Before their recent surge on gold regaining $1600, the gold stocks spent much of the past half-year or so largely drifting sideways to lower. That high consolidation really weighed on sentiment, with greed giving way to apathy. This sector normally tends to suffer a seasonal slump into mid-March, paving the way for gold stocks’ spring rally. That’s their second-strongest seasonal surge of the year running into early June.

Seasonality is the tendency for prices to exhibit recurring patterns at certain times during the calendar year. While seasonality doesn’t drive price action, it quantifies annually-repeating behavior driven by sentiment, technicals, and fundamentals. We humans are creatures of habit and herd, which naturally colors our trading decisions. The calendar year’s passage affects the timing and intensity of buying and selling.

Gold stocks exhibit strong seasonality because their price action mirrors that of their dominant primary driver, gold. Gold’s seasonality generally isn’t driven by supply fluctuations like grown commodities see, as its mined supply remains relatively steady year-round. Instead gold’s major seasonality is demand-driven, with global investment demand varying considerably depending on the time in the calendar year.

This gold seasonality is fueled by well-known income-cycle and cultural drivers of outsized gold demand from around the world. The seasonal gold year starts in late July as Asian farmers begin reaping their harvests. They plow some of their surplus income into gold. That’s soon followed by the famous Indian wedding season in autumn, with its heavy gold buying for brides’ dowries during marriage-auspicious festivals.

After that comes the Western holiday season, where gold jewelry demand surges for Christmas gifts for wives, girlfriends, daughters, and mothers. Following year-end, Western investment demand balloons after bonuses and tax calculations as investors figure out how much surplus income the prior year generated for investment. Then after that Chinese New Year gold buying flares up heading into February.

These understandable cultural factors drive surges of outsized gold demand between late summer and late winter. But interestingly there is one more gold-demand spike in spring. Over the years I’ve seen a variety of theses explaining this mid-March-to-early-June gold rally, but nothing definitive like for the rest of the year’s seasonality. As silly as it sounds, I suspect spring itself is the reason for this demand surge.

Sentiment exceedingly influences investing, which requires optimism for the future. Investors won’t risk deploying their scarce capital unless they believe it will grow. And the glorious expanding sunshine and warming temperatures of spring naturally breed optimism. The vast majority of the world’s investors are far enough into the northern hemisphere that spring has a major psychological impact, buoying their spirits.

While spring’s seasonal impact on gold itself is more muted, the gold stocks tend to blast higher anyway as capital floods in. That optimism fuels gold stocks’ most upside leverage to gold seasonally throughout the calendar year. If their recent gold-$1600 surge didn’t pull forward too much buying, gold stocks’ spring rally should get underway near mid-March. That usually portends outsized gains in this contrarian sector.

Since it is gold’s own demand-driven seasonality that fuels gold stocks’ seasonality, that’s logically the best place to start to understand what’s likely coming. Price action is very different between bull and bear years, and gold remains in a younger bull market. After falling to a 6.1-year secular low in mid-December 2015 as the Fed kicked off its last rate-hike cycle, gold powered 29.9% higher over the next 6.7 months.

Crossing the +20% threshold in March 2016 confirmed a new bull market was underway. Gold corrected after that sharp initial upleg, but normal healthy selling was greatly exacerbated after Trump’s surprise election win. Investors fled gold to chase the taxphoria stock-market surge. Gold’s correction cascaded to monstrous proportions, hitting -17.3% in mid-December 2016. But that remained shy of a new bear’s -20%.

Gold rebounded sharply from those anomalous severe-correction lows, nearly fully recovering by early September 2017. But gold failed to break out to new bull-market highs, then and several times after. That left gold’s bull increasingly doubted, until June 2019. Then gold surged to a major decisive breakout confirming its bull remains alive and well! Its total gains grew to 57.8% by late February 2020, still small for gold.

Gold’s last mighty bull market ran from April 2001 to August 2011, where it soared 638.2% higher! And while gold consolidated high in 2012, that was technically a bull year too since gold just slid 18.8% at worst from its bull-market peak. Gold didn’t enter formal bear-market territory until April 2013, thanks to the crazy stock-market levitation driven by extreme distortions from the Fed’s QE3 bond monetizations.

So the bull-market years for gold in modern history ran from 2001 to 2012, skipped the intervening bear-market years of 2013 to 2015, then resumed in 2016 to 2020. Thus these are the years most relevant to understanding gold’s typical seasonal performance throughout the calendar year. We’re interested in bull-market seasonality, because gold remains in its younger bull today and bear-market action is quite dissimilar.

Prevailing gold prices varied radically throughout these modern bull-market years, running between $257 when gold’s last secular bull was born to $1894 when it peaked a decade later. All those years along with gold’s latest bull since 2016 have to first be rendered in like-percentage terms in order to make them perfectly comparable. Only then can they be averaged together to distill out gold’s bull-market seasonality.

That’s accomplished by individually indexing each calendar year’s gold price action to its final close of the preceding year, which is recast at 100. Then all gold price action of the following year is calculated off that common indexed baseline, normalizing all years regardless of price levels. So gold trading at an indexed level of 105 simply means it has rallied 5% from the prior year’s close, while 95 shows it’s down 5%.

This chart averages the individually-indexed full-year gold performances in those bull-market years from 2001 to 2012 and 2016 to 2019. 2020 isn’t included yet since it remains a work in progress. This bull-market-seasonality methodology reveals that gold’s spring rally is its last push higher before the summer doldrums arrive. While this is gold’s smallest seasonal rally of the year, the gold stocks greatly leverage it.

