Jordan Roy-Byrne: Making The Most Of The Bull Market In Gold

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Includes: ASA, DUST, GDJJ, GDJS, GDX, GDXJ, GDXS, GDXX, GGN, GLD, GLDX, GTU, IAU, JDST, JNUG, NUGT, OUNZ, PHYS, PSAU, QGLDX, RING, SGDJ, SGDM, SGOL, TGLDX
by: Palisade Radio

Summary

Look for companies with large deposits viable at above 1250 gold.

Optionality plays can provide excellent leverage on the gold price rise.

Gold stock indices up 40-50% in a single month and could be up 150-200% over the year.

Do your research and don’t rush in, this bull market is liable to continue for a long time.

Jordan Roy-Byrne is confident the bottom is in for gold stocks. Although, the gold price rebound is not as strong as other historic rebounds and gold needs to close this month above 1180 to lock in the long-term bullish trend. Jordan believes that gold will likely test the 1200 mark again this month before resuming the bullish trend.

Silver is underperforming gold because of the deflationary environment, but silver will outperform gold in an inflationary environment. Silver stocks are likely to perform very well over the coming months.

The stock market could well rally in the short term but continue its bearish course in the longer term. Even if the equity markets rally, precious metals are likely to stay bullish and move independently. The growth potential lies with the juniors as there is a lack of new ventures and discoveries are few. This could lead to a manic bubble in the juniors.

Palisade Radio Host, Collin Kettell: Welcome back to another episode of Palisade Radio. This is your host Collin Kettell. It has been a momentous day for gold today. This is Thursday, Feb 11th; price of gold is over $50, so we wanted to get Jordan Roy-Byrne from TheDailyGold.com back on the show. Jordan is kind enough to put together a weekly market update that we send out through Palisade Radio. Jordan, welcome back to the program.

Publisher, TheDailyGold.com, Jordan Roy-Byrne: Thanks for having me, Collin.

CK: So the big question on listeners and investor's mind is are you confident at this point that the bottom is in for gold and for gold stocks?

JR: I think I am very confident as far as gold stocks just given the strong move that we have seen in recent weeks. I compared it to the moves coming off the major lows in 2000, 2008 and it is very comparable to that. Now, interestingly, with gold itself in my last premium update I kind of talked about how gold is at a good move. But gold is behind its major rebounds, coming off major lows, the two in particular 2008 and 1976. Coming into this week gold's rebound was not as strong as those rebounds. That does not mean that it is still on a bear market. The real key that I was pointing to this week for gold is it has got to close this month above $1,180.

Indeed, if you draw a trend line just like a daily line chart of gold, the trend line resistance is coming in around $1,200, so $1,180 to $1,200 is really the key resistance, again, coming into this week. What I have been telling subscribers is we need to see gold get above $1,200 and that $1,180 to $1,200 level has to become a floor. Obviously, today, with gold going up substantially $50 or so, I mean it is trading at $1,250 right now. It did trade as high as I think $1,261 or $1,262. That obviously raises the chances that gold will close this month above $1,180. I mean we are only about 40% done with the month or so. There is still a lot of time left in the month.

Looking at resistance, I see monthly resistance around $1,275 for gold. Now the Gold VIX GVZ is up about 38% today. When you see that I mean that is a sign that the trend is probably going to change. To me, I think gold can go a little bit higher here to around that $1,275 target. But I do think at some point, perhaps in the next couple of weeks or the next month, we will see gold come back and retest that support at $1,180 to $1,200. I mean it probably should hold above it. But, basically, the first key for me is let us see if gold can close above $1,180 this month and obviously with today, gold looking like it is going to close at $1,250, that raises the chances significantly that gold will close above $1,180 this month. But it also raises the chances that the $1,180 or $1,200 area will become some kind of a floor.

I am sorry for the long answer, but we really have to provide some context. We have to keep all these levels in mind. But going forward, I am looking for gold to retest $1,180 to $1,200 and if it holds above that then that would be final confirmation that the bottom is in. But clearly, at this point, it does look like the bear market is over and we have seen a major turn in the sector.

CK: The action that I have seen in silver has been muted compared to what we have seen in the price of gold. That is something that you had been predicting that as this bottom starts to take hold that gold would probably outperform, silver would lag a little bit. What do you see happening with silver? You can even touch on silver stocks a bit if you would like.

JR: Well, looking at silver I know that we had - I am just looking right now. You are correct. Silver is underperforming gold. I think the reason is because we are in a deflationary environment. If you are in a deflationary environment, gold will outperform silver. Once you get to an inflationary environment that is when silver will outperform gold. Now if we look at the major lows in precious metals, silver has not always outperformed gold off those major lows.

Like if you go back to 2008, we did see silver outperform gold off that low. But if you go to 2000 to 2001 low, silver bottomed months after gold did. Silver bottomed like almost I think a year after the gold stocks did and even after that for another six or nine months or so even after silver bottomed, it didn't really accelerate as much as typically seen. It was slow to recover.

