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Calling It

I've been saying for weeks that we are at a broad bottom, that the worst of the pummeling is over.

My certainty has increased since Nov. 5th, when the price of gold and the Venture index both hit multi-year lows.

The Venture closed at 747 points on Nov. 5th, its lowest since late 2008, the worst point of the global financial crisis.

Gold closed at US$1142 per oz. on Nov. 5th, its lowest point since spring 2010.

In the seven trading days since, the Venture gained 4%. Gold also gained 4%, muc of that on Friday.

From here, shifts down will be minimal compared to the big picture. Important in that big picture is:

  • 1.The loss to date. The Venture is down 78% from its 2007 high, down 64% from its 2011 high. Gold is down close to 40%. Silver is off 66%. Copper has lost 32%. Metallurgical coal is off 60%. These are big losses.
  • 2.The gain to come. The rebound will not be one smooth ride to riches. It will come in fits and starts, in lulls and accelerations. But it will happen. And it will push metal and equity prices way up compared to where we are today.

Why now?

I have had a list of stock symbols sitting beside my keyboard for weeks. Every day I checked each, trying to pinpoint the best moment to enter.

As gold fell, as major boards corrected and then rebounded, my bottom fishing picks bounced around. What looked like the start of a recovery one day would turn back around the next.

November 5th stood out immediately. Gold hit a 55-month low, the Venture a six-year low. Such events have the potential for significance.

But the falls could have continued. Significance only solidifies with time.

Wait too long, though, and you miss the chance to profit.

So I spent all my time last week checking and assessing, researching and watching. And from what I see, Nov. 5th was significant. It was the bottom.

I called it in general terms that day, when I published an article called Third Time's A Charm about how I was not going to miss out on the metals rally about to begin.

A few charts to carry my point that Nov. 5th was it.

The Gold BUGS index (HUI in New York), which comprises 15 of the largest and most widely held gold producers, fell to an 11-year low on Nov. 5th. Over the last 50 days HUI is down 36.4%. In the last 20 years only once did it fall more precipitously: during the financial crisis.

Junior gold stocks are faring even worse. The Market Vector Junior Gold Miners ETF (GDXJ in New York) fell 43% in the 50 days leading to Nov. 5th. It is now trading at the lowest level relative to its 50-day moving average since it was created in late 2009.

So gold equities, from large to small, are way down. So is gold – importantly, it is definitely in bear-market-bottom territory:

As Jordan Roy-Bryne of TheDailyGold explained so well, bear markets are a function of price and time. The most severe bears in terms of price are the shortest in duration; the longest bears have the least price pain. The current gold bear market falls somewhere in the middle and, from the looks of Roy-Bryne's chart, is at or very close to its bottom.

Silver is even closer – as Roy-Bryne put it, the silver bear chart "makes a strong case that the current bear will end very soon."

Enough with charts – on to news.

A couple notable events are aligning with this bottom and should help propel gold up.

1. Russia

Putin is collecting gold. Russian central bank gold purchases are up 50% this year compared to 2013 and 2012. The reasons are general (gold is a hedge to the US dollar, which Putin would love to see fail; Russia's new BFF, China, also loves gold; the rouble is collapsing) and specific (Ukraine-related sanctions mean Russian banks can't sell gold so they've stopped buying, forcing the central bank to step in and buy up all of Russia's domestic output).

The results are:

  • Tight market gets tighter: global gold supplies are already stretching to meet demand after all the curtailments and cutbacks of recent years. Removing Russian supply tightens a tight market.
  • With his Central bank forced to accumulate gold, Putin has even more reason to want higher gold. And don't underestimate Vladimir. He spent the weekend expelling German and Polish diplomats. The guy is on a rampage.

2. China and India still love gold

The World Gold Council claims Chinese gold buying in the third quarter plummeted 37% year-over-year to 183 tonnes.

That is simply wrong.

China is the largest gold producer in the world and doesn't export, so Chinese demand is domestic production plus imports. It used to be that all of China's gold imports flowed through Hong Kong, but seven months ago China started accepting imports directly into Beijing.

Now, instead of watching Hong Kong to track Chinese demand, we have to monitor withdrawals from the Shanghai Gold Exchange. Those numbers show a China still in love with gold – and taking advantage of low prices to buy.

Like, how about Q3 demand of 480 tonnes – several times the Gold Council's 183-tonne number?

Demand is strong in India too. Indians love gold and know to buy it when it's cheap, which explains the near 40% increase year-over-year in gold demand in the latest quarter.

It seems trite to remind, but China and India are home to 2.6 billion people. A third of the people in the world are still in love with gold, just as low prices are limiting supply

3. Dollar – Euro directions

If gold is going to reverse, the dollar needs to stop climbing. I am no US dollar expert – but others who are think the dollar may have topped out and the euro bottomed. Gary Savage analyzed those charts here and decided on Friday that "the metals rally should begin next week."

He will be certain of this if (1) gold miners move up 7 to 10% this week, signifying the end of the capitulation and smart money moving in and (2) the Euro starts to rally, limiting the dollar's ascent. Today miners are about even and the Euro is up a touch.

4. Record junior volumes

GDXJ saw record volumes last week, which suggests capitulators were ditching stock – and opportunists picking it up.

5. Seasonality

The biggest days for tax loss selling usually come in December, but I think gold's late-October dive sparked a more general capitulation that spurred many to sell their tax loss holdings early.

6. Switzerland

On November 30th Switzerland will hold a popular vote asking whether the Swiss National Bank should be required to permanently retain at least 20% of its assets in gold at home.

At present the SNB holds about 7% of its assets in gold, so a Yes vote would compel the country to triple it holdings. The SNB and the Swiss government are opposed to the proposal but the race is close: latest polls show 44% Yes, 39% No, and 17% Undecided.

A bid for 2,000 tonnes of gold – that just might push the price upwards.

7. Big Bank gold manipulation charges

Charges against UBS last week confirmed what watchers have suspected for years: that the big banks manipulated the gold price.

As part of the massive currency-manipulation investigation, proof was uncovered that traders had been using the gold fix – a twice-daily conference call between five major banks to determine the price that moment – to front run gold.

As a result, after a century at the center of the gold pricing world, the gold fix system is out, to be replaced by an electronic platform operated by U.S. bourse Intercontinental Exchange.

Less manipulation, a more transparent pricing process – it can't but help the price of gold in the long run. In the short term, UBS is the only bank charged to date. Charges against other banks are coming and, before they hit, those banks will be out buying gold to cover their shorts.

Whew. If you got lost in all that, the short version is: all signs point to a bottom and world events point to support for higher gold.

So what to buy?

I sent out my initial list of Bottom Picks to my subscribers on Friday. It included two low-cost gold producers with manageable debt levels, two near-term developers with straightforward and economically robust projects, one early-stage gold explorer, and a project generator.

I bought last week. I will buy more this week. My list of picks will also get longer.

Now is the time to position. If you want guidance on the best buys, click here.

EDITORIAL POLICY AND COPYRIGHT: Companies are selected based solely on merit; fees are not paid. This document is protected by copyright laws and may not be reproduced in any form for other than personal use without prior written consent from the publisher.

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I am 74 years old and despite my age, my risk tolerance is still considerable. I like base metals, but most of all I like the mine stocks you cover in your Maven letter. Thanks again for your kindness and congratulations on your work.

-RC (January 2022)

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You always tell it like it is, no bull****, you say when you buy or sell, and not leave the reader wondering what you actually mean. Having a Portfolio update regularly also helps so much. Really, you're the best!

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