Sean Brodrick – US Dollar Weakness, Bank Of Japan Policy, Fed Policy Expectations, Gold, Silver, Mining Stocks, The Energy Sector, And The Potential Reopening Of China
Sean Brodrick, Natural Resource Analyst at Weiss Ratings and Editor of Wealth Wave, joins us to share his macroeconomic outlook, as well as thoughts on the US dollar weakness, the surprise policy decision from the Bank of Japan today, Fed policy expectations moving into 2023, and his expectations for pricing trends in gold, silver, PM mining stocks, oil, nat gas, and the energy sector as we move into next year. We also discuss the ramifications if China was to reopen it’s economy in 2023.
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Click here to visit the Wealth Wave website to keep up to date with Sean’s market comments.
1 Gold Chart That Rules Them All
By Sean Brodrick – Wealth Wave – December 13, 2022
“Precious metals have trounced other commodities recently. Since a recent bottom in September, gold miners tracked by the VanEck Gold Miners ETF (GDX) are up 27.5%!”
“That outperforms the leading oil stock ETF, the Energy Select Sector SPDR Fund (XLE), which is up only 19.6%. And the broad-based iShares S&P GSCI Commodity-Indexed Trust (GSG) is actually down a little more than 1%!”
“But don’t just take my word for it — take a look at GDX’s chart …”
https://weissratings.com/en/wealth-wave/1-gold-chart-that-rules-them-all
I agree with Sean Brodrick’s enthusiasm for the Precious Metals, and in particular — Silver.
Silver futures continue to ratchet higher and higher, with a pattern of higher lows and higher highs for the last 4 months for all of September, October, November, and December. The Gold:Silver ratio has also come back down under 80 again, which is a good sign.
– Today Silver futures closed at $24.27… That’s quite a huge $7 move from where silver bottomed in early September at $17.40.
– Gold had a nice day too, closing up at $1825.40. (That’s a far cry from it’s recent low at $1618).
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> I thought prophetic Joe told us that we’d be plumbing new lows in December?
> Didn’t our site prophet mention we should sell everything and go to cash in September?
> Didn’t some #JoeWasRight contrarian indicators club members proclaim that was the “right” course of action to take at that time?
As the saying goes… “The Truth Will Out.”
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>> Here is a Silver chart for those that would like to look at actual data over hyperbole:
Note that the 55 day EMA has now bullishly crossed up through the 144 day EMA and the 233 Day EMA.
Note the pattern of higher lows and higher highs in the Silver chart since bottoming at $17.40 in September.
Facts trump opinions.
The US Dollar was another prime market mover again today, down sharply on the day (currently at $103.60)
https://www.investing.com/currencies/us-dollar-index
It was interesting to hear Sean’s downside target of 98-99 in the US Dollar, and that while most are expecting a near-term bounce in the greenback, he doesn’t expect it to be that significant, and feels it could even blast down through support at 102. Anyone else think that is a high probability?
On this 5 year USD chart the dollar has been in downtrends for about one year and sideways+ for about two years, the other two years it has been on a tear to the upside.
The drop this quarter from 1.11 to 106 in one week shows profound weakness, all in my humble opinion of course, I’d give it a good chance given that other currencies are now paying higher yields that the almighty buck gives most of the rally back, much like July ’20. I call a dead cat bounce.
Just my 2 cents worth…
Great thoughts Dan, and thanks for sharing your technical outlook on the US Dollar.
Yes, the greenback is showing some profound weakness, since it’s top at 114.70, but it is likely coming up to a spot where a dead cat bounce would be a normal reaction to it getting pretty oversold and such an aggressive move down. Many technicians online have been eyeing that 102 level, but it was interesting to hear from Sean B. that he doesn’t think it will be much of a bounce at all and he is looking for a move all the way down to 98-99, before seeing a more meaningful pop back higher again.
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A technician and analyst that I have a great deal of respect for is David Brady, and he is in the camp that Dollar is in a compression triangle that will resolve bullishly to the upside in the near future. If that is what ends up playing out, then that move higher in the buck could be a wet blanket on the PM sector for a bit, and provide the corrective digestion move sideways to lower that many are expecting in the near-term.