In going back to the 1976 low, I mean I do not have the chart in front of me, but silver held up really well during that period. Again, I do not have the chart in front of me, but gold may have accelerated a little bit coming off that low and then silver really outperformed. There is really no rule about what is going to happen coming off these lows. But it is certainly not unprecedented to see gold outperforming silver here. Given that we are in a deflationary environment I think that is something that is going to continue. But, obviously, if gold is going to continue to climb, silver will fall. But until we get to that inflationary environment, silver is not going to strongly outperform gold.

Now with respect to the silver stocks, they have obviously had a strong move with all the miners. I have not been focusing too much attention on those, obviously, as I pull up my screen here of the silver stocks. But, again, some of these companies if they are extremely oversold, I mean they can rally 50-60% in a month or in a couple of weeks. I mean if this move continues after we get some kind of a pullback, I mean a lot of these stocks will probably have doubled within a few months' time and that is just typical of what happens coming off these major lows when they are in a secular bull market.

CK: Jordan, a very interesting component of the bull market that I guess we can say has maybe just started here in the last few weeks is that on days where the Dow and the S&P have dropped, even today quite significantly, gold, silver and the associated stocks have gone up. That is a big difference from 2008, which, of course, was under different circumstances. Gold and the stock market were both high before that crash. But to see this correlation, this negative correlation, between gold and the stock market hold on a day-to-day basis is pretty interesting. I want to ask you how you see that continuing to play out? A lot, I guess, rests on how the stock market might do.

JR: Yeah, great question. This is something I think we have talked about before. I also had a chapter on this in my book where if you look at the correlation between precious metals, I want to say gold specifically, but the correlation between gold and the equity market, it is always changing, it is never constant. I mean there are times when one is going up, the other is going down. There are times when they trend together. But what really determines what is going to happen in the future is what has happened in the very recent past.

What I mean by that is if you would go back to the '70s and you would go from about 1973 to 1978, the two were moving back and forth but in different directions. What happened during that inflationary recession you saw gold starting to go up a lot, the market went down. Then when the market recovered after the recession, gold went sideways, gold went down. It had that big '75 to '76 bear. Then gold recovered. Did really well for about two years or it rebounded steadily and during that time the equity market had about a 20% bear market or maybe a little more. Then eventually, the last year or so, precious metals went parabolic and the market went up a little bit. But there was about a six-year period there where the correlation was negative between the two. In other words, if gold was going up, the stock market was going down and vice versa.

We saw the same thing from 1997 to about 2002, 2003. At the beginning of that time, precious metals had a terrible bear market, the stock market was doing really well, and then it flipped in favor of precious metals. Since 2011, I mean we are seeing that repeat where since 2011, the equity market has performed really, really well, precious metals had a terrible bear market, but the relationship has flipped where now we see the equity market going into a bear market and precious metals are now what looks to be back in a new bull market. The reason is because in the recent past, the market was going up and precious metals are going down. I mean you go back to the financial crisis, gold and the stock market they were going up together, so that is why they both went down during the financial crisis. This time it is different.

Now looking forward in the very short term, I have been looking for the stock market to rally. It has been weak over the last couple of weeks. It has kind of struggled to rally. I still think that the stock market is really oversold here. It could have a rally over the next month or two and that could kind of coincide with the correction in gold. But, Collin, looking out just over the next year or so, I think the bear market is likely to continue in the broad equity market. What we could see over the next couple of months, we could see a flip, where we see the market rebound and precious metals have a correction. But then after that you see the stock market break lower again, continue to trend lower, and at that point, that is when precious metals should rebound and perform really well.

Again, as far as the broad equity market, I do not know how much longer the bear market is going to last. But even in this scenario, that the bear market ends, sometime this year or sometime early next year. I do not think you would see the correlation flip. In other words, I do not think we have to be worried about when the market does recover in the next year or eighteen months. We do not have to be worried about that pulling down precious metals. I mean precious metals are moving on their own merits. They are going to be in the forefront. We really do not need to worry about the equity market dragging precious metals down. But I do think here as I said we do have to be on guard that we could see the equity market rally here for a couple of months and that could coincide with correction in precious metals.

CK: We have done many interviews in the past and a question that I have never asked you and a topic we never touched on because it was not as relevant in a bear market as it is in the beginning of a bull market is the type of companies that interest you, the type of equity investments in the gold or silver space that interest you, if you like to provide an example. But, of course, that is what your service is for. If you just want to profile what you look for for your subscribers to get a good gain. Are you looking at the majors, the mid-tiers, the small caps? Within those areas what is it that you are looking for?

JR: Well, I am looking at the juniors. I am not a fan of the major miners. I mean obviously they have had a really, really good move here. It looks like a lot of short covering there that is why they have a stronger move than the juniors. But I focus on the juniors and that is because that is really where the growth potential is with respect to the producers.

Also if you just look at the overall fundamentals, as you know, Collin, I did a chapter about this in my book, the major miners and the larger companies they are going to need to acquire the juniors because despite having this huge boom in the 2000s, tons of money being spent on exploration, nobody really found anything that significant. There is really a dearth of projects in the pipeline for these larger companies. That is why the junior miners, I think, eventually, we could see not just a bubble but a real mania in the next five years given the fundamentals and given that fact that over the next, let us say, three to five years these larger companies are going to need to acquire these deposits to replace their reserves and build up their pipelines.

