金鉱株は揺れ動く by Zeal

最後の２段落だけ訳をいれておきましょう。

Gold Stocks Wavering
Adam Hamilton     January 17, 2020     2994 Words

The gold miners’ stocks are wavering, frustrating traders.  For the better part of a half-year, this sector has neither broken out nor broken down.  Instead it has mostly ground sideways since the last upleg’s peak.  Gold stocks being mired in a consolidation so long, even a relatively-high one, is steadily eroding bullish sentiment.  That ups the odds it will roll over into a correction, especially considering gold’s situation.

Last summer the gold stocks were rocking, with the leading GDX VanEck Vectors Gold Miners ETF just soaring.  Following gold’s decisive bull-market breakout to its first new highs in several years in late June, GDX blasted 29.0% higher over the next 2.5 months!  That generated great bullishness, capping a larger 76.2% upleg over 11.8 months.  The major gold stocks dominating GDX were becoming belles of the ball.

That fast run left them super-overbought, so a correction was highly probable to rebalance sentiment in this hot sector.  And that indeed looked to be getting underway, with GDX retreating 15.4% over the next 1.3 months into mid-October.  The gold stocks mostly bumped along those correction lows for another 1.3 months into late November.  Then GDX rallied a bit, but kept grinding sideways on balance for most of December.

But on Christmas Eve’s throwaway half-day trading session, gold surged in a surprising rally managing to break out above its own downtrend resistance.  GDX surged 6.2% in just 4 trading days, rekindling hopes the gold stocks were off to the races again.  But despite gold’s sharp geopolitical rally this month, the gold stocks haven’t been able to break out to new highs.  This week GDX fell back to pre-Christmas-Eve levels.

Thus for 4.4 months now, the major gold stocks have effectively drifted.  They failed to roll over into a real correction, then failed to break out to new highs even while gold was.  This lackluster action reminds me of Jesus Christ admonishing a church in Asia Minor as described in Revelation.  He warned the church in Laodicea, “I know your deeds, that you are neither cold nor hot.  I wish you were either one or the other!”

“So, because you are lukewarm - neither hot nor cold - I am about to spit you out of my mouth.”  That sounds like gold stocks in recent months.  If they were cold after correcting, they’d be great buys.  If they were hot after breaking out to new highs, momentum fueled by resurgent bullish sentiment could push them higher.  But instead they’ve been lukewarm, the most unappealing temperature for food, drink, or trading.

There’s no doubt they were hot in early September as this sector’s last upleg peaked.  GDX stretched more than 34% above its baseline 200-day moving average, revealing extreme overboughtness.  That was the most overextended gold stocks had been since late August 2016.  And that sure didn’t end well, with GDX soon plummeting 39.4% in 4.4 months in a brutal severe correction!  Those exist for a reason.

After major uplegs, popular sentiment grows too bullish.  That entices in all speculators and investors who are interested in buying in the near term.  Once they are effectively all-in, the capital inflows necessary to force gold stocks higher dry up.  All traders can do is sell, and that soon starts to snowball.  The ultimate purpose of corrections is to rebalance sentiment, eradicating greed and rekindling fear through big selloffs.

Those are the most-efficient and fastest way to bleed off upleg-killing levels of greed.  But there’s another way that is much slower.  Instead of selling off sharply igniting fear, gold stocks can grind sideways after uplegs in high consolidations.  That increasingly leads to apathy, which gradually drowns out greed after uplegs peak.  The critical question for traders now is whether gold stocks are correcting or consolidating.

The trading strategies for each possibility are very different.  Corrections exhibit severe downside in this volatile sector.  So traders need to sell positions or at least ratchet up trailing stop losses to protect their gains.  Cash is king in corrections, since it preserves capital while gold stocks sell off enabling traders to buy back in at much-lower prices increasing their position sizes.  Gold-stock losses in corrections can get huge.

As this chart of recent years’ GDX action shows, this gold-stock bull’s prior two corrections averaged ugly 35.4% losses over 11.8 months!  So traders sure don’t want to own gold stocks during a correction.  GDX is rendered in blue here, with this gold-stock bull’s major uplegs and corrections noted.  GDX’s 15.4% loss at worst over 1.3 months since the last upleg peaked is certainly not a correction-grade selloff in this sector.