During these modern bull-market years from 2001 to 2012 and 2016 to 2019, gold’s spring rally tended to start in mid-March on average. From that major seasonal low following the winter rally, gold often starts grinding higher before its gains accelerate through April and May. This spring rally has generally run its course by early June. Across the 16 bull years in this study, gold averaged modest spring rallies of 3.3%.

This spring rally unfolds rapidly, with an average duration of just 2.7 months. That makes it the smallest and shortest of gold’s three major seasonal rallies, falling way behind the champion 9.1% winter rally that precedes it and the strong 6.2% autumn rally that follows the summer doldrums. Nevertheless, it is still well worth trading. 3.3% gains really do make a difference, and naturally about half of years exceed this mean.

On average gold’s spring-rally bottoming occurred on March’s 10th trading day, which will be the 13th this year. If today’s seasonals stay true to form, gold will slump in the first couple weeks of March. But that seasonal pullback between the winter and spring rallies is pretty modest, averaging just 1.4% over a few weeks at most. The resulting mid-March lull in gold prices spawns an excellent gold-stock buying opportunity.

Gold’s average seasonal performances in March, April, and May during these modern bull-market years ran -0.4%, +1.5%, and +0.7%. While even April is only gold’s 6th-best month of the year, it still has an outsized impact on gold-stock prices. This has to be sentiment-driven. Optimism runs high in the spring anyway, and plenty of bullish psychology lingers following gold stocks’ strong winter rally in preceding months.

But this year’s spring gold rally definitely faces some challenges, as 2020’s gold buying so far has been precarious. It’s important to remember that seasonality defines mere tendencies over long spans of time, like prevailing tailwinds or headwinds. These can amplify or retard gold’s price action driven by its two dominant primary drivers, speculators’ collective gold-futures trading and investment-demand trends.

Unfortunately neither has been firing on all cylinders in recent months. That’s why gold has only slowly ground higher since its last upleg originally peaked in late September, despite 2020’s shocking geopolitical news. Gold should’ve soared with the US and Iran attacking each other militarily, and a terrifying potential global pandemic wreaking havoc in China. But the capital inflows to catapult it higher didn’t materialize.

Even after late February’s surge back over $1600, gold was just 6.8% higher than its initial upleg-topping levels 5.7 months earlier. Given the ominous news flow, gold should’ve blasted way higher. Its lethargic reaction is the result of gold-futures speculators not being able to materially buy, as their capital firepower was largely exhausted. And investors distracted by euphoric stock markets haven’t been interested in buying.

The spring rally’s seasonal tailwinds alone won’t be able to overcome these challenges. Gold needs to see significant-to-sizable capital inflows from speculators or investors to power higher in the next few months. Gold-futures speculators have essentially been all-in since late December, when their total longs and shorts were running 100% and 0% up into their own gold-bull trading ranges! Their buying was tapped out.

That 100% longs and 0% shorts held by these hyper-leveraged traders is the most-bearish-possible near-term setup for gold. They have little room to buy, but vast room to sell when the right catalyst hits. And the least extreme specs’ excessively-bullish gold-futures bets had become since was still 89% longs and 5% shorts in early February. These collective bets still have a lot of mean-reversion normalizing left to do!

While gold-futures speculators mostly haven’t been able to buy, investors have proven indifferent since mid-October or so. That’s when the Fed launched its extreme QE4 campaign monetizing huge amounts of Treasuries. Those colossal liquidity injections catapulted the stock markets higher, generating extreme complacency and euphoria. That has killed demand for prudently diversifying stock-heavy portfolios with gold.

It isn’t likely to return until recent extreme record-high stock markets plunge into a deep and lingering correction, or gold keeps surging fast enough to attract in momentum investors like last summer. But that seems like a long shot today with gold-futures specs’ buying power mostly expended. Without sizable capital inflows gold’s spring rally this year threatens to be muted, unless something changes to bring them back.

And as goes gold, so go gold stocks. Gold stocks also exhibit strong seasonality, which is of course the direct result of gold’s own seasonality. Since gold-mining costs are largely fixed when mines are being planned, fluctuations in gold’s price flow directly into amplified moves in gold-mining profits. Higher gold prices drive much-higher earnings for the gold miners, which attract in more investors to bid up stock prices.

The ironclad historical relationship between the price of gold, gold-mining profitability, and therefore gold-stock price levels is exceedingly important to understand. If you need to get up to speed, I wrote an essay looking at gold-stock price levels relative to gold in late January. Fundamentally gold stocks are leveraged plays on gold, and usually really outperform in the spring on gold’s seasonals and general optimism.

This next chart applies this same bull-market-seasonality methodology used on gold directly to the gold stocks. It looks at the average annual indexed performance in the flagship HUI NYSE Arca Gold BUGS Index in these same bull-market years of 2001 to 2012 and 2016 to 2019. Using the HUI is necessary because the popular GDX VanEck Vectors Gold Miners ETF was only born in May 2006, missing bull years.

That was halfway into the last secular gold-stock bull, which ran from November 2000 to September 2011. Over that long 10.8-year span, the HUI skyrocketed a life-changing 1664.4% higher on gold’s parallel 638.2% bull! Gold-stock prices naturally mirror and amplify gold action since it dominates gold-mining earnings. That’s true across entire secular bulls, within individual uplegs, and even in calendar-year seasons.

Gold stocks’ seasonal spring rally is much stronger than gold’s, buttressing that spring-optimism-drives-stock-buying thesis. Between mid-March to early June, the gold stocks have averaged hefty 11.5% rallies in these 16 modern bull-market years. That makes for exceptional 3.5x upside leverage to gold’s 3.3% seasonal spring rally! Interestingly this proves gold stocks’ best seasonal leverage to gold’s gains by far.

While the HUI averaged larger 15.2% surges during gold’s winter rally, that only made for 1.7x upside leverage to gold’s big 9.1% gain. And the HUI’s 9.0% average gain during gold’s autumn rally also only amplified gold’s 6.2% surge by 1.5x. Though the gold-stock spring rally’s 11.5% average gains rank second out of the seasonal-rally trio, it offers the most bang for the buck in gold-stock upside compared to gold!

Like gold, the gold miners’ stocks suffer a seasonal slump from late February to mid-March. That has averaged 2.7% in these modern bull-market years. So don’t get discouraged if we see a typical early-March slump in this sector. That’s usually just a mild pullback before gold stocks’ strong spring rally gets underway. Any seasonal weakness is a good opportunity to add new gold-stock trades relatively low.

The gold stocks’ post-winter-rally pre-spring-rally lull tends to bottom on March’s 11th trading day, which will be the 16th this year. From there the HUI surges 11.5% higher on average over the next 2.7 months into early June. That gold-stock spring-rally span naturally closely mirrors gold’s own. How the gold stocks fare over the next several months really depends on what the yellow metal ends up doing ahead.

If gold keeps grinding higher, its miners’ stocks should follow and leverage its gains. Gold needs to see rekindled capital inflows to pull that off. If gold drifts sideways, odds are the gold stocks will too. And if gold suffers a counter-seasonal spring selloff on gold-futures speculators dumping longs and adding shorts to normalize their excessively-bullish positions, the gold stocks will track their metal lower like usual.

But gold stocks’ spring outperformance relative to gold in any of these scenarios will certainly be justified by their fundamentals. Their Q4’19 results are being reported and this latest earnings season will wrap up by mid-March. In the preceding Q3’19, the major gold miners of GDX averaged all-in sustaining costs of $910 per ounce. With that quarter’s average gold price near $1474, that implied gold-miner profits of $564.

Those were up a staggering 36.2% sequentially quarter-on-quarter and 68.9% year-over-year! Q4’19’s results are likely to continue showing spectacular gold-mining profits growth, as average gold prices rose slightly to $1483. Assuming the GDX major gold miners’ Q4’19 AISCs are in line with their preceding four-quarter average of $897, that implies sector earnings of $586. That would be up a massive 72.9% YoY!

And so far in Q1’20, gold has averaged $1576 which makes for another big 6.3% QoQ gain. As investors figure out the stock markets’ best earnings growth is coming in this obscure contrarian gold-mining sector, that could easily fuel major gold-stock outperformance relative to gold again. This year’s outsized spring gold-stock rally could very well happen for fundamental reasons even if gold’s own spring gains remain muted.

This last chart breaks down gold-stock seasonality into even-more-granular monthly form. Each calendar month between 2001 to 2012 and 2016 to 2019 is individually indexed to 100 as of the previous month’s final close, then all like calendar months’ indexes are averaged together. Slicing up seasonal tendencies this way shows May has actually averaged gold stocks’ strongest month of the year in modern bull-market years!

During the 16 Aprils in these gold-bull-market years, the gold stocks as measured by the HUI saw average gains of 1.0%. But the lion’s share of the spring-rally gains came in May, where average gains more than quadrupled to 4.4%! For decades if not longer, May has been one of the best and most-important months to be heavily long gold miners’ stocks. Only August now manages to rival it thanks to 2019’s surge.

The key to gold stocks’ spring rally is to get your capital deployed by mid-March, when gold stocks swoon to their spring-rally bottoming. In intra-month terms the initial gains are often fast in late March as gold stocks rebound out of their seasonal lull. But then the spring rally tends to slow down in mid-April, which invariably discourages impatient and short-sighted traders. The real gains come in May, when gold stocks surge.

Of course the standard seasonality caveat applies that these are mere tendencies, not primary drivers of gold or gold stocks. Seasonal tailwinds can be easily drowned out by bearish sentiment, technicals, and fundamentals. Seasonality doesn’t always work, especially when it doesn’t align with the primary drivers of sentiment, technicals, and fundamentals in that order. That casts this year’s spring rally into some doubt.

Ultimately gold stocks will follow gold, since their earnings amplify changes in its price. If gold-futures speculators start selling en masse to normalize their excessively-bullish positions, that will certainly force gold lower. If investors enamored with recent Fed-levitated stock markets don’t resume consistently buying gold, it’s not going to rally. If gold is sufficiently weak in coming months, gold stocks will follow it lower.

But if gold can hang in there and consolidate high, or better yet rally on resurgent investment demand, the gold stocks should enjoy excellent spring-rally gains. The major gold miners’ earnings are soaring in a market where profits growth is getting harder to find. As American stock investors figure this out, this small contrarian sector will see major capital inflows catapulting gold-stock prices much higher in years ahead.

The key to riding any gold-stock bull to multiplying your fortune is staying informed, both about broader markets and individual stocks. That’s long been our specialty at Zeal. My decades of experience both intensely studying the markets and actively trading them as a contrarian is priceless and impossible to replicate. I share my vast experience, knowledge, wisdom, and ongoing research through our popular newsletters.

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The bottom line is gold stocks often experience a strong spring rally seasonally. This is driven by gold’s own seasonality, where outsized investment demand arises at certain times during the calendar year. Gold usually enjoys a solid spring rally likely fueled by the universal optimism this season brings. And since gold drives gold miners’ profitability, their stock prices naturally follow it higher while amplifying its gains.

Unfortunately this year’s potential spring rally is more clouded than usual. Speculators’ positioning in gold futures remains excessively-bullish, their buying firepower largely expended. And investors have been ignoring gold to chase recent record-high stock markets. But if gold can consolidate high or push even higher, the gold stocks will likely surge to outsized gains this spring as their profits growth dazzles investors.

1.  The US stock market is in “sleigh ride” mode against gold stocks.
2. Please click here now.  Double-click to enlarge this chart.  Yesterday was another day of disappointment, fear, and outright terror… for most investors who are locked in the Dow versus GDX sled.
3. The disintegration of the US stock market against GDX began long before Corona started, and it will likely continue long after a vaccine (real or purported) is announced.
4. Please click here now.  While Trump’s “poster boy” stock market tumbled 1000 points yesterday, he wore a gold tie in India but said absolutely nothing about the need for investors to own the world’s greatest metal.
5. This, while Goldman analysts cut their US GDP growth forecasts for 2020 Q1 to 1%.
6. Indian government tariff taxes on gold have put millions of Indians on the bread line, destroyed hundreds of thousands of businesses, and ruined citizen morale.
7. Sadly, it’s unknown whether Trump is wearing a gold tie to show his appreciation for gold, or because he loves the Indian government’s barbaric tariff taxes on it.
8. What is known is that there is no US Treasury buy program for gold now, and none appears to be forthcoming.
9. Please click here now.  The hands on the debt clock have spun to $23.380 trillion as of this morning, yet none of the US presidential candidates show any interest in reducing the horrifying size of the government.
10. That debt and government size obsession is what has created the Dow versus GDX sleigh ride chart, and it’s creating an acceleration in downward momentum now.
11. Corona is simply a new problem that governments will try to solve… by adding even more debt to a gargantuan pile.
12. Please click here now. Double-click to enlarge this spectacular GDX chart.  This chart shows overnight trading in addition to the regular NYSE day trades.
13. A breakout would occur from an immense base pattern… with a weekly close over $32.
14. That close seems imminent, target the $50 price area, and it would be probably be accompanied by complete disintegration of the US stock market against gold stocks.
15. I issued a short-term sell signal for gold stocks at my https://guswinger.com leveraged ETF gold stock trading service early yesterday morning.  Traders booked juicy profits and are hungry for more!  As expected, by yesterday afternoon, gold stocks were in substantial “recoil mode”.
16. That’s only a focus for the short-term trader.  Investors should be buyers of all pullbacks, in preparation for what should soon be a glorious breakout and surge to $50, and higher, for GDX.
17. Please click here now. Double-click to enlarge what may be the best looking chart in the world right now: silver.
18. Note the long tail on the current candlestick.  That’s positive.
19. I urged investors to buy around the right shoulder low of this spectacular inverse H&S bull continuation pattern, with an optional stop at $17.15.
20. That stop could be raised to $18.15 now, and silver can be bought again today.
21. Please click here now. Double-click to enlarge this weekly GDXJ chart.
22. GDXJ is called a junior gold stocks ETF, but it’s mainly comprised of intermediate producers, making it an ideal investment vehicle for a lot of gold bugs.
23. A weekly close over $53 would target the $90 price zone.  Short-term traders can play it with JNUG, and investors can buy the ETF and/or some of its component stocks.
24. Like GDX, GDXJ is crushing the Dow.  A breakout over $53 would probably create a scenario where a GDXJ elephant is stomping on a rancid US stock market tomato… but really, that’s already happening now!

1.  The decline of the American empire continues relentlessly. The citizens look towards their government for guidance and all they see is maniacal debt worship.  Monkey see…monkey do:
2. New statistics show that credit card debt of millennials now rivals total student loan debt.
3.  Please click here now. The nation’s so-called “leaders” now appear to function mainly as debt clock operators.
4. They look like deck hands on a titanic ship of debt.  There are gaping holes in the hull, but the focus is on “making growth great” by loading the overloaded ship with even more crates of debt.
5. The US government seems obsessed with providing debt-oriented welfare handouts to banks, the military, and stock market investors.
6. Anyone poor who gets sick is told they don’t need medical welfare, but they will be miraculously healed if they put all their savings into the stock market. 
7. Please click here now. The growth rate of Corona cases outside of China is alarming.  Corona is widening the horrifying path of destruction created by the debt virus.
8. “It is big. It’s going to paralyze China. It’s going to cascade throughout the global economy…We should pay more attention to this. And we should try and resist our inclination to buy the dip,” -Mohamed El-Erian, chief economic advisor for Allianz, Feb 3, 2020.
9. Please click here now. Double-click to enlarge this US stock market chart.
10. While debt and Corona spiral out of control, America’s leaders waste time drafting legislation to encourage citizens to invest their savings into the stock market… after a ten-year bull run!
11.  What do India’s citizens think about the situation?  For the answer to this key question, please click here now. When the going gets tough, the tough get going, and go for the gold!
12. When Indians engage in fear trade (ETF) buying rather than love trade (jewellery) buying, it’s a major red-light signal for the world’s risk-on markets.
13. Please click here now. Double-click to enlarge.  The world’s “Queen of Assets” is breaking out to the upside from a beautiful symmetrical triangle pattern.
14. My $1670 target zone could be hit quite quickly as governments race to print and borrow money to support stock markets and stop already-pathetic GDP growth numbers from turning negative.
15. I’ve urged investors to drop the fantasy that the US government will make them great with more spending and more debt, carry lighter positions in the stock market, and add some bullion for comfort.
16. It’s plain common sense, given the late stage of the business cycle, global obsession with debt, and the rise of Corona.
17. The bottom line: The citizens of India understand, but does anyone else?
18. Please click here now.  Double-click to enlarge this spectacular silver chart.  I’ve highlighted an impressive inverse H&S bull continuation pattern, and both investors and stop loss enthusiasts are getting some great entry opportunities.
19. Note the bullish volume pattern at the bottom of the chart.  As Corona worsens globally, governments and central banks will resort to what they do best: printing and borrowing more money.
20. Trump’s tariff taxes pounded the global economy but the Fed bailed him out with a blast of rate cuts and “QE that is not QE”.  Now, Corona could be the final nail in the GDP growth coffin.
21. The IMF chief predicts that China will have a V-shaped recovery from the virus, and growth will surge towards 10%.  That’s possible, and it would create enormous love trade demand for gold and silver.
22. Unfortunately, it’s too early to predict the end of Corona.  I also think that while the QE and interest rate policy “welfare programs for the rich” have created a stock market that no longer represents the mainstream economy…governments and central banks can still print and borrow enough money to promote a higher priced stock market.
23. Gold bullion will remain the star of the global assets show until stock market analysts become convinced that no matter how horrible earnings and GDP growth becomes, they will get bailed out with more QE and lower rates.
24. Until that happens, my focus in my https://gracelandjuniors.com newsletter is helping investors pick individual stocks that are leaders of the pack.  Once the bailout view becomes universal, mining stock ETFs like GDX, GOEX, GDXJ, and SIL will stage upside breakouts, and join individual leaders and gold bullion in major bull runs.

