The weakness in the Goldminers over the past week may or may not be a sign of things to come.
If you review only the Gold and Silver Physicals and Futures markets, the correlated currencies like the Euro, Yen, Aussie and Loonie, and the largest capitalized of the Goldminer stocks, I think you might agree that the recent weakness in the Goldminers will soon turn to strength. However, if you review only the junior miners, mine developers and speculative prospectors, the evidence points to continuing weakness.
Silver Wheaton (SLW) is a good example. This leading Silver streaming company is a $10 billion market cap stock that this week reported higher than expected earnings and revenues and the stock zoomed +7.4% that day. Simultaneously the other North American listed silver companies with an aggregate market cap about equal to SLW suffered an average loss on the day.
Professional mining analysts might disagree with me; however, I think SLW’s price jump and significant increase in market capitalization on March 21 was excessive when compared only to the change in fundamental value. I attribute the sharp price gain that day to money managers being afraid to miss the boat in a rising tide.
For some reason, the Silverminers group was substantially underperforming the Goldminers group for the first part of the month (from March 1 through 14) and SLW was part of that decline. I had been thinking at the time that the major fund managers might be playing to the public’s concerns that Silver leads Gold up and down, which might indicate to some investors that it was time to sell the whole Gold and Silver miners group. I say this because the Physicals, Futures and correlated Currency markets were showing an upturn in their price trends. If so, that would be a head-fake from Mr Market.
Now the Junior Miners and the Australian and Canadian Currencies that are the most highly correlated in the minds of the public to the whole Goldminers group have weakened against the USD. We must wait and see the outcome, of course, but that too could be another head-fake.
I am writing because I think the market is at an interesting juncture. The USD has weakened significantly from the end of December through the end of January and again through the whole month of March so far. Typically, that is a time when the Goldminers group is on the rise. But not, as I say, for the eight trading sessions after March 14. Might this be a sign of a near-term rally in the USD? I happen to believe not. I believe the USD will weaken further. In any case, I am more interested in the tide than the waves.
What could be on the horizon in terms of USD strength or weakness, you ask? Of course, we all know that the government’s budget proposal initiated on February 27, 2017 and sent to Congress on March 17 is almost certainly going to be rejected. The market’s trouncing of the USD after smart minds examined the budget proposal told me so.
Trump’s proposal merely puts his campaign rhetoric to numbers and will certainly be hugely changed after giving in to the reality that change of such magnitude – no matter how necessary — will take several years to happen, if it ever does.
The legislated budget is not due for many months, but the political discussions ought to be interesting and serve the capital market numerous inflection points going forward. A trader’s paradise.
I’m thinking that regardless of the need to cut the budget, Trump is a spender, not a saver. And, his motive is to change Washington and the budget proposal is merely a tool in a long-term (i.e., four-year) process. Moreover, as I see it, the long-term evidence says that Trump’s also never seen a loan he couldn’t refuse or a corporate tax cut he wouldn’t approve.
Ergo, the problem with the US Dollar.
I think the market senses a large USD decline over the next few months, during the push-back from Congress on the Trump budget proposal, which I sense is the basis for the Gold and Silver miners having a substantial run to higher price levels.
https://en.wikipedia.org/wiki/2018_United_States_federal_budget
Noted from Politico.com:
As proposed, the Trump budget almost certainly will not pass Congress. Too many lawmakers, including many Republicans, have declared it dead on arrival. But the document nonetheless represents a crucial road map for a president who is new to government, and who has at least a full term to pursue his goals. It is the clearest practical expression yet of what Trump’s chief strategist Steve Bannon described as the “deconstruction of the administrative state” last month and his agenda of “economic nationalism.”
“This budget is the first step toward what will be, three or four years from now, a dramatically different federal government,” said Newt Gingrich, an informal Trump adviser and former House speaker who understands the power of even a small shift in the $4 trillion federal budget.
The document released Thursday is known as the “skinny budget” and represents only the toplines for departments and agencies. A full budget, including economic and tax projections, will come in May, with the goal for Congress to adopt a plan before the new fiscal year begins at the end of September.
http://www.politico.com/magazine/story/2017/03/donald-trump-budget-cuts-214926
Time tells all; however, my chart trend and cycle analysis tells me to favor the Gold Bull until the weight of the evidence supported by common sense indicates otherwise.
Enjoy your weekend.
/Bill