Instead of correcting hard to kill greed quickly, the major gold stocks have largely been drifting sideways generating apathy.  This lukewarm wavering is slowly staking enthusiasm for this sector.  This is evident in gold-stock capital flows and gold-stock sentiment.  Back in late August and early September, bullishness for big additional gains ran rampant.  Today gold stocks are shifting back towards being ignored like usual.

Trading high consolidations is very different than trading corrections.  Since this sector mostly grinds horizontally, replacing selloff downside with time, existing positions don’t have to be liquidated.  They can be held to ride out the consolidation, as the potential losses are way lower than in a correction.  Later on after the consolidation has mostly eradicated greed, new positions can be added ahead of the next upleg.

One clue both corrections and consolidations may be ending is 200dma approaches.  200-day moving averages are the strongest support zones within ongoing bull markets.  So when GDX retreats back to its 200dma, either quickly through a correction or slowly through a consolidation, odds rise that sentiment is nearing sufficient rebalancing.  And so far in this corrective phase, GDX hasn’t even come close to its 200dma.

The day that last gold-stock upleg peaked in early September, GDX was running 1.341x its 200dma.  At worst in late November when the major gold stocks revisited their correction lows, that metric contracted to 1.047x.  But GDX still remained almost 5% above its 200dma, way too high for a convincing approach.  By late December that ballooned back up to 1.151x, and was still running 1.109x in the middle of this week.

Thus while overboughtness has mitigated considerably in recent months, it never went away.  Both prior gold-stock corrections saw GDX plunge way under its 200dma, to 0.767x and 0.801x respectively.  While such deep correction lows probably aren’t necessary this time around, this leading gold-stock benchmark could easily fall 5% to 10% under its 200dma before greed is eradicated.  So considerable risks remain.

The key to successfully trading gold stocks is their dominant primary driver, gold.  Gold’s fortunes over the next few months will dictate whether the gold miners roll over into a correction or keep consolidating high to evade one.  80%+ of gold-stock price action is driven by gold, not company-specific news.  If gold is rallying, the miners climb with it amplifying its gains.  If gold is selling off, gold stocks leverage its losses.

The major gold miners of GDX tend to leverage material gold moves by 2x to 3x.  So if gold rallies 10% from here, GDX is likely to surge 20% to 30% higher.  But if gold falls 10%, this leading gold-stock ETF will likely be dragged 20% to 30% lower.  The lack of a normal gold correction following gold’s own early-September upleg peak is why gold stocks haven’t corrected significantly.  They simply mirrored gold’s action.

At worst in late November, gold had retreated 6.4% in 2.7 months.  While not perfectly synched time-wise, GDX’s 15.4% drop at worst was 2.4x gold’s.  That’s right in the middle of that normal leverage range.  But gold’s parallel high consolidation that has enabled gold stocks’ has also been far milder than bull-to-date precedent.  This gold bull’s prior couple corrections averaged much-larger 15.5% selloffs over 6.0 months!

So whether these wavering gold stocks correct or consolidate depends on whether gold itself corrects or consolidates.  The only way this sector’s high consolidation can continue and avoid rolling over into a bigger selloff is if gold remains relatively high too.  As always gold-stock speculators and investors must look to gold for what’s probable next.  Again it is responsible for well over 4/5ths of gold-stock price action!

Like gold stocks, gold is driven by capital flows.  When speculators and/or investors are buying, gold rallies pushing the gold stocks higher.  When they sell, gold falls dragging its miners’ stocks lower.  What gold speculators and investors do in coming weeks and months will determine the short-term fate of the gold stocks.  Unfortunately the recent gold buying looks precarious, as I detailed in another essay last week.

In recent weeks GDX’s highest close remained 4.7% under its last upleg peak in early September.  Yet gold was breaking out to new upleg highs, fueled by shocking geopolitical events.  The US government assassinated Iran’s top general with a drone strike while he was traveling in Iraq, then Iran retaliated by lobbing ballistic missiles at Iraqi bases used by the US military!  So gold blasted 2.9% higher in 3 trading days.

