Gold continues to drift lower, just as our cycle forecast projected, with the most active December futures settling at $1,246.70 per troy ounce yesterday at the close of pit trading. And slumping further this morning to a low of $1,241.30. Likewise, silver is trading lower at $15.67 a troy ounce this morning.
Still, gold has quietly had a decent year, up about 8% in 2017 despite its slide since September. And you can expect gold to build nicely on this year’s modest gains in the New Year, just as we’ve been patiently waiting for.
That’s because gold is incredibly undervalued today compared to other asset classes like stocks. Plus, mining shares are an even bigger bargain and poised to play catch-up.
In the chart above, courtesy of my friends at U.S. Global Investors, you can see that the S&P’s recent outperformance compared to the yellow metal is resulting in the biggest discount in gold relative to stocks in nearly fifty years! Gold is extremely undervalued today and poised to break out very soon.
But there’s another, even more compelling fundamental factor that convinces me precious metal mining stocks are the real bargain today, with explosive upside potential. Just look at the gold-stocks-to-gold ratio!
This ratio measures the value of the NYSE Arca Gold Bugs Index (HUI) relative to the price of gold itself. Today, the ratio is hovering near 0.15 – which means the entire market value of this index of gold stocks is worth only fifteen cents on the dollar to the price of gold.
That’s crazy cheap! In fact, the last time mining shares were this cheap relative to gold was back in 2000, when gold and silver mining stocks were poised to blast off in a historic bull market run.
From that low for mining shares, the HUI soared an astounding 1,371% over the next seven-plus years. And I believe history is about to repeat!
However, before we get that extraordinary blast-off to the upside, gold and silver could slide a bit lower until the next upside turn date, which is converging on the third week in December, just before Christmas.
Between now and then, there’s plenty of potential turbulence for metals, especially this week. You see this is central bank sweeps week!
The December FOMC meeting starts today with the policy decision due tomorrow at 2pm. The Fed is widely expected to ratchet short-term rates up another quarter point. The FOMC will also provide updated economic projections and lay out its road map for rate increases in 2018 on Wednesday.
Plus, the European Central Bank (ECB) and the Bank of England (BoE) also have meetings later this week, with the BoE policy decision early Thursday morning, followed closely by the ECB policy announcement.
That’s a lot of potentially market moving headline risk for gold over the next few days. More hawkish than expected rhetoric from central bankers could put precious metals under even more short-term selling pressure.
That’s why it makes sense to set protective stops on several Gold Mining Millionaire holdings. The final move down to the bottom could be steeper than any of us suspect. And you’ll want these stops to protect the downside just in case.
First, you may not yet be filled selling your shares of Midas Gold Crop. (MDRPF) because the shares dropped quickly below the sell-limit price. Keep working your limit order for now and I’ll let you know if any adjustment is warranted.
Second, your ProShares Ultra Silver ETF (AGQ) is down more than our models suggested and we could see additional selling into month-end. So, it makes sense to set a protective stop and reassess if necessary.
Third, the performance of OceanaGold Corp. (OGDCF) has been disappointing. So to prevent more downside, I recommend a stop just below the recent low.
| Here are your actions to take right away:1. Enter an order to SELL ALL your ProShares Ultra Silver ETF, symbol AGQ, at a price of $28.94 STOP. This order is good-till-canceled.
2. Enter an order to SELL ALL your OceanaGold Corp., symbol OGDCF, at a price of $2.30 STOP. This order is good-till-canceled. |
Get these two trades in to your broker right away and stay tuned for more updates, and trade recommendations.
Good investing,
Mike and Sean