Disclosure statement: We are long CEF, SGOL, SIVR, AEM, GDX & FNV in our various client portfolios and maybe adding additional exposure in the near future.
Calling market inflection points is a tricky business at best. When I called a bottom in energy stocks last year, it was with some confidence that a capituation event took place. While energy stocks continued to move sideways after my call, they took off a month later in November and have now appreciated considerably. IYE, one of the larger energy ETFs, is nearly up 100% since my timely call in early October. We have enjoyed gains in various positions and now we're proactively looking to take profits.
Now, I am seeing a capitulation event in gold and gold mining stocks. There is considerable interest in precious metals as the USD has been beaten up a good bit the past eleven months. Meanwhile, inflation pressures have ramped up and inflation numbers will shoot higher the next couple of months as the pandemic lows in prices will become the denominator in rolling 12 month calcuations.
Common sense tells us that a declining dollar and rising inflation should be supportive of gold and silver, yet gold is down considerably the past seven months while silver has traded sideways. Something has to give. Either the USD gains traction soon and starts appreciating or it continues to decline. At this juncture, we believe it best to add gold and silver exposure with stops at or near last week's lows. This provides us an opportunity to take advantage of further declines in the USD but gives us a clean exit if the USD continues higher. We could see some choppiness in the ensuing weeks like took place in energy back in October. But we have certainly seen some degree of capitulation in gold and gold mining stocks so we think now the mining sector offers a strong risk-reward opportunity.