind everyone gold is a central banks tier one asset and the supply demand fundamentals favor ever higher gold prices and deep into the future could end in a tulip panic mania bubble. There is no fever like gold fever when it finally infects the general public. In the age of influencers god help J Powell if the metals ever start trending on places like wallstreetbets, ticktock et al. But that is likely many years into the future. This is a good place to start accumulating.
Silver is another good speculation but is being crushed at the moment and I hesitate to recommend. I do like SILJ leaps as a speculation.