Back in January 2016, I made a pretty bold call after a multiple year bear market in gold that had seen gold stocks, including exploration juniors, developers and miners pummeled. In fact, it was the second worse bear market I had seen in my career, only the late 1990s were worst. But I got very bullish in January 2016 and predicted that we were starting the next gold bull market that would rival the bull market from 2001 to 2011.
The key things that I follow to gain confidence in the trends for gold and other metals are supply and demand. For the past few decades exploration, discovery, building of new mines has been poor and not enough to replace what the miners pull out of the ground each year. This has created significant long-term weakness in the supply chain. At the same time, there has been strong demand from China and India that keeps growing as their economies get bigger. So, the fundamentals of supply and demand were telling me that gold was going higher, but nobody was believing that in late 2015.
Another key thing I follow, especially for market timing are technical indicators in the charts. One of the trends that I follow closely is the January Effect. When assets start, the year performing well, it is often a strong indicator of where they are going for the remainder of the year.
In late 2015, when investors in gold and mining stocks were very bearish, the professionals and market commentators in the market were equally as bearish. I saw something in the precursor to the January Effect which is the Santa Claus Rally that caught my attention.
While everybody was bearish on gold and gold stocks, in the last week or so of 2015 gold and gold stocks started to show some strength. They were having a Santa Claus Rally which very few market commentators picked up on, but I certainly did because as I mentioned the fundamentals were telling me gold was heading higher.
At the time, I was looking for trends to develop to hang my hat on. After I saw the Santa Claus Rally, the next thing I was looking for was confirmation indicating a bullish January Effect. Which is first a Santa Claus Rally then that momentum continues into the first week of January.
In early January 2016, that is exactly what we saw, the gold and gold stocks continued to perform well after the Santa Claus. It was at that point I put out my 2016 Year in Review report and predicted that the multiple year bear market in gold and gold stocks had ended in December 2015 and we were starting a new multiple year bull market. Not only did I make that bullish prediction I loaded up the report with a bunch of my top gold stock picks.
I also mentioned that I felt we were going to have some opportunities to take profits during the year to build up cash to take advantage of any pullbacks. I followed that recommendation in the summer of 2016, I made a call to sell several of the companies on my top gold stock list and lock in profits to build up cash.
Those following my advice did very well because not long after there was a healthy correction in gold and gold stocks. I would like to say that my sell call was based on my analysis of trends, but it wasn’t, it was because the gold stocks on my list had performed exceptionally well.
I was comfortable dumping several of the companies from the list and making take profit calls on some of the ones that I kept on the list purely because they had performed so well. Secondly, I also thought it was time to harvest gains and build up some cash to look for bargains.
Another reason that I wanted to clean house so to speak was because I had found some new companies that I wanted to cover and I’m a believer in not hunting with a shotgun when investing, and instead hunt with a rifle. I don’t want too many stocks that I’m covering because I can’t follow them as closely as I like.
In 2017, we have also seen a new leg up in the price of gold after some weakness in the last few months of 2016. The US dollar is another contributor to the direction of the price of gold as gold. So far in 2017, we have seen lower highs and lower lows in the USD which is another trend I look for to get an idea of the direction of a trend.
In a bullish market, you will see higher highs and higher lows, and the opposite in a bearish trend with lower lows and lower highs which is what is happening in the USD. I had been watching lower lows and lower highs for USD develop this year and was approached by the organizers of the Prospectors and Developers Conference (PDAC) to be one of the guest speakers.
Things came together quite nicely prior to the PDAC as there was some softness in the price of gold, I like when I can be a contrarian. This caused a lot of consternation with investors and market commentators worrying about a seasonal trend called the PDAC Curse. This to me is more related to the sell in May and go away until the fall trend, but nonetheless many market commentators and investors gat twitchy at this year’s PDAC about the curse.
Regardless of the seasonal trend, it is important to put things in context. With what I was seeing in the weakness in the USD and the bullish supply and demand fundamentals combined with starting a new gold bull market in January 2016 I wasn’t worried about the PDAC Curse. One of the things I do at the PDAC is listen in on market commentators and do my homework on companies I follow or am considering adding to my reports.
While sitting in on these talks, almost all the market commentators were lamenting and worried about the PDAC Curse. The level of worry and the indicators I follow gave me added confidence that the bullish outlook I had prepared for my speaking engagement was going to be proved right.
In addition to my bullish outlook for gold, I also talked about a group of stocks that I felt are well positioned to outperform their peers. Since the PDAC we have seen a very strong move in the price of gold and some of the gold stocks that I cover in the reports.
I’m even more bullish now than I was at the PDAC because I can see a lot more weakness ahead for the USD that will drive gold and other commodities much higher.
A key reason for my bearish outlook on the USD is due to Donald Trump, the new Twit-in-Chief that can send markets into a tizzy with his tweets on Twitter. It makes me sad that the US presidency has declined to the level were a pathological narcissist is the president and he enjoys using a social media platform like Twitter to vent. But it is what it is and he is the president and now we have an insecure carnival barker in The Donald as president.
He rode in on a bunch of promises that he can’t keep, but I thought it would take a lot longer for his right wing promises to fail. He talked about repealing Obamacare and failed at that right out of the box. It is kind of shocking that he is failing at all his campaign promises because the GOP controls the Congress, Senate and White House.