1. To view the only virus more concerning than Corona, please click here now. The global government debt virus!
2. In America, the government’s debt to GDP ratio is now three times the level it was when Ronald Reagan got elected.  Simply put, Donald Trump doesn’t have the wiggle room that “Jellybean Ron” did… to ramp up debt, produce GDP growth with that debt, and then claim all the growth came from tax cuts.
3. Poor demographics and global de-dollarization put additional pressure on any attempt to use debt to produce growth today.
4. The good news is that Trump seems aware of the situation, and he’s adding to debt only at a moderate pace.
5. The bad news is that the absolute level of debt is so high that even moderate increases in debt are producing no additional growth. 
6. The bottom line: Reagan was able to produce a dollar of GDP growth with fifty cents of debt growth.  He had great demographics, the biggest rate cutting cycle in US history, and numerous other tail winds at his back.
7. That’s no longer the case, and the debt clock shows the situation is getting worse every day.
8. Please click here now.  Many gold analysts feel the US stock market is at risk of a crash, and they feel the Corona virus is the black swan that could make it happen.
9. In contrast, I’m on record stating the dollar is the major market at risk and already in downside play, not the stock market.  I see the US private economy as relatively healthy, while government is infected with a horrifying debt virus that threatens to kill the dollar.
10. Please click here now.  Stock market crash enthusiasts should keep a close eye on this key chart.
11. I’ve highlighted most stock market swoons and it’s very rare for the stock market to crash without a Fed rate hiking cycle in play.
12. Stock markets aren’t the real economy, although governments like to use them as “poster boys” for growth.  The US stock market rises and falls mainly on the actions of the Fed, and the Fed is very dovish now, after throwing in the towel on an attempted normalization of rates.
13. A stock market decline is possible but not too likely until the Fed begins a fresh hiking cycle, while a continued meltdown of the dollar against gold is a near-certainty.  The bottom line:
14. With Corona “on deck”, is the Fed likely to hike now?  No!
15. Please click here now. Double-click to enlarge this exciting daily gold chart.  There’s a flag-like pattern in play, with an upside target of at least $1670.
16. Tuesdays are generally soft days for the gold price, but I don’t think investors should be concerned about any of the minor pullbacks within the flag pattern.
17. I view the entire $1570-$1520 zone as a buying area, with a focus on the miners more than bullion.
18. Please click here now. More government debt and more Fed liquidity just produces more debt rather than growth.
19. Corporate boards are incentivized to borrow more money to do stock market buybacks rather than invest in business expansion, government talks growth while sinking deeper in debt, and gold outperforms everything.
20. This is the world of today… and it’s here to stay!
21. Please click here now. Double-click to enlarge this GOAU ETF versus Dow ratio chart.
22. Gold stock investors certainly aren’t “missing out” on anything offered by the US stock market.  The price action of gold stocks is solid.
23. The gains from the 2018 summer low to the 2019 summer high have been mostly retained, and against the dollar GOAU looks spectacular.
24. On that note, please click here now.  Investors should buy the $15 area, buy a breakout over $18, but right now the operational word is… enjoy!

The silver miners’ stocks are looking interesting. While they really lagged silver’s surge on gold’s bull-market-breakout rally last summer, their upleg since remains intact. Gold stocks’ own upleg peaked in early September. And silver itself remains wildly undervalued relative to gold, overdue to mean revert dramatically higher. When that happens during gold’s next upleg, the silver stocks have big potential to soar.

Like the global silver market is vastly smaller than gold’s, silver stocks are a proportionally-little fraction of the precious-metals miners. As a small subset of a usually-ignored contrarian sector, the silver stocks often languish in obscurity. For decades there wasn’t even a silver-stock index, making sector analysis difficult. Thankfully that changed in April 2010, when the first silver-stock exchange-traded fund launched.

