Gold, Silver, Mining Stocks: Get Ready For A Huge Ride Higher

Bullion Star released a graph Tuesday that showed Switzerland exported 90 tonnes of gold to the London gold market (U.K.) in July, which dwarfed exports to India and China.  Bloomberg’s spin on the data was that the gold was needed for ETFs.   Of course, as is typical, the Bloomberg “journalist” likely regurgitated “information” that came from a  source rather than fact-check.

But fact-checking shows that the number of tonnes of gold in GLD, by far the largest gold ETF, increased by only 23 tonnes during July from 800 to 823.  Assume the much smaller gold ETFs took in the same amount collectively – an estimate that is more than generous, and ETF gold flow accounts for less than 50% of the gold  exported to London.

Alternatively, a more likely explanation is that large quantities of physical gold are needed on the LBMA to feed an enormous buyer or buyers in London. This would explain what has become routine “V” shape moves in overnight gold futures trading, as the price of gold shrugs off repetitive attempts to push the price lower after Asia closes and LBMA forward and Comex futures trading replaces the physical gold markets in the eastern hemisphere.

This amount of gold imported by the London gold market also reflects the tight supply that has persisted for quite some time. The presence of a large physical buyer(s) would explain the relentless move higher in the price of gold (and silver).

This chart shows the  US-dollar price of the gold/HUI ratio. When I started to look at this sector back in 2001, gold was re-testing $250, which it hit after the Bank of England dumped half of its gold (400 tonnes) onto the market in 1999 (gold hit $253 on July 20, 1999). The HUI index was around 50 when I began to delve into the sector. This chart sourced from The Felder Report, with my edits, shows how cheap the mining stocks are relative to the price gold:

The ratio of the HUI index to gold has ranged from just over 0.6 in 2003 to the 0.10 it hit in December 2015. I predict that if the price of gold moves over $2000, we could see the HUI/gold ratio converge on 1.0. As the price of gold moves above the average cost for a mining company to pull gold out of the ground, every dollar higher the price moves adds a dollar to the income and cash flow of producing mining companies.

While the mining stocks in general have had a strong move since the end of May, “gold fever” and “mining stock fever” have not infected the general investment audience – yet. As an example, over the last two months of 2008, the HUI doubled (150 to 300). Gold was around $800. From mid-January 2016 to mid-August 2016, the GDXJ tripled. Since the end of May, the GDXJ has moved up 46%. An impressive move to be sure but it has long way to move to match the 2016 move in eight months.

The juniors are even cheaper than the producers. This is because, as the price of gold moves higher, value of the gold (or silver) in the ground for juniors with a resource becomes worth even more to potential acquirers, especially juniors who have projects in close proximity to mining companies with operating mines and infrastructure. At some point, larger mining companies will either have to start buying juniors or face being acquired by even bigger mining companies. Assuming the price of gold/silver continues to move higher from here, I believe we’ll start to see a lot more acquisition activity before the end of the year.

9 thoughts on “Gold, Silver, Mining Stocks: Get Ready For A Huge Ride Higher

  1. I would love to be wrong, but I disagree : I guess “they” will slam the price lower again…
    Again and again.
    Until it is firmly in the 1475-1480 USD range.
    Of course, it will still be much higher than before. But how much higher should it be if it were not for their constant slamming ?

    As you have shown, they are not shy of attempts to lower the price with money which costs nothing to print.

  2. “The presence of a large physical buyer(s) would explain the relentless move higher in the price of gold (and silver).”

    What I’m mainly getting from this is that large buyers consistently manipulate asset prices by buying large quantities, reducing supply, temporarily driving prices up, then sell for relatively quick profit, crashing prices in the process.

    The same is happening to stocks, bitcoin, and most assets.

    Part of the everything bubble.

    There is a massive grab for wealth currently underway.
    Much like just prior to the Great Depression.

  3. So this is the third person who has pleaded guilty to conspiracy and spoofing charges (between approximately July 2007 and August 2016), who placed thousands of orders that he did not intend to execute for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc. Trunz learned to spoof from more senior traders, and spoofed with the knowledge and consent of his supervisors.

    https://www.justice.gov/opa/pr/precious-metals-trader-pleads-guilty-conspiracy-and-spoofing-charges

    The DOJ will need several buses to herd and arrest the vast number of these criminals.
    Where does this all lead? To the TOP…..aka Jamie Demon & Blythe Mistress.
    Maybe this is a big reason why the PM futures markets have held up so far….criminal guilty pleas…..leading closer to the TOP.

    Oh no, Jay Powell at Jackson Hole on Friday at 10:00am EST….watch the PM markets.

  4. It is essential to understand why big investors like Paul Tudor Jones or Ray Dalio buy gold. They see the end of our present economic system. Paul Tudor Jones said very clearly in a Bloomberg interview that the world “we” built will disappear and a new order will emerge. The general public will not understand this until it is too late. As usual.

  5. Dow is tanking finally , gold only can go up.
    Dent and Radomski are idiots who fooled a lot people.
    I think still a lot of people don’t know anything about gold. They going to pay price for that unfortunately.

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