Those fear-driven gains catapulted gold to $1572 on close, 1.2% above early September’s upleg peak of $1554.  Gold-stock traders were apparently skeptical gold’s gains would hold, as GDX certainly didn’t amplify them like normal.  As I warned in early January, gold stocks’ surge since Christmas Eve looked like a head-fake rally.  Those gains didn’t look sustainable because of the situation gold itself was facing.

Gold speculators’ likely buying was effectively exhausted, while gold investors weren’t buying.  Gold can’t enjoy uplegs without material capital inflows from either or both of these key constituencies.  Speculators mostly game gold through gold futures, which allow extreme leverage exceeding 30x!  Their positioning is reported weekly, and forms trading ranges when considered across gold’s current 4.1-year-old secular bull.

The latest spec gold-futures data before this essay was published was current to last Tuesday January 7th, the very day gold peaked on US-Iran-conflict fears.  Total spec longs, upside bets on gold, hit an all-time-record high of 444.0k contracts!  That implies spec gold-futures long buying is tapped out, since both gold-futures traders and the capital they command is finite.  They are effectively all-in gold, fully deployed.

Meanwhile their total shorts, downside bets on gold, remained really low at 88.0k contracts.  That was just 6.5% up into their trading range during this gold bull.  In those gold-bull-to-date trading-range terms, they had room to buy and cover just 11.8k contracts.  But they had room to sell short a massive 168.7k!  The spec gold-futures shorts were near their effective floor, so traders likely weren’t able to buy materially more.

The most-bullish-possible near-term setup for gold is specs being 0% long and 100% short in gold-bull-trading-range terms.  If positioning looked like that, the gold stocks would be poised for a major new upleg running from here.  But this latest data revealed specs were actually 100% long and 7% short, which is still close to the most-bearish-possible for gold of 100% and 0%!  Speculators can’t buy much more from here.

Even worse, they are going to soon have to sell a big fraction of their excessively-bullish bets to normalize their positions.  Gold-futures contracts have expiration dates.  So these all-time-record-high longs have to be sold sooner or later, which will push gold lower.  And that could be much lower.  Including both their longs and shorts, specs now have room to buy 11.8k contracts but room to sell 36.0x more way up at 426.1k!

So the gold stocks aren’t only not going to get help from more gold-futures buying, big gold-futures selling could slam them lower amplifying gold’s losses by 2x to 3x.  That means the only hope for gold stocks to continue consolidating high rather than rolling over into a correction is gold investment buying.  Although global gold investment demand is only reported quarterly, there’s a great daily proxy of investment capital flows.

That is the holdings of the leading and dominant gold exchange-traded fund, the GLD SPDR Gold Shares.  GLD acts as a conduit for the vast pools of American stock-market capital to slosh into and out of gold.  If you need to get up to speed on the critical importance of GLD capital flows evident in its holdings or that spec gold-futures trading, last week’s essay covered both in more depth.  Gold stocks are this essay’s focus.

These lukewarm wavering gold stocks can only keep consolidating high if gold itself does.  And with the gold-futures traders’ buying effectively exhausted, gold stocks’ only near-term hope is big gold investment buying.  This chart of GLD’s daily gold-bullion holdings superimposed over gold unfortunately proves this isn’t happening.  Investors were barely buying gold in recent weeks, and that has rolled over into selling.

Gold investment capital flows tend to lag gold somewhat, as investors are slower to respond to gold price swings than speculators.  GLD’s holdings peaked at 924.9 metric tons of gold held in trust for shareholders in late September a few weeks after gold’s last upleg originally crested.  Then investors’ enthusiasm for gold faded with its price, so GLD’s holdings fell 4.8% or 44.3t into mid-December as GLD shares were sold.

While gold’s downtrend-breakout rally happened on Christmas Eve, it was testing other key resistance the day before.  So Friday December 20th was really gold’s last normal correction day.  Over the next couple of weeks, gold would surge 6.4% higher first on that breakout and later on the US-Iran conflict flaring.  But American stock investors weren’t doing much buying, as GLD’s holdings only grew by 1.2% or 10.3t in that span.