> Here is a DXY chart that David posted recently:
https://media1-production-mightynetworks.imgix.net/asset/50570905/image.png
The perfect carry trade………….borrow in yen, sell the yen an move to loan to higher yielding currency………a perfect 7 month no brainer for some……….but the unwind begins………………I don’t believe its over in one day…………….even for a second !!
But good for USD weakness and PM Bulls……that is for sure !
Great points LarryC. Agreed.
More jurisdiction risk in Latin America – this time from Panama. Personally, I consider Panama uninvestable, (and I’m not adverse to some higher risk jurisdictions in my portfolio, especially if they’ve been overdone to the downside on the discount they’ve received).
In a prior life, we insured a guy that had a business in the US, and a branch in Panama – helping dredge the canal and hauling away dumptrucks of sand and dirt. The trucks were hijacked a few times at gun point for bribe money, and then when one of the drivers had a gun and shot back in self defense, he was put in jail, and the cops didn’t care to investigate or stop it from happening, they just wanted their own bribe money. We finally had to drop coverage on the business, as the Panama exposure was just too risky, even though all the US based portions were just fine. I learned then what a political cesspool Panama was, and how corrupt the government was.
Anyway… here’s the latest with the Panama government injecting itself into a substantial Copper mine from First Quantum.
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Canadian Firm Blames Panama For Closure Of Copper Mine
AP News – December 16, 2022
A Canadian company claimed Friday the government of Panama has cut off talks with it, resulting in the closure of a huge copper mine.
Canada’s First Quantum Minerals Ltd. said in a statement that it had been negotiating with the government of Panama, which wants vastly increased royalty payments of $375 million per year from the company.
Analysts say the dispute threatens to have a huge economic impact in Panama, where the Cobre Panamá mine accounts for 3% of Panama’s gross domestic product, and poses a big challenge for the government, which will still have to administer the open-pit mine.
First Quantum said in a statement Friday it had agreed to those payments, and “came very close to an agreement to secure the long-term future of the Cobre Panamá mine before the Government halted discussions.”
Ur-Energy Inc. (NYSE:URG, TSX:URE) Production to Resume as Contracts Increase, Sales into Uranium Reserve
David A. Talbot | MD, Mining Analyst – Red Cloud – December 19, 2022
Impact: Very Positive
“Ur-Energy provided an update on its sales commitments, a successful bid
to sell 100k lb U3O8 concentrate into the US uranium reserve, and the
decision to resume operations at its 100%-owned Lost Creek ISR uranium
facility in WY, in Q1/23. We view this return to production by one of the
lowest cost producers in the US as a very positive move and strong
testament to the improvement in the uranium market. Further
expansion potential exists not only with Lost Creek but with the
development-stage, Shirley Basin project, also in WY. Additionally, we
believe that the reserve price of ~US$65/lb may incentivize more ISR
as well as conventional production in the USA, as it is well beyond
current UxC spot (US$47.75/lb) and long-term (US$51.00/lb) prices.”
https://cdn-ceo-ca.s3.amazonaws.com/1hq3j26-20221219-URE-Update.pdf
For folks interested or that follow the Uranium Sector – Here is a link to a 3 hour and 34 minute conference totally focused on Nuclear energy and the Uranium fuel cycle and related U308 mining stocks.
Grizzle Uranium 1×1 Conference Live! #Uranium #Nuclear
Energy Fuels Inc. (TSX:EFR) (NYSE: UUUU)
US$18.5M Uranium Reserve Sales Contract Awarded
David A. Talbot | MD, Mining Analyst – Red Cloud Securities – December 16, 2022
“Energy Fuels has been awarded a contract to sell US$18.5M worth of U3O8
concentrate to the US uranium reserve, signaling that the reserve
program is finally getting off the ground. This program is to help ease the
40% reliance on Russian and allied uranium sources. EFR has also applied
for membership to the DOE’s newly created HALEU consortium. While
the volume of material was not provided, we estimate the sale may
represent up to ~360k to 385k lb U3O8, ~50% of EFR’s current inventory
level of 760k lb U3O8. We view this long-awaited news positively as we
expect ~US$75M worth of purchases to be made by the US
Government this year, potentially increasing to US$150M p.a. moving
forward, boding well for US producing uranium companies that are
likely to consider the uranium reserve as part of its future sales mix.”