If you have that fact combined with a gold market that is in a bull market and is going to $2,000 or $3,000 an ounce, you can just see how that can lead to a bubble then a mania in the juniors. That is really why I focus on the juniors. I mean now I personally like the producers, the junior producers, that I think can really benefit here from the start of this new bull market. I also like development companies so companies with projects or deposits that look like they can earn a decent return at $1,200 or $1,300 gold.

Those are the things that I am looking at now, but also I will start to dip into the exploration site a little bit because, again, if the sector is moving up and we are in a new bull market as you know, the exploration companies, they will outperform. They can go a lot higher. Lastly, I will just mention something about optionality because I know that is something that you talk about quite a lot and I know that Rick Rule has talked about it with you in interviews. But if you look at companies with big projects, and by big I mean they are multimillion-ounce projects, they could be economic at $1,300 or $1,400 gold. Those are the projects that recently they are not worth anything because they cannot make money at $1,100 or $1,050 gold. But, obviously, if we are correct and gold is on a bull market and this rally goes to $1,500, $1,600, $1,700 then, Collin, as you know, suddenly, these projects that were not worth anything, that need $1,300 or $1,400 gold, suddenly they can be worth a whole lot at $1,600, $1,700 gold.

Those are also things that I am starting to look at because those are the companies that probably have not moved a lot yet here in these last couple of weeks that have a lot of potential to move when we see gold go to $1,300, $1,400, $1,500. Those are all the things that I am focusing on. Again, I know it is a long answer, but I am looking at all those areas and looking at fundamentals in what I think has the best risk reward. Certainly, when the bull market gets going, you do not have to necessarily go after the companies with the A fundamentals. I mean if you have a very strong market as you know the companies with B and C fundamentals all outperform the companies with A fundamentals.

But right now, most of my long positions have been the companies with A fundamentals because I think those are going to perform very well here in the next year. Also, Collin, I own those companies because I know that they could survive if gold went to $1,000 or $950. The risk reward there is very good in those companies with A fundamentals. But as we see the bull market start to take hold, I will look at other stuff that is a little bit more risky but can really outperform if we see gold get above $1,300 then get to $1,500.

CK: Sure, yeah, optionality is a fascinating concept especially for people interested in, I should not say people interested in buying physical gold, but those that see the merits of physical gold itself and are not necessarily as interested in mining. A lot of these optionality plays right now are trading at $1 to $5 gold in the ground. Just a few short years ago, these gold ounces in the ground are going for $100. That provides a lot more leverage than simply buying physical metal through some type of proxy or actually buying the physical.

I want to end here, Jordan, by asking you what are the potential gains are say the bottom did just happen a couple of weeks ago. The reason I ask you this is you have put some great charts together in the past examining kind of the bull markets that have happened and how much the gains were in the first six months, year, eighteen months. I know you might not have that open in front of you to give us the exact numbers, but what can you tell us on what investors might expect?

JR: Great question. Yeah, I am just taking here because sometimes I look at the HUI and other times I look at GDX. The HUI tends to rise a lot more than GDX. But looking at the HUI, I mean I do not have it in front of me right now, but I know that that was up nearly 50% before coming in to this week. That is typically what you can see. I mean I think most gold stock indices I think can rally 100% within six months. This bottom was January 19th, I think. We are not even a month past that point yet and these indices are up 30%, 40%, 50% already. The HUI probably more right now. But generally I would look at it could do 100%; the miners could do 100% in the first six months. As I said if we get a correction here for a month or two then the next move up after that that obviously would be a strong move. That is kind of where you get your 100% in six months. Maybe when you get to eight, nine, or ten months these indices could be up 150%, 175% or so. I mean that is just a general, rough guess, but it usually fits in that type of ball park.

Looking at a lot of these juniors I mean they can move substantially. I mean some of them can double in a month or two just coming off their lows. But with all that being said, Collin, it is important for listeners to do your research. I should say you never want to chase gains even though these gains - I mean like I said we may have a correction for a month or two and that would give us a chance to get in on these things at better prices. But just do your research. I mean there are a lot of stocks in this universe. You do not necessarily have to chase something that has hardly gone up 100% or 75% the last couple of weeks. Just sit back. This bull market is going to last for a long time. You do not have to plunge all your money into something right now because you have already seen it go up and you are afraid it is going to go up without you. Just do your research, sit back, let some weakness come in, and then pounce if we get to the weakness.

CK: There you go. Well, Jordan, thank you so much for coming back on the show. All of our listeners really enjoy your weekly updates that you put out with your charts and research through Palisade Radio. For any of our listeners interested in finding out more about Jordan's work and potentially subscribing to his free and premium services just go to www.thedailygold.com. Jordan, thanks for coming back on the show.

JR: Thanks so much for having me, Collin.

Jordan Roy-Byrne, CMT is a Chartered Market Technician and member of the Market Technicians Association. He is the publisher and editor of TheDailyGold.com, a publication, which emphasizes market timing and stock selection for the sophisticated investor.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.