There was little investment buying fueling gold’s recent spike to a new 6.8-year secular high.  The lion’s share of the gold buying driving those fast gains came from speculators buying gold futures.  In roughly that same span, specs added 43.7k gold-futures longs.  That’s the equivalent of 135.8t of gold buying, or 13.2x more than GLD’s holdings build!  Gold’s breakout can’t continue without big investment-capital inflows.

But much more ominously, over this past week that modest differential-GLD-share buying has turned into sizable investment selling.  Once gold’s sharp geopolitically-fueled gains proved unsustainable, investors quickly resumed exiting.  In just 3 trading days ending last Friday, GLD’s holdings plunged 2.4% or 21.7t!  That more than wiped out recent weeks’ entire build, dragging GLD’s holdings to a fresh correction low.

It’s certainly understandable investors aren’t enamored with gold.  After spending just two trading days at new upleg highs early last week, that breakout fizzled out.  And gold investment demand usually proves weak anyway when stock markets are near record highs spinning off great euphoria.  That’s certainly the case today, thanks to the Fed’s extreme easing via ongoing QE4 money printing monetizing US Treasury bills.

The gold investment capital flows per their leading daily proxy argue that gold’s breakout spike was just a temporary anomaly with no foundation.  If this gold investment selling persists on balance, it is going to push gold lower.  That could unleash the vast pent-up selling from speculators’ record gold-futures-selling overhang.  Being effectively all-in, the gold-futures specs really couldn’t buy more even if they wanted to.

The continuing viability of gold stocks’ high consolidation in recent months is totally dependent on gold’s fortunes.  Gold needs ongoing capital inflows to stay high or rally higher.  The gold-futures specs can’t buy, and the gold investors aren’t buying.  If the investors’ recent selling pushes gold low enough to start unleashing that massive gold-futures selling, gold will roll over into a correction dragging gold stocks with it.

These lukewarm wavering gold stocks have only consolidated high because gold has.  They will definitely get dragged into a real correction if gold breaks down.  And that’s very probable given speculators’ current gold-futures positioning and investors’ ongoing gold selling.  If gold falls 10% from here, which is mild by bull-to-date standards, the major gold stocks as represented by GDX are likely to amplify that to 20% to 30%.

That’s a lot of asymmetric downside risk compared to very-limited short-term upside at best!  So it remains prudent to be wary here, these relatively-high gold-stock levels likely aren’t sustainable.  The fortunes of this sector overwhelmingly depend on gold’s own.  And both gold-futures speculators and gold investors seem far more likely to sell than materially buy in the near future.  That’s certainly bearish for gold stocks.

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The bottom line is gold stocks have been wavering in a high consolidation only because gold has mostly done the same.  The gold miners can’t break out to the upside without sustained higher gold prices.  But that’s really unlikely given speculators’ record excessively-bullish bets and investors continuing to sell on balance despite gold’s recent geopolitical spike.  That investment selling will likely trigger big gold-futures selling.

要約すると、金鉱株は高値で揺れ動いてきた、その理由はゴールドの値動きによるものだ。ゴールド価格が持続的に上昇しないかぎり金鉱株がブレークアウトすることは出来ない。しかし投機筋の記録的に過剰な強気の賭けをみるとそういうことは起きそうにない、また投資家は最近の地政学的緊張にも関わらず引き続き売りを継続している。この投資家の売りがゴールド先物の大きな売りを引き起こすだろう。

 　

That would force the gold stocks to roll over into a real correction, breaking down to the downside.  That’s normal after major uplegs in this gold bull, rebalancing sentiment way more quickly than drifting sideways can.  Gold-stock traders must remain wary until speculators’ extreme gold-futures positioning finally gets normalized through big selling.  That will usher in the buy-low opportunities before gold’s next major upleg.

こうなると、金鉱株は本当の調整とならざるを得ない、下落ブレークアウトになるだろう。現在のゴールドブル相場のなかではこういうことはごく普通のことだ、こうして市場参加者の心理を再バランスする、横ばいよりも下落のほうが再バランスには効果的だ。金鉱株トレーダーは、投機筋の極端な先物ポジションが大きな売りにより正常化するまで、注意せねばならない。こういう状況になると安値で買う良い機会だ、次の大きな上昇が待ち構えているのだ。

Adam Hamilton, CPA     January 17, 2020     Subscribe