https://cdn-ceo-ca.s3.amazonaws.com/1hq10ic-20221216-EFR-Update-1.pdf
Goldfinger’s 2022 Tax Loss Silly Season Shopping List
by @Goldfinger on 15 Dec 2022
https://ceo.ca/@goldfinger/goldfingers-2022-tax-loss-silly-season-shopping-list
G savage warning of a daily cycle top and excessively bullish sentiment for gold. Can’t say I disagree. I’ve probably gotten too excited. Maybe it’s time for gold to test the rising 50dma?
There is a possible h&s formation on the daily chart that would in fact project down to about the current 50dma if triggered.
I don’t agree with Gary. Sentiment is still supportive of going higher as far as I can tell. The usual suspects have been very bullish (like me) but most still seem to worried about what’s coming next. The very small number of comments here under the weekend show is a sign that there’s little bullish confidence.
I bought SILJ yesterday for the first time in quite awhile along with HL and IPT.V.
This week is an important one and being careful makes sense (though I’m being aggressive).
SILJ:SLV weekly:
https://stockcharts.com/h-sc/ui?s=SILJ%3ASLV&p=W&yr=7&mn=3&dy=0&id=p91278606813&a=795168406
The drop in this ratio from late November is vexxing and, for me, completely inexplicable given the trend in silver. The fact that significant resistance/support was breached on that move seems to suggest it’s more than just noise. What were the silver miners discounting on that move?
There are all kinds of possible reasons for the discrepancy especially in a “risk off” environment. For one, the silver miners are not exactly cash cows even though silver has gone up substantially lately. Two, the metal was the no-brainer in recent months while the miners needed lots of confirmation that the sector was turning up. Buying silver cheap is not the same as being sure that silver will be consistently much higher soon so you can see why even big money might choose the metal which is infinitely safer than the miners if the sector goes sideways instead of up for an unexpected time. On the other hand, we buy the miners cheap when we think they/silver will be higher relatively soon since they can go bankrupt or at least deteriorate financially if silver doesn’t rise. Silver has no such risk so it can be bought even when the near future seems uncertain. Whatever the reason for the discrepancy I am not concerned but will be if the SILJ:Silver ratio simply makes another low. That should not happen if I’m right about the situation which is why I bought SILJ yesterday.
In fairness to Gary, he did acknowledge the possibility that the first daily cycle could start from a significantly higher position (maybe $1900?). A large spike in a very short period of time here to $1850-1900 is obviously within the realm of possibility. Overbought become more overbought, which is a sign of a real bull market.
XAU is about to head for that weekly gap near 150…
https://stockcharts.com/h-sc/ui?s=%24XAU&p=W&yr=5&mn=0&dy=0&id=p72064628314&a=1215220957
XAU has led the miners when it comes to the 200 day and 200 week moving averages.
https://stockcharts.com/h-sc/ui?s=%24XAU&p=W&yr=5&mn=7&dy=0&id=p43576189975&a=1306748386
Silver has smoked the rest of the sector so far and its weekly RSI is now at a 2.25 year high.
https://stockcharts.com/h-sc/ui?s=%24SILVER&p=W&yr=5&mn=0&dy=0&id=p45494820594&a=1236060031
G Savage used to say in a bull market, surprises come to the upside.
That being said, USD currently kissing its rising 50 WMA for the first time in over a year.
There is also a potential H&S pattern on the weekly and daily USD chart and the 50 WMA is conveniently coming in right at the neckline. So a bounce off of the 50 WMA to build out the right shoulder of the H&S for a few weeks would make some sense technically. Also, the USD weekly stochastics are deeply oversold (which isn’t definitive since it can embed oversold), which suggests the downward move might run out of a bit of steam in the very near term.
