It's lonely being a gold bull these days. I have noticed some remarkable flip-flops this week as people who have been saying to buy mining stocks all year have suddenly remembered the "sell in May and go away" mantra and have decided to tell everyone that there's probably another month or two of downside ahead for precious metals mining shares.
In 2019 with the tools of Twitter and CEO.ca we have a wonderful ability to gauge sentiment in real time. I don't remember it being this bad before. I could be wrong but I don't think I am, it's ugly out there and it's lonely having any long positions in the precious metals sector.
It's always lonely at the bottom, however, the interesting thing is that while mining shares (both producers & juniors) are depressed, gold itself is still sitting at US$1275 per ounce as I write these words. Ok, it's down from $1349 in February but $1275 is not exactly a disastrous price level for the yellow metal ($1175 might be....).
Since last August gold is up ~4% while the GDX is down ~4.2% and the GDXJ is down ~10%, with gold mining shares' performance deteriorating significantly since the end of March:
I think the answer is multi-faceted:
- The outlook for gold and other metals isn't particularly strong. Most sell-side research has gold meandering around $1300 for the next few years. Certainly nothing to get excited about.
- Stocks are in a bull market so why buy anything related to gold when you can buy "Beyond Meat" and make 100% in a day?
- This story has frankly become tired and i've heard it repeated by mining sector guys ad nauseam but there is some truth to it....cannabis stocks have stolen some of junior mining's speculative thunder.
- Cryptocurrencies have recently had a resurgence and companies are running ads encouraging people to "Drop gold" in favor of Bitcoin.
- This is just what this sector does. Extreme ups and downs amid wild sentiment swings. One month juniors are the place to be and can do no wrong (GBR at $4+ in February), two months later nobody wants to own them (GBR at $2.32 yesterday). It's the nature of the beast and "Why?" is the wrong question, it just is.
You're either a victim or you're a contrarian. Which one are you?
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