It must surprise him as well that he can’t blame the Democrats on blocking him and can’t sell his plans to a right wing controlled government, even a popular right wing initiative of the past number of years to repeal Obamacare. With Trump in the White House and the GOP controlling Congress and the Senate not being able to repeal Obamacare is a bigly loss for such a deal maker as he proclaims to everyone that will listen.
The trend in the USD is sending a signal that the market doesn’t believe a lot of his promises will come through, like tax cuts for the wealthy and all his other campaign promises. Trends when you see lower lows and lower highs tend to last for a long time, which is why I watch for those trends so closely and pretty much since Trump took over that is what the USD has done.
It doesn’t help the USD’s cause when Trump promised to be more fiscally responsible but cranks up the war machine which will do nothing for the US economy and drive the national debt much higher. This all adds up to that trend of lower lows and lowers highs for USD to continue for a long time and drive gold and other commodities much higher.
If the supply chain for gold wasn’t so weak, I wouldn’t be so bullish on gold. But it has been severally weakened to the point that the industry is in drastic need of an exploration revival. It is hard to get a revival due to the damage the long-term under-spending on exploration has caused.
The industry doesn’t have a bunch of projects that have had a fair amount of work done that lays the groundwork for discoveries in gold and other metals. It also has suffered during the past few decades from the lost generation. For most of the past few decades there has been less exploration, which means less opportunities for geologists and young people entering the mining business.
This doesn’t just affect gold, it affects all commodities, they need people to find them. But during the era of the lost generation not motivating new entrants into the business and old timers retiring and moving onto the mines in heaven, there hasn’t been enough new people for them to teach their skills to before they move out of the business.
It has left a void in the roster of people that have been in the business for a long time and have been mentored by the previous generation. I recently published a book which was a way for me to tip my hat and say thank you to many of the great mentors that I’ve had the good fortune to work with. I’m thankful because they have helped me be a consultant in the business since 1993, a commentator on the market since 2005 and recently a president and CEO of two publicly traded companies.
I go to conferences and look around and just don’t see a lot of faces that have been in the business for a long time. I look around and what I see is an industry in need of a revival in exploration with not enough people to pull that revival off.
This brings me back to an earlier point, investors should hunt with a rifle not a shotgun when it comes to gold stocks and all their investments for that matter. I’m no fan of diversification, which waters down the rewards and gives a false sense of comfort that by owning many stocks protects the downside.
We see it in the deficient performance of hedge and mutual funds that chronically under-perform the indexes. Which is the reason for the explosion in ETFs that track the indexes, if one needed proof that diversification is not all it’s cracked up to be look no further than the crummy performance of hedge and mutual funds.
Investors are much better off trying to be careful in the stocks they decide to own and monitor them closely. I’ve taken that advice a couple steps further, now I run a couple companies so I can pick the projects, monitor the company’s progress every day and have a hand in moving them toward their goals.
This brings up a very good point, and the one I will close this report on. I see tremendous opportunity in gold stocks and for other commodities as well, with the mining industry in drastic need of new discoveries, but not enough exploration expertise to pull it off.
The most successful investors will be those that can find quality at reasonable valuations, don’t have too many investments and stick to quality. And think like an owner, as if you are running the company, look for companies you would like to lead, that will help your investment performance and help you sleep more comfortably as well.
This report I wanted to talk about some trends that I’m spotting, I’m working on another report to come out soon that will be more about stocks I cover.
All the best,
Allan Barry Laboucan
Allan Barry Reports
Alset Energy (ION.V)
Advance Gold (AAX.V)
P.S. my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.
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Alset Energy (ION.V)
Focused on lithium with their key projects in Mexico, looking for low-cost exploration, development and production potential. Alset's President/CEO is Allan Barry Laboucan who is also the founder of the Allan Barry Reports. Visit Alset's website at www.alsetenergy.ca to do your homework.
Advance Gold Corp. (AAX.V)
Another company lead by Allan Barry Laboucan that is being built from the ground up to be focused on precious metals exploration.Visit their website at www.advancegold.ca to do your homework.
Nevada Exploration (NGE.V)
Gold focused in Nevada, using a unique gold exploration method to unlock Nevada’s under-explored regions. Visit their website at www.nevadaexploration.com to do your homework.
Premier Gold Mines (PG.T)
Gold focused, with an enviable portfolio of projects from exploration to mining in Ontario, Nevada and Mexico. Visit their website at www.premiergoldmines.com to do your homework.
Sirios Resources (SOI.V)
Gold focused, drilling high-grade gold target at Cheechoo project in Quebec, located next door to Goldcorp’s Eleanore gold mine. Visit their website at www.sirios.com/en/ to do your homework.
Tarku Resources (TKU.V)
Grassroots gold exploration in Quebec, near a mine and road being built to open mining region near Quebec’s first diamond mine. Visit their website at www.tarkuresources.com to do your homework.
Tudor Gold (TUD.V)
Gold exploration with a strong portfolio of projects in heart of the Golden Triangle of BC, founded by Walter Storm of Osisko fame. Visit their website at www.tudor-gold.com to do your homework.
Wolfden Resources (WLF.V)
Base metals focused, with a discovery of high-grade nickel-copper near Snow Lake, Manitoba. Visit their website at www.wolfdenresources.com to do your homework.