Welcome to the beginning of a precious metals bull market.

Gold bulls have had it tough.

After surging to a record high in August 2020, the price of gold has traded sideways between $2028 and $1643 (basis gold futures).

But now, gold has surpassed the old high and is doing so in a meaningful way.

And the background couldn’t be any better to create a sustainable move higher…

Sentiment is in the toilet, which means that gold and gold-related stocks are under-owned.

Miners are completely distressed as overall capital spending is at unprecedented low levels. The mining industry has been in a capital-starved depression for more than a decade as technology investing has dominated risk capital flows.

Yet, at the same time, central banks are accumulating the metal at a record pace as overwhelming levels of debt increase worldwide, marginal new gold discoveries are being made, and the quality of existing reserves is deteriorating.

And the opportunity is not going unnoticed.

Big smart money investors like Stan Druckenmiller and Paul Elliot Singer are now just starting to make their moves into gold equities. The markets could turn quickly as these are the types of leaders that other smart money, and ultimately the crowds, tend to follow.

Per the Duquesne Family Office’s recent 13F filing, Druckenmiller completely sold off his mega-cap tech holdings in Alphabet, T-Mobile, Broadcom, Alibaba, and Amazon last quarter. He also sold 29% of his Nvidia and established new positions in Newmont Mining, Barrick, and Freeport McMoran.

Meanwhile, the Financial Times just reported that Elliott Management, one of the largest and most successful activist hedge funds is “setting up a company to hunt for global mining assets in the range of at least $1bn as it seeks to take advantage of the depressed valuation of groups operating in the sector.”

Gold is showing the way, but silver and miners should take the leadership.

Let’s start with the weekly gold chart (SPDR Gold Trust, GLD) shown below. The price of gold is breaking higher out of a multi-year consolidation.

At a minimum, a price objective near $230 is obtained by adding to the breakout level of $191, the high-low of the consolidation period.

Another factor benefiting gold is that gold and the U.S. Dollar have an intuitive inverse relationship: When the value of the dollar rises, gold drops, and vice versa.

Currently, the U.S. dollar is falling.

The next chart shows the Gold to U.S. Dollar ratio. As the dollar weakens it makes gold more valuable. You can see that it too has broken out of a multi-year consolidation.

Weakness in the U.S. Dollar is being caused by dollar debasement.

As the U.S. debt continues to accelerate, the U.S. is forced to monetize the debt, thus increasing the supply of money and lowering its value. Note that this is also inflationary.

The U.S. national debt is rising $1 trillion every 100 days, according to Bank of America.

This is unsustainable. Something has to give. And it further strengthens the argument to own gold.

Silver

After three prolonged years, the consolidation phase in silver prices appears to be approaching an end.

No other asset has frustrated investors more than the ongoing expectation of the metal reclaiming its prior peak levels.

While timing this precisely is nearly impossible, the prevailing pessimism toward silver suggests that a historical breakout could be imminent.

Keep in mind that “cup and handle” formations often result in drastic price movements, and given silver’s inherent volatility, this pattern seems particularly apt for the metal.

Fundamentally, silver production from Mexico and Peru, the world’s two largest producers, is at its lowest point in 14 years.

The combined output is now down 25% from its 2016 peak levels.

As gold breaks out to record levels, igniting a new bull market for precious metals, a major supply and demand mismatch is poised to drive silver prices significantly higher.

For investors interested in rotating out of the crowded overvalued large-cap growth/tech stocks, this may be the perfect time to catch this industry group before the idea becomes more mainstream.

In addition to ETFs such as GLD (SPDR Gold Trust) and SLV (iShares Silver Trust), investors may want to also consider GDX (VanEck Gold Miners) and GDXJ (VanEck Junior Gold Miners).

The chart below of GDX will form a bullish breakout on a price move above $31.

More aggressive investors coming in now could use a stop at $26 or slightly below to protect capital in case the idea does not work as expected.

If you’ve been considering hiring an advisor to help guide you through the ever-changing financial landscape, take your first step today by scheduling a free consultation with one of our experienced team members. There’s no risk in exploring if we’re the right fit for your financial goals. Contact us now.