The SIL Global X Silver Miners ETF has maintained a first-mover advantage ever since, functioning as a silver-stock index despite its flaws. This week SIL’s net assets ran $525.4m, 3.6x bigger than its next-largest competitor’s. All 3 silver-miner ETFs trading in the US only have $763.6m of capital. Compare that to the 11 US-traded gold-miner ETFs, which command net assets a massive 27.3x bigger at $20,849.1m!

Every few months I analyze the latest quarterly results of the major silver miners included in SIL. That’s where this sector benchmark’s limitations really become apparent. With Q4’19 results still coming out over the next month or so, Q3’19 remains the latest reported quarter. And that continued to show major silver miners increasingly diversifying into gold production. Recent years’ low silver prices necessitated this.

SIL’s top 17 silver miners dominating this small ETF at 93.9% of its total weighting averaged just 40.4% of their Q3’19 revenues from silver! The majority of their sales came from gold, with some base metals mixed in. Gold’s far-superior cashflows have greatly helped traditional silver miners weather their metal’s long slog deeply out of favor. But lower silver exposure also retards these miners’ sensitivity to silver-price moves.

The more gold the major silver miners produce, the more they trade like gold stocks amplifying that metal’s trends. The secular yellowing of this sector definitely casts a pall over silver stocks’ potential. But most investors and speculators still remember these companies as primary silver miners. And since there aren’t many major silver miners left anyway, capital will pour into them again as silver’s next upleg powers higher.

I’ve written much about major gold stocks in recent months, and despite remaining really undervalued relative to gold they are wavering technically. The leading and dominant GDX gold-stock ETF peaked in early September, and hasn’t been able to regain those highs since. That’s despite gold surging to new secular highs of its own on geopolitical fears, the US-Iran conflict flaring and China’s coronavirus outbreak.

Usually the silver stocks mostly follow the gold stocks for several reasons. Again the majority of the big silver miners’ revenues now come from gold. And silver’s primary driver is gold, silver only powers higher when gold itself is. Finally the traders interested in silver stocks are a subset of the contrarians interested in gold stocks. So for the most part, silver and thus its miners’ stock prices are effectively slaved to gold.

Thus I don’t write about this small realm often, since silver’s fortunes are directly dependent on gold’s. Generally as goes gold, so goes silver and its miners’ stocks. But SIL’s recent performance has really diverged from silver’s, gold’s, and GDX’s! I’ve been watching this chart superimposing SIL over silver with growing interest recently. The silver stocks are faring much better than they ought to in this situation.

Back on September 4th, a silver-stock upleg peaked in concert with silver, gold, and the gold stocks as measured by GDX. SIL crested at $32.22 that day, driven by silver hitting $19.59. While the major silver stocks had blasted far enough to catapult SIL 46.6% higher in 3.3 months, that was a disappointing silver-stock upleg. In that same short span silver itself soared 36.6% higher, so silver stocks’ leverage was terrible.

Naturally silver stocks are far riskier than silver itself, bearing all kinds of operational and geopolitical risks in addition to silver-price risk. Thus silver stocks are only worth trading if their gains amplify silver’s when it enjoys bull-market uplegs. A case in point is this silver-stock bull’s maiden upleg mostly in the first half of 2016. SIL skyrocketed 247.8% higher in 6.9 months, leveraging silver’s advance in that span by 6.1x!

Given the risks inherent in highly-volatile silver and its miners, I need to expect leverage running at least 3x to deploy capital in this sector. Silver stocks were so disappointing when the precious-metals sector peaked in early September because SIL had merely amplified silver’s own gains by 1.3x. That’s nowhere near enough to compensate traders for the miners’ serious additional risks beyond their underlying metal’s.

Silver crested then because gold did, which in turn peaked because speculators’ gold-futures positioning had grown excessively bullish. After studying and trading silver for decades, I’ve found it mostly acts like a gold sentiment gauge. When gold is consistently rallying, traders increasingly flock to silver forcing its price higher. But these capital inflows wane when gold tops out, and reverse to selling as gold retreats.

Since those normal precious-metals upleg toppings in early September, silver has ground sideways to lower. While silver surged with gold starting with the latter’s late-December downtrend breakout, silver didn’t follow gold to new upleg highs. Silver’s rallies on that flaring US-Iran conflict in early January and the Chinese coronavirus outbreak in late January proved very muted compared to gold’s major new highs.

Silver was right back to lagging gold again, a vexing trend that has endlessly frustrated the silver-stock traders in recent years. With the white metal really underperforming the yellow one, silver-stock prices should’ve mirrored silver’s disappointment. But they didn’t. As this chart shows, the major silver stocks as measured by their leading SIL benchmark are continuing to gradually climb in an extended upleg!

Unlike the GDX major gold stocks which failed to eclipse early-September’s original peak, the SIL major silver stocks hit new upleg highs in late December. As silver surged on gold’s downtrend-breakout rally starting on Christmas Eve, SIL blasted up to a new upleg high of $33.32. That extended silver stocks’ upleg to 51.6% gains over 7.0 months, making for greatly-improving 2.1x upside leverage to their metal!

Silver stocks’ upleg remains intact, with SIL meandering higher mostly within trend since last summer. So from a current-technicals standpoint, the silver stocks are looking better than the gold stocks these days! That’s really unusual, and suggests enthusiasm for and capital inflows into the traditional major silver miners’ stocks are stealthily mounting. That portends a flood of buying as silver’s next bull-market upleg begins.

Arguably silver stocks deserve to keep advancing relative to the metal they mine, because their original upleg was prematurely killed by gold at such anemic gains. They still haven’t reasonably reflected silver’s full advance between late May’s deep lows and today’s levels. So a continuing catch-up rally is certainly warranted. And silver’s bull itself is likely to grow massively bigger in coming years for similar reasons.

