Gold-shorting plan:
Gold and miners have been in a bear market since mid-2020. We are having a bear market rally, which will die sometime.
TA: The charts of GDX and GDXJ show a series of lower highs, and lower lows. Gold has a series of lower highs, support at 1675. This pattern has not changed.
FA: all-in cost of production is around $1000 for most miners; current gold price is much higher.
Real interest rates are at an extreme level, far outside the historical range. Rule #1: ReversionToTheMean. The difference between ttm inflation and 10y Treasury yield is -4.5%. What are the odds it gets more negative, or stays at current levels, compared to the odds of a large change towards historical norms? Betting that extreme outliers become more extreme, is usually a losing bet.
The Fed is tapering, and will raise st rates twice in 2H22 (more if inflation stays anywhere near today’s levels). Other central banks are already raising rates. GDP growth in 2022 will be lower than 2021, in every major economy. Supply chains will get fixed (timing uncertain).
% change, 2020 high to 2021 low to today’s high:
GDX: -36%, +21%
GDXJ: -43%, +30%
gold: -20%, +12%
Since GDXJ moves the most, I will use that. Since I want to limit my risk, I will use puts instead of shorting. I am considering Jan2023 at-the-money puts.
Now I just need to decide when this temporary infatuation with gold is at its peak.
Disclosure: no current position. I was long gold miners till September. |
