Skeptical Insight #11

Gold’s hit a new all-time high reaching $3,000/oz, and guess what? MSM’s only just woken up to the fact. They have been too busy yapping on about “the missing gold in Fort Knox” to notice. Seems like typical media manipulation—keep us retail folk in the dark while prices are low. At time of writing, gold’s up 32% YTD, overshadowing NVDA while the Mag-7 hype train sputters. Told you to watch those tech valuations—pays to be skeptical, huh?

Wealth managers can’t dump those bloated stocks overnight, so gold’s climb isn’t going to be a straight shot. But this outperformance? It’s staring you in the face: commodities are waking up. Not to say that the MAG-7 can't go higher—dumb valuations can get dumber—but I’d rather bet on high probability set ups that are asymettric in nature.

That said, gold’s reached levels of concern. Five Elliot waves, overbought Stochastic RSI, bearish divergence on the RSI—it’s screaming for a breather. I wouldn't be surprised if it consolidated until the year's end with a three-wave pullback. Although I think gold will continue to appreciate, I'll be waiting for a pullback where the risk to reward is more in my favor.

If Not Gold, Then What?
This commodity super cycle is just warming up and normally they last a good 15 years. This leads me to gold miners. The GDX ETF’s as undervalued as it's been in 40 years—yep, four decades. Gold’s up, but miners are still napping. When commodity prices climb, miners’ margins increase—more cash for the same yellow stuff.

Take a look at the chart below: gold (candlesticks) vs. GDX (purple).  You can see that despite gold attracting buyers recently, gold miners have still under-performed gold considerably. One thing I know is that we will at least revert to the mean at some point and gold miners will play catch up.  

Miners are lagging, reversion is coming—they’ll catch up. A 4.236 Fib extension on GDX points to a 400% pop. Could take 15 years, so buckle in and sit tight. I plan on owning these until they are no longer cheap, or if valuations return to what was seen in 2012.

Here is the actual chart of GDX in log scale.  Again, this could take 15 years to play out so get ready to sit on your hands. 

There are a number of risks that could negatively impact margin expansion on the miners. The most obvious is the price of diesel. Roughly 20% of the overhead for gold miners goes towards diesel to run and operate the equipment to get gold out of the ground. If the increased margin from gold's new price is eroded by the cost of diesel going up, the margin won't expand to the degree we expect. The price of oil is playing ball, as of now. 

Further out on the risk curve, platinum’s mirroring XRP’s accumulation setup—over years, not months. It’s likely bottomed, just waiting for liquidity to spark. Downside risk is limited as buyers have found a floor, but patience is key. Could be a sleeper and one to keep your eye on.

I’d be surprised if it consolidates forever.  I believe the market has found reasonable resistance, just waiting for liquidity to rotate to get the prices moving.

Crypto’s a circus again—weekend news bombs just won’t end.  I'm hoping to see the storm calm down in the coming weeks, but we are investing in the most volatile market. So we have ourselves to blame.

Most coins tanked hard, but structures seem to be intact. The December 2nd top started an equity sell-off which dragged crypto down, yet XRP’s reamained rangebound (see chart below).

RTY’s at what I would consider strong support—see blue box above. As we enter a rotational top within the equity markets I would expect the Russel 2000 to be the stronger of the indicies. When these Heggies stop drooling over Mag-7 stocks and begin rolling their cash into reasonably priced assets, the russel and crypto should expand.

Then this gem from a big bank: 

“We’re very bearish” after a 20% dip. Laughable. 

Remain patient and stay skeptical,