Again technically silver is a leveraged play on gold. Capital floods into silver when gold gets consistently bought. Higher gold prices considered sustainable motivate investors and speculators alike to buy silver and its miners’ stocks. Silver’s tight technical relationship with gold over the decades is both indisputable and ironclad. And today’s silver prices are wildly undervalued compared to current prevailing gold levels!

This next chart quantities silver’s relationship with gold through the Silver/Gold Ratio. As dividing silver’s daily closes by gold’s yields tiny hard-to-parse decimals, I prefer to consider this SGR in inverted-Gold/Silver-Ratio terms which is identical. Ever since this silver bull’s maiden upleg peaked in early August 2016, silver has been losing ground relative to gold on balance. Silver psychology has been miserably weak.

In that first chart above you may have noticed SIL plunged in Q2’19, hitting a deep 3.3-year low. That temporarily interrupted a longer upleg. The reason the major silver miners plumbed such ugly depths is silver itself was collapsing while gold remained fairly stable. Late last spring before gold’s breakout to its first new bull-market highs in several years, traders were wholesale abandoning the precious-metals realm.

Silver plunged so fast relative to gold that the SGR hit an unbelievable 93.5x in early July! That meant it took 93.5 ounces of silver to equal the value of a single ounce of gold. That was an apocalyptic 26.8-year secular low! Silver was languishing at its worst price levels compared to its primary driver in well over a quarter century. Such monumental extremes are exceedingly rare, resulting from unsustainable psychology.

With silver stuck in the $14s and virtually everyone assuming it would keep spiraling lower, naturally the silver miners’ stocks were shunned. The major silver miners of SIL were still technically profitable, averaging all-in sustaining costs of $11.51 per ounce in Q2’19 while silver itself averaged $14.88 that quarter. But margins were squeezed and these companies weren’t earning enough to compensate for their big risks.

Yet history has proven that extreme silver levels relative to gold never last long. The extreme fear and apathy plaguing silver was maxed out, everyone interested in selling soon was already gone. With selling exhausted, buying soon had to return. And it did as gold’s late-June bull-market breakout fueled enough momentum to sustain a major upleg. Silver rocketed higher at double gold’s speed in the next 2.5 months.

Silver’s relative outperformance blasted the SGR back up to 79.3x on that early-September day when the precious metals peaked. Powerful mean reversions higher are normal for silver after it has been beaten too low relative to gold. Had gold’s own upleg ran a few more weeks before speculators expended their capital firepower and stopped buying gold futures, silver’s outsized gains would’ve continued blasting the SGR higher.

Since mid-December 2015 when today’s secular gold and silver bulls were born, the SGR has averaged 78.8x. So silver price levels didn’t even return to bull averages relative to gold before it prematurely killed silver’s still-young upleg! All silver’s lost upside potential remains, as it didn’t climb far enough relative to gold. And since silver’s upleg peaked, the SGR has again fallen off a cliff as silver lagged gold’s upside.

Because silver sentiment stayed bearish, silver certainly didn’t proportionally mirror gold’s latest new highs on China’s coronavirus breakout. So by late January, the SGR had collapsed all the way back down to 90.0x. That’s not far above last summer’s extreme quarter-century-plus lows. And remember they helped unleash silver’s last upleg. Silver still needs to mean revert far higher relative to today’s gold prices!

So far in Q1’20, gold has averaged $1561. If silver merely returned to that low SGR-gold-bull average at 78.8x, that implies silver at $19.81. That would be a new secular high exceeding late September’s peak levels. And with silver approaching the psychologically-heavy $20 level, there’s no doubt traders would flock back to silver stocks. SIL would explode higher, hitting major new highs in this extended upleg.

If silver regained that 65.9x SGR seen in the summer of 2016 when this bull’s maiden upleg peaked, that would yield $23.69 silver at this quarter’s prevailing gold prices! That would be a major new silver-bull high well above August 2016’s $20.56 bull-to-date peak. The capital that would deluge into this tiny silver-stock sector at such silver prices would be massive, catapulting these stocks to amazingly-huge gains.

And even at such an SGR mean-reversion overshoot relative to this silver bull, this metal would still remain very undervalued relative to gold historically. For many years the SGR meandered around 55.0x, so recent years’ low levels were a serious anomaly. That implies $28.38 silver even at today’s gold levels, let alone where gold goes in its next major upleg. The SGR is likely to overshoot that historical mean too.

Because the world silver market is so small, this metal is the quintessential speculation. Rarely silver enthusiasm morphs into such extreme greed and bullishness that its price rockets parabolic. Much like the insane Tesla stock run this year, traders rush to buy high as they foolishly extrapolate such extreme gains into the indefinite future. Silver last shot parabolic in a near-popular-mania in late 2010 into early 2011.

The higher and faster silver soared, the more investors and speculators wanted to buy it. That forced the SGR as high as 31.7x! At this quarter’s average prevailing gold price of $1561, such bullish-extreme SGR levels would yield a silver peak of $49.24. If silver powers back up to $30, $40, or higher later in this gold bull, the ultimate gains in the handful of major-silver-miners’ stocks will likely prove life-changingly huge!

Contrarian traders who buy in low and are fully deployed during silver’s rare parabolic ascents can multiply their capital many times over in less than a year! These epic gains are why traders put up with silver’s long dull years between such parabolic surges. Silver stocks’ upside potential is big, if not enormous, as silver inevitably mean reverts higher relative to gold. That’s almost certain to happen in coming years.

