Jordan Roy-Byrne, CMT, MFTA, Editor and Publisher of The Daily Gold, and author of the book “Gold & Silver – The Greatest Bull Market Has Begun – A Once In A Lifetime Investment Opportunity”, joins me for an in-depth technical and fundamental look at both the medium-term risks and long-term opportunities in the precious metals space, how he approaches trimming back winning trades, and 2 type of earlier-stage PM stocks that he’d consider rotating some capital down into.
Key topics discussed:
- Longer-term technical pattern in gold has been very bullish, especially after having put in the highest quarterly close on record in Q2 at $3307.
- Despite the strength in gold, Jordan is looking for where we’ll see a corrective move in gold, and what the percentage depth may be, though the lens of analogs to the 1972 and 2005 breakouts in gold. We discuss what a corrective move in gold would look like based on what pricing does leading up to that point, and Jordan could see a scenario where gold makes it up to near $4,500 before starting a more meaningful 20-30% corrective move. He also clarifies the nuances between a periodic correction and the eventual cyclical bear market within a multi-year secular bull market.
- This leads to a discussion on trimming small amounts off winners along the way versus the types of signals that it may be time to sell larger portions of a position or the entire position. He puts some context around 3 key criteria for consideration when trimming or selling: 1) how overbought the whole sector is as a macro theme, 2) the percentage weighting of a stock that has run inside one’s portfolio (preferring that no position gets above 10%), and 3) the value calculation of a company and it’s potential upside at a given point, relative to other stocks that may have more potential upside.
- Next we shift over to the technical outlook for silver, the importance of the 2nd strongest silver close on a quarterly basis ever to $36.10, the decisive move above $35 resistance, where we are now solidly in the $37’s, and the upcoming resistance at $41-$42.
- We discuss the nature of silver stocks in particular to front run higher prices in advance and discount those moves higher in the underlying metals price before they occur. This can lead to more muted moves when the higher prices are actually achieved, and there can be a slowdown in momentum, because the valuations have already priced those moves when the pricing breakouts first start happening.
- While discussing the anticipated strong revenues and earnings in Q2, Jordan feels the forward-looking market has mostly priced those in for both gold and silver producers overall. He does make the point that individual select cases may still surprise some to the upside, but those will be more isolated cases where those particular companies overachieved in the quarter.
- When looking at the intermarket analysis of gold to US general equities, the picture in Q1 was much more constructive in Q1 where many breakouts in ratio charts were confirmed, but the strong action in Q2 of US equities blasting up to new highs does have Jordan watchful to make sure that trend doesn’t accelerate over a longer period. He reiterated that we want to see money rotating out of weaker general equities and making its way to gold if the accelerated move to $4,500 gold is to come to fruition.
- He also points out that in addition to US equities advancing on gold in Q2, that we also saw silver, and precious metals stocks advancing on gold last quarter, so in some ways that was a constructive catchup trade.
- Wrapping up Jordan unpacks the 2 types of scenarios that would have him looking to move some capital out of the quality growth-oriented producers and best-in-class developers down into the more speculative junior resource stocks. One group would be companies that have smaller resources that aren’t getting noticed, but have a legitimate pathway to moving their resources over critical thresholds like 100 million ounces of silver or over 2-2.5 million ounces of gold. The second group would be advanced explorers and developers that are trading at a discount due to perceived flaws, but that these flaws are able to be overcome and thus a rerating to a better valuation is possible.
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