Gold/Silver: Brief Pullback Then Higher

July 16, 2020
MBA, Market Analyst & Author @ The Mining Stock Journal

The market will always from time-to-time remind us that nothing goes straight up in the stock market. The mining stocks, especially the riskiest juniors, have had huge run since mid-March. The HGNSI (Hulbert Gold Newsletter Sentiment Index) has been a remarkably reliable contrarian signal for mining stocks over the years. Sell/take profits when it moves above 60 and buy with both hands when it goes below 20.

The HGNSI has pushed up to 86% last week (86% of gold newsletters have buy recommendations). Mark Hulbert commented that “the HGNSI jumped today in concert with gold, and now stands at the 99.8th percentile of the distribution since 2000; the HGNSI’s current level represents extreme bullishness.” The latest reading (July 15th) is 76 – still too high to be aggressive with positioning.

A red flag for me is when a bullion bank like Goldman Sachs sticks a $2,000 price target on gold. Why $2,000? Why not $2,500? For me, the HGNSI and bullish price targets for gold from Wall Street banks after a big move has occurred already is a signal to take some profits or hedge my mining stock portfolio.

With the massive scale of fiat currency devaluation – aka money printing or “QE” – there’s an “invisible hand” of economics that seems to have, for now anyway, put a floor under the gold price. Add to that the enormous appetite for physical gold imports from India, which was the equivalent of waking up a starving elephant when quarantine restrictions were lifted, and any pullback for which I’m looking could be shallow and short-lived.

Chris Marcus (Arcadia Economics) and I discuss the gold market technicals. And I’ll go one up on Goldman and call for $2,000 gold before Labor Day:

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Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

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Dave Kranzler spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance. He currently co-manages a precious metals and mining stock investment fund in Denver. My goal is to help people understand and analyze what is really going on in our financial system and economy. Dave publishes the The Mining Stock Journal a bi-weekly subscription newsletter that features junior mining ideas as well as relative value ideas in large cap mining stocks.

 

Gold is one of the most recycled substances in the world.

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