I would expect gold and silver to come under some pressure on a USD bounce, or at best trend more or less sideways, but who the hell knows.
You see that weekly MACD? Don’t expect a significant bounce from here…
https://stockcharts.com/h-sc/ui?s=UUP&p=W&yr=3&mn=0&dy=0&id=p07337469081
The way HL has pulled away from my mexican miners (AG and EXK) has me very tempted to pile into HL and out of those two, which are bigger positions for me currently. I wouldn’t completely exit AG and EXK but I would weight my portfolio more towards HL.
The thing is, in a strongly trending bull, AG and EXK have generally outperformed HL, but is this time different?
HL is at least ostensibly mostly in safer jurisdications (US and Canada). HL also made an extremely well timed acquisition of AXU this fall (they literally timed the silver bottom perfectly) and that could be contributing to HL’s recent outperformance.
What say ye?
I like HL more than both of those and it does seem to have more near term upside versus both of them but I think they will strengthen a lot soon since I believe the whole sector is in for a great Q1 2023 (and beyond).
It’s probably not different this time regarding AG and EXK so it’s a tough one if maximum performance is your goal. I’ve mentioned many times that I expect CDE to beat HL when things get going and I still think it will (it did yesterday) but I also still don’t own it and don’t plan to. More upside potential is always the result of more risk of some kind (balance sheet/leverage, jurisdiction, quality/viability of assets in the ground, etc.) so I’ll stick with HL and SILJ to go with the really big potential of some tiny caps like KTN, IPT and others.
In November-December, HL continued to rise with silver. HL completely diverged from miners like AG and EXK at that point. All three had remarkably similar setups, especially with respect to their 50 WMAs. the 50 WMA stymied AG and EXK, but HL blew right through it for whatever reason.
IMO, the silver miners like EXK and AG are setting up like TSLA at the start of its epic run from 2019 to 2021 when it went up about 40x.
I’ve already mentioned how eerily similar the structure of TSLA’s basing action over the 6 years prior its massive move is to the silver miners’ basing action between 2016 and now.
If the analogy holds true, the silver miners should start a massive move higher imminently (within 2-6 weeks).
Good comments and agreed Matthew – with regards to most silver stocks having a pretty good year setting up for 2023. It’s hard to know which ones will have the best ultimate performance, but I held onto my CDE position instead of rotating more over to HL, just because it could come from behind and have some more catch up (based on some of the charts you’d shared a little while back). I’ve also got positions in EXK, SVM, FSM, USA, and SIL (Silvercrest…not the ETF).
My best series of trades in the larger silver stocks for 2022 was actually in GATO, and I’ve temporarily sold out of it until the first week of January, to book those gains against other tax losses for the year to wash them out, but I’ll be piling back into it as well, as the valuation got way oversold earlier in the year when they questioned some of the resources in the ground, and like we typically see, resource investors sold first and didn’t ask questions. I still think GATO will have a big rerating back up to more sane levels in the next year or two.
As for smaller silver producers I have ASM, GSVR, and IPT. (I’ve been in SCZ for years and had another epic year but also temporarily sold out of it to book the gains in 2022 against other losses until the first week of January… and then will be getting back in again).
Hi Matthew, I was wondering how you decide when to sell a position, I imagine you use your charts as well as maybe some other formula, knowing when to sell is critical. It is something rarely discussed, unlike buying. When to take a profit or waiting on a position requires more thought than most give it. *I am talking about the risky juniors. * DT
Hi DT, I wish I had a formula to make that decision easier because it is often not easy at all. The charts play the biggest role but not just the charts of the companies themselves. I watch gold and silver and several seemingly unrelated sectors. Even if I knew as much as I should about geology and every other important aspect of mining I would still make the charts my number one tool since price action is the result of sentiment and ultimately all known information.