That being said, don’t jump the gun on deploying. Silver is effectively slaved to gold, and the situation in gold futures since late December has been even more extreme than it was in early September! These hyper-leveraged traders are effectively all-in, with their long upside bets pretty much maxed based on precedent and their short downside bets as low as they get. If gold rolls over into a correction, silver will follow.

A 10% gold retreat would likely force silver around 20% lower. Considered from its upleg peak in early September, that would hammer silver back to the mid-$15s. So if a gold correction is still coming, investors and speculators will enjoy far-better prices to deploy capital into the major silver stocks. They and thus SIL could easily fall 20% to 30% from current levels. So it’s prudent to be patient and wait for now.

While silver remains wildly undervalued relative to gold, and the silver stocks are still cheap compared to even recent silver prices, silver is never immune to material gold selloffs. But given this setup, silver will almost certainly well-outperform gold in its bull’s next upleg. And the resulting gains in the major silver miners should trounce those seen in the major gold miners. SIL’s upside potential greatly trumps GDX’s.

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The bottom line is silver stocks have big upside potential. While their upleg last summer was truncated prematurely when gold initially peaked, that uptrend subsequently resumed. SIL defied silver relapsing into again underperforming gold, making new upleg highs in late December. So unlike major gold stocks, major silver stocks’ upleg remains intact. That implies traders’ silver-stock demand is stealthily mounting.

Greatly boosting this sector’s upside potential, silver is still wildly undervalued relative to prevailing gold levels. Not far above last summer’s quarter-century-plus lows, silver has rarely been cheaper relative to gold. This extreme anomaly can’t last, meaning silver has to far outperform gold in its bull uplegs to mean revert way higher. Silver stocks will soar on that! But gold likely still faces a correction before its next upleg starts.

Are gold miners poised to begin a long period of outperformance against gold?

1.  I’ve argued that most gold stocks peaked against gold bullion in 2006.  GDX $31 and GDXJ $46 are my “launchpad” numbers for a major new bull run, a run that could last for decades.
2. Please click here now. Schroders fund manager James Luke believes the miners peaked in 2005.
3. He argues that the company managers and directors believed the “hubris” of much higher gold price predictions that were made in 2010-2011.  They spent too much money on expansion while cash flow cratered.
4. My view is that gold was heading to their projected prices, but a sudden Indian import duty ramp-up was unforeseeable and halted the rally.  The duty hikes crushed gold demand and economic growth in the world’s most important physical gold market.
5. Conspiracy buffs would also argue that the “banksters” on the COMEX stopped gold from going to the higher prices that company managers were projecting.
6. Regardless, free cash flow is the focus of most institutional investors.  To view its importance through the eyes of James Luke at Schroders, please click here now. Cash flow bottomed in 2015 and is now rising steadily.
7. James makes a strong case that “Opex” deflation is going to fuel a gold stocks bull run against bullion.  He argues that stagnation in global growth is creating lower operating costs for miners.
8. I’ll note that AISC (all-in sustaining costs) numbers are now generally dropping or rising less quickly than the price of bullion.
9. Please click here now. Double-click to enlarge what I call the “Sleigh Ride” chart.
10. The Dow peaked against GDX in 2018, and it has been in a horrifying downtrend since then.  Interestingly, most analysts have spent the past few years bragging about how “mighty and awesome” the US stock market is, but against gold stock ETFs like GDX and GOAU, the Dow’s performance is sickening.
11. Please click here now. Double-click to enlarge.  On the weekly chart, the price action is even more disturbing.  The bottom line:
12. The Dow appears to have completed a massive H&S top pattern against GDX.  It looks ready to drop “into the abyss”.
13. “Coronavirus will likely become a pandemic, warns ex-FDA commissioner Scott Gottlieb” – CNBC News, Feb 3, 2020.
14. US stock market investors are trying to maintain morale as their “poster boy” stock market craters against GDX and the Corona virus threatens to create a global economic growth implosion.
15.  Please click here now. Double-click to enlarge.  A double top pattern may be forming on the Dow.
16. Double tops occur when investor greed is at high levels.  The ensuing declines tend to be emotionally destructive.  Stock picking will become much more important if the general market begins a major swoon.
17. US government debt and spending are at all-time highs, but since it is “Trump debt” and “Trump spending”, all is supposedly well, according to most republicans.  Clearly, all is not well.
18. Goldman analysts predict that Corona will hammer an already pathetic US GDP growth rate.  Total American GDP growth was generally estimated to increase by about $400 billion in 2020, with government debt set to rise by a whopping $1 trillion… and that was before Corona arrived!
19. Is it any wonder that the Dow versus GDX sleigh ride charts look as horrific as they do?
20. A global growth meltdown will only spur analysts like James Luke at Schroders to increase their free cash flow projections at key gold mining companies.  Since Corona appeared, operational cost deflation for the miners is accelerating dramatically!
21. Please click here now. Double-click to enlarge this exciting GOAU ETF chart.  For mainstream investors, a portfolio of 50% fixed income, 30% stock market ETFs, and 20% gold stock ETFs… is probably ideal.
22. For gold bugs, the allocation to gold stocks can be much higher.  GOAU is the newest and most exciting gold stock ETF.  I’m a light buyer at $16.50, and a much bigger buyer at $15.
23. Breakout enthusiasts need to watch the $18 area carefully. It is similar to the key “lines in the bull era sand” at $31 for GDX and $46 for GDXJ.  Investors are on the cusp of a gold bull era that will be dominated by a mining stock free cash flow surge!