Gold And Gold Miners Price Action Friday

January performance bodes well for gold and silver…

There are many market historians and technical analysts that like to assess the outlook for stocks based upon the “January Barometer” which, in its most rudimentary definition, says that “as January goes, so goes the market” for the rest of the year. However, the late Richard Russell had it down to a science as he broke January down into segments that would allow him to assess the entire month. For example if the first week of January was up, and by mid-month it was still up, then a positive close for the month would be viewed as a “strongly bullish” omen. Now, if one of the three segments failed to confirm, it would portent a less positive outlook. In this manner, he assigned varying degrees of importance to the market’s action throughout the month rather than a cut-and-dried bullish/bearish signal on January 31rst.

Now, applying the Richard Russell formula for gold, the scorecard looks like this:

Price Direction

2017 closing price: $1,209.30

First week closing price: $1,322.30 UP

Mid-month closing price: $1,334.90 UP

Current price: $1.350.70 UP

Barring an unforeseen reversals between today and Wednesday that would knock gold below the mid-month close of $1,334.90, the “January Barometer” for gold is going to give off a solid “BUY” signal for 2018. Interestingly, this analysis gave similar signals in 2015 and 2016 and were correct as gold closed with yearly gains in both of those years despite giving back a big portion of the gains in the latter half of 2016. In January 2017, the monthly close was slightly below the mid-month close but the year was a standout year with gold adding $150/ounce over the following eleven months.

So, as I ponder the action in the metal price and then look at how the Gold Miners have behaved, the HUI has is ahead for the month at 202.24 but slightly below the mid-month peak above 207. Silver is also well ahead for the month but the juniors (GDXJ) are lagging behind the Seniors (GDX) badly and in order for me to pop the champagne cork, I need the Juniors outperforming so that it truly rings the bullish bell for “all things golden”.

For me, the Junior Miner ETF (GDXJ) has always been the bellwether for the health of the gold complex (which includes all gold products and all of the producers, developers, and explorers) because it is the junior exploration sector that is the weather vane on top of the barn that signals sunny skies or storms for the entire complex. To wit, sentiment for the space is robust when silver outperforms gold, miners outperform metal; and when juniors outperform seniors. So far, this has not been the case for the December-January rally.

One positive, however, is that volumes have surged back into the speculative sector so aptly represented by the TSX Venture Exchange and that is the kind of behaviour that creates those magical moments where the junior explorers catch serious bids. Being rewarded for discoveries has been a rarity in the past five years mainly because there haven't been very many and when they are announced, long-suffering shareholder use these "pops" as liquidity events dampening any move and creating more disillusionment. It is nice to see the return of volume to the TSXV which I take as a sign that animal spirits may be descending upon our part of the market.

The COT for the week ending Tuesday Jan. 23rd was surprisingly mundane with little change occurring but after Tuesday, loose lips that tend to sink ships were flapping madly and at cross purposes with Donald Trump, Steve Mnuchin, and Wilbur Ross all commenting on the U.S. dollar. In reality, it isn't going to matter what anyone says about the USD because every shred of domestic and foreign policy spells disaster for the currency. In fact, one of these days the USS Nimitz is going to pull into Gibraltar looking for a re-fit only to have their credit card refused. Now THAT would send a serious bid into the precious metals and a serious shockwave into stocks.

Going into the weekend, I added a small call position in the JNUG Feb $18 series at $1.45 (after selling the Feb $15 calls for $6) strictly as a punt and with the idea that the dollar decline\gold advance continues again next week and that the juniors finally begin to outperform both the metals and the Seniors. I remain of the opinion that something shifted this month and that the rotation away from blockchain and into gold will be aided by shifts away from marijuana stocks and, of course, the stock markets around the globe which continue to make new highs every week. The blizzard of printed money and conjured credit is descending upon us with unaccustomed ferocity and will eventually be seen in the HUI. Speaking of the HUI, I think it is important that everyone look at this next chart and try to imagine what the Junior and Silver ETF's might look like if the NEXT set of "new highs" were seen in the Gold Miners.

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Gold and Gold Miners

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Disclaimer:

This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.