Charts or not, it’s the early gainers in a bull market that are often easiest to sell because other appealing plays are still plentiful and “derisking” your positions early is not a bad idea. But one must sell winners cautiously since they can go far higher than most expect especially during a mania that sends the whole sector parabolic. I usually buy a lot more of any good company than I should so that I can sell a lot of it as it rises and still have plenty left for the longer term. It’s therefore not often that I feel the need to press my bet when I have a winner.
Many like to sell half after a double but I’m more likely to sell a third after more than a triple but it depends on the company and the macro conditions. Sometimes I boldly let the whole position ride and other times take back my initial investment well before a double. How much upside does Brixton Metals have according to BHP? I don’t know but it has to be a lot by my standards or BHP wouldn’t have acquired 19.9% of the company. Crescat Capital thinks it has the potential to return 50 times its investment. I just “know” that we are in for a big bull market of the sort that happens once in an investing career so Brixton is almost sure to trade for far more than it is worth no matter where it ultimately tops. If it’s a big success and becomes worth every bit of $3 per share it’ll probably go $10 or much higher. Conversely, it could easily hit $3 even if it is never really worth $1. Brixton is just an example and none of those numbers are predictions. Most juniors are going to perform better than they should but those that have discoveries as Brixton appears to will perform exceptionally well and will be exceptionally difficult to call with decent accuracy.
In the end the big winners will be those that have realistic exit strategies and stick to them in the midst of everyone else losing their minds to manic FOMO.
We have to think about political risk these days more than usual with all these collectivist rats trying to get control of every aspect of our existence.
We have to think about where the metals are going. Why blow out Kootenay anytime soon if silver is heading straight for and through its old highs of 1980 and 2011?
We have to think about the stock and bond markets. Bull markets in the gold sector happen when conventional stocks and the economy are doing poorly and the biggest and best bull markets in the gold sector happen when the bond market is also doing poorly along with the stock market.
Mining success is difficult while risks seem to come from every possible angle as Pure Gold and Alexco found out along with too many others to count.
It’s always a good idea to get to know your companies but it’s crucial when we are not in a crazy bull market like the kind I’m expecting since you’re opponents will be careful and sober.
+1 Really good thoughts and well-stated on many aspects of holding onto stocks that will really move higher than most expect during the unfolding secular bull market. Investors holding onto their higher torque positions, or even slow and steady lower torque positions, over the next 2 years should be handsomely rewarded for their patience with valuations that get to extremes on the upside (which will be a nice contrast to the valuations at extreme lows that we’ve seen in 2022). Looking forward to 2023 and 2024, as bigger picture, the PMs are set march to new highs within the context of the current longer-term technical set up, and the robust stew of macroeconomic factors coalescing into the middle to latter part of next year.
Hi Matthew, thanks for the reply, it is a must read. I have to admire your patience as well as you’re thinking on such an important topic. Like they say there are a million reasons to sell and only one to buy. This is a difficult subject because what it really comes down to are individual preferences, and how well you handle fear and greed so you can make the correct decision. Well done, Matthew. Thanks again! DT
Right on DT, it’s a difficult subject and individual preferences/goals are very important to making the right decisions.
Btw, I bought more KTN this morning under .15; little did I know it was about to reverse and take off!
In the morning Brixton usually looks like a yawner, but towards the end of the day quite often a few big buyers seem to step into the breach, it’s nice when it happens on a day when the phyz is down! DT
Yes BBB turned around and moved 7.7% off its low for the day and did so on good volume while the metals AND the stock market were down!
As expected it is blowing away the big golds and even the vaunted Franco-Nevada…
https://stockcharts.com/h-sc/ui?s=BBB.V%3AFNV&p=W&yr=6&mn=1&dy=0&id=p71169986456&a=1001203968
Platinum Coils Up
By Sean Brodrick – Wealth Wave – December 20, 2022
“It sure looks like platinum is coiling up for a big move. And I believe it’s a breakout to the upside.”
“Today, I’ll explain why, and how you can play it. Let’s start by looking at a weekly chart of platinum:”
https://weissratings.com/en/wealth-wave/platinum-coils-up