We knew this correction was coming. I hope you were able to read my commentary from last week where I urged you to take profits and trim positions back to your planned allocations.
I wrote this on Wednesday of last week, just two days before gold and silver peaked and crashed:
“I want to be very clear: this bull market is not over. I believe prices will move higher – but first, they will probably move lower.
It’s not in my immediate interest to tell you to be cautious right now. It would be far easier for me to be a rabid precious metals bull right now – and to tell you to buy my services like they’re the last helicopter out of Saigon.
But I have to put your interests first. And right now, I’m urging caution.
Here’s why:
During this precious metals bull market, we have not seen a major drawdown yet. Last October, we saw a less than 10% drawdown for gold and silver.
That’s nothing. It’s typical to see 30%+ drawdowns before a bull market is over.
From late 1974 to mid-1976, gold declined from $187/oz down to just over $100/oz. That’s a 40%+ drawdown.”
I’m glad that I was right to be cautious. But we also don’t know if this correction is over. You’re going to see a lot of chatter about why this correction happened – but you need to ignore this kind of commentary. It’s almost always pure nonsense.
The facts: gold and silver were in a parabolic price trend.
A parabola (if you remember your high school Cartesian math) is a curve that (in this case) approaches the vertical axis.
It’s a highly unusual shape for a price chart, because it means the price is heading up towards infinity as time goes on.
As bullish as you and I might be about gold prices, it’s simply absurd to think “infinity” is the likely price target for precious metals.
A correction was overdue. Prices simply do not and can not go vertical forever. And whenever something “can’t go on” it will tend to stop. It really does not matter WHY it stops.
We can guess that the market reacted to the Trump Administration’s announcement about a new Fed Chair, or some new margin requirement from the Comex, or a shift in policy from China.
The underlying thesis for metals is what counts. No central bank is dumping gold or silver. No central bank is pursuing fiscal or monetary austerity.
And the investment thesis (for my purposes as a gold analyst) is more about the mining and royalty stocks that I follow. As I’ve been writing – well over 90% of the stocks I cover in my paid portfolios are under my fair value price targets.
This correction is bringing some of them even further into undervalued levels. But we’re still well within an uptrend even going back just a few weeks.
A quick look at some of the companies in my GP10X portfolio:
● Company #1 hit all-time high of $17.40 on Jan 29, currently trading around $14.30, down ~18% from peak.
● Company #2 hit $7 on Jan 28, down 23% from that high.
● Company #3 hit all-time high of $26 on Jan 28, down 15-20% from peak.
● Company #4 hit all-time high of $35.46 on Jan 29, currently around $27.50 – down 18% from peak.
For the record, three out of four of these companies are still in positive territory if you bought them on January 1st.
But they’re all screaming deals – well under fair value price targets.
I believe we’re going to see some fantastic deals moving forwards for my favorite precious metals stocks. This correction is giving us better prices – and though the downturn may get worse before it resumes the uptrend, it’s not a bad problem to have.
Be patient and consider nibbling on your favorite companies now… We can’t know how long this correction will last.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio