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  • Podcast

    Fred Hickey: Why A Lifelong Technology Expert Favors Owning Gold

    It's the safest & most undervalued asset today
    by Adam Taggart

    Monday, February 19, 2018, 6:35 PM

Fred Hickey, frequent cited expert on Bloomberg News and Barron's Roundtable, has been publishing his author extremely well-respected investment newsletter, The High-Tech Strategist, for 31 years. And he is more worried about the state of the financial markets today than he's ever been.

While his primary focus has been on analyzing Tech stocks, over the years he has expanded into macro trend analysis as the central banks starting increasingly intervening in world markets and distorting the price of money.

He now finds asset prices dangerously overvalued (within Tech and without) and worries — as we do — about the risk of a major market correction and possible currency crises.

Ironically, this lifelong expert in "all things technology" has concluded that gold (the "barbaric relic") is the sanest asset to put one's capital in these days — both due to its safety factor and its current level of undervaluation. He expects the precious metals to fare well during the downward market volatility he foresees, and he is now tracking the mining stocks closely as he predicts they will experience dramatic appreciation from here.

What’s happening to gold mining stocks right now is an amazing story. They're extremely undervalued. Just this year, we’ve seen the price of gold hold up during this market decline, yet the miners have been getting slaughtered.

One of the things we look at is the HUI-to-gold ratio, or the gold miner index to gold. That is down to 0.133. Now, that's lower than it was at the 20-year bear market bottom in 2000. It was slightly lower than that at the end of 2015, but we’re talking about near record lows here when the price of gold is up. It looks to me that gold is in a bull market. The charts look that way. It looks that we have higher highs and higher lows, and we’ve gone from $1,050 to $1,330. I think once we go over $1365, which is the old high hit in 2016, then more people will come on board and we’re likely to slingshot higher from there. But the miners have gone in the opposite direction. 

I think there’s some reasons for that. One of which is that we have a huge short position built up in the GDX ETF. In the technology world, the Facebooks, and Amazons, and Netflixes, and Googles — the FANG stocks — they get propelled higher as the money pours into the ETFs. Well, it works the opposite way in the gold miner area where money has poured out.

In March of 2017, we had 510 million shares outstanding on the GDX. Just a week ago, it was 310 million, or a 40% decline. Now, a lot of that was short interest. We went up to 55 million shorts of a now-310 million share total. 20% of the total shares outstanding in the GDX were short. Now, that’s like Tesla levels — one of the most favorite shorts on Wall Street. And why would that ever be in a market where gold looks to be in a new bull market? Gold certainly is up more than 20%. And the charts all look like it’s in a new bull market. How could anyone put out this kind of short interest?

Well, it’s one of the problems with the central bank is when you make money as cheap as you do, and you can borrow as much money as you want, then you can play games. It becomes a giant casino. And the people who are playing the short game have helped to drive the price of the miners down at a time when people would have thought they would have risen.

We’ve had this turbulence; the miners should have gone up. Gold held its own. It's up slightly on the year, but the miners are getting killed. The owners can’t get their head wrapped around it, so they get demoralized and then they sell out. I think we saw that, maybe, on Friday (Feb 9). We saw a capitulative moment.

And then what these shorts will do is that then they’ll cover. Now, it’s unfortunate that they get stampeded like this, but it’s the kind of thing you can do when you have the ability to borrow at very low levels and to play games with people. Miners should be going higher. Today, this price of gold is only $30 away from a break-out high yet, the miners continue to go down.

Ultimately, what determines the profitability for miners is the price of gold. Look back at the margins for these miners now, compare them to the bottom. At the end of 2015, they were only making $225 net of all in sustaining costs, so the price of gold versus their all in sustaining costs. And now, it’s double that. It’s $460; yet, the miners haven’t rallied. It’s amazing. This is the same level, almost, that $460 was $490 in 2012 when the GDX was not 21 but 45.

So, we have this huge disconnect between the price of gold and the margins of the miners — which are doing very well because they had to keep their costs low — and the price of the stocks. Now, ultimately, that will get corrected. We saw the huge run in 2015, where gold went up 30% in the beginning of 2016 and the miners went up 180%. And we saw that in 2000, when gold went up quite a bit, and the miners went up 1600%. That’s 17 times the average. We saw that in the 1970s coming out of the bear market there. We saw that on the big net buyers went up at least 10 times, and some of them went up as much as 30 times. So, this happens regularly when the miners get depressed. They get out of whack with the price of gold and margins, and then they slingshot higher. And that’s what I think we’re about to see.

We’re right there. I think there’s going to be enormous amounts of money entering this sector once again, just as we saw in early 2000s, just like we did coming out of 2015, the bottom, just as we did coming out of the 1970s mid-cycle correction. So, I’m pretty excited about it.

Click the play button below to listen to Chris' interview with Fred Hickey (52m:41s).

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14 Comments

  • Mon, Feb 19, 2018 - 5:58pm

    #1
    JohnH123

    JohnH123

    Status Member (Offline)

    Joined: Apr 14 2010

    Posts: 38

    Christ Martenson

    I feel sublimely confident knowing “Christ” Martenson is our host!smiley

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  • Tue, Feb 20, 2018 - 9:18am

    Reply to #1

    Chris Martenson

    Status Platinum Member (Online)

    Joined: Jun 07 2007

    Posts: 4647

    Don't forget the first initials...

    JohnH123 wrote:

    I feel sublimely confident knowing “Christ” Martenson is our host!smiley

    …and the most common first initials that precede that moniker are JHF.

    /Occupational hazard.

     

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  • Tue, Feb 20, 2018 - 10:56am

    Reply to #1

    Pipyman

    Status Member (Offline)

    Joined: Apr 24 2011

    Posts: 56

    *******$€$$$!

    JHF Christ, it hurt to work that one out!

    Can we try why did the chicken next time? Or is that more Alex Jones?

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  • Tue, Feb 20, 2018 - 10:24pm

    #2
    Mohammed Mast

    Mohammed Mast

    Status Bronze Member (Offline)

    Joined: May 17 2017

    Posts: 113

    I am shocked

    I am absolutely shocked  that a gold bug would have little to say positively about crypto currency, (sarcasm duly noted) He did give a little credit to the underlying technology however.

     

    It might be well to remember when and why btc was created. It is barely ten years old coming on the heels of the 08 meltdown. It was designed to be democratic and decentralized. That is it was designed to be the polar opposite of the central bank.

    Are there issues? Of course. Is it perfect? Of course not. It is a nascent technology and to make any kind of broad generalizations in regards to their utility would be silly.

     

    One would think that this community and site owners would be behind the concept philosophically given the daily rants about central banks. Cryptos have brought banking to the unbanked around the world without central banks (can I get an amen?).

     

    It might be well to consider that if the objection to cryptos is that it is not suitable for currency then neither is gold. Gold will never be used as a currency again, that ship sailed a long time ago. So in comparing to two as investment vehicles it is clear that gold is an investment for those that already have considerable assets. That is a minority of Amerikans. Cryptos on the other hand allow opportunities for even the poorest among us.

     

    The issues with btc and others are scalability and high fees these are being worked on and solved. The crypto universe needs time to mature. As a medium of exchange on a personal level I have no problem with its volatility. “I will work for crypto”  Value is determined by agreement. Pretty simple.

     

    The state of Arizona is close to taking cryptos in payment for taxes. Venezuela is issuing its own crypto (the first state issued crypto currency). These seem like currency to me.

    The cryptoverse is 24/7/365 it never sleeps. New developments are occurring daily.

     

    With all the time and research Mr. Hickey does regarding gold I do not fault him. However it would be refreshing if people who have not done the research on this subject to say so and move on. Drive by comments serve no purpose.

     

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  • Tue, Feb 20, 2018 - 10:28pm

    #3
    Mohammed Mast

    Mohammed Mast

    Status Bronze Member (Offline)

    Joined: May 17 2017

    Posts: 113

    Paypal

    https://cointelegraph.com/news/paypal-exec-says-very-high-likelihood-bit

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  • Tue, Feb 20, 2018 - 10:29pm

    #4
    Mohammed Mast

    Mohammed Mast

    Status Bronze Member (Offline)

    Joined: May 17 2017

    Posts: 113

    Venezuela

    https://cointelegraph.com/news/petro-ignited-venezuela-launches-pre-sale

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  • Wed, Feb 21, 2018 - 11:21am

    Reply to #2

    New_Life

    Status Bronze Member (Offline)

    Joined: Apr 18 2011

    Posts: 185

    unhelpful comments

    Mohammed Mast wrote:

    I am absolutely shocked  that a gold bug would have little to say positively about crypto currency, (sarcasm duly noted) He did give a little credit to the underlying technology however.

    …..

     

    With all the time and research Mr. Hickey does regarding gold I do not fault him. However it would be refreshing if people who have not done the research on this subject to say so and move on. Drive by comments serve no purpose.

     

      

     
    MM – This is a thoughtful and insightful post that resonates with me a lot.  IMHO there’s plenty room for both Crypto and PM’s having varying degrees of utility, stores of value as insurance from the status quo.
     
    There’s definitely still so many dismissive judgments being made by some people without a comprehensive knowledge of the topic.  Whether that’s out of simple ignorance or fear I’ll leave others to consider.

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  • Wed, Feb 21, 2018 - 3:05pm

    #5
    pat the rat

    pat the rat

    Status Member (Offline)

    Joined: Nov 01 2011

    Posts: 111

    not decenteralizer yet !

    I try to invest some of my crypto currencies in England, it was denied I had U.S.  computer address. If the crypto was truly world wide I could buy them anywhere?  

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  • Wed, Feb 21, 2018 - 11:26pm

    Reply to #5

    New_Life

    Status Bronze Member (Offline)

    Joined: Apr 18 2011

    Posts: 185

    I'll accept them..

    pat the rat wrote:

    I try to invest some of my crypto currencies in England, it was denied I had U.S.  computer address. If the crypto was truly world wide I could buy them anywhere?  

    Businesses still have their own regulations for investors.

    Would they let you wire the funds in USD?

    Please don’t confuse investment with payment.

    Otherwise your comment only proves my previous point.

    Feel free to send your BTC/ETH to me in the UK, I’ll happily accept it to show you how it works lol

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  • Wed, Feb 21, 2018 - 11:27pm

    #6

    New_Life

    Status Bronze Member (Offline)

    Joined: Apr 18 2011

    Posts: 185

    California Farm Estate for Sale

    Multiple properties and farmland for sale at this ranch in CA.

    They’ll happily accept BTC…
    https://patch.com/california/escondido/bitcoin-welcome-34-9m-escondido-p

    That’s looking like a medium of exchange to me…

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  • Thu, Feb 22, 2018 - 1:31am

    Reply to #3

    New_Life

    Status Bronze Member (Offline)

    Joined: Apr 18 2011

    Posts: 185

    PayPal accumulating???

    Heard rumours the massive buying of $400MM of BTC in the last few months maybe PayPal themselves, since they have taken on an exec from CoinDesk that wouldn’t be beyond the realms of possibility…

    http://fortune.com/2018/02/19/400-million-bitcoin-anonymous-investor/

     

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  • Fri, Feb 23, 2018 - 1:38am

    #7

    New_Life

    Status Bronze Member (Offline)

    Joined: Apr 18 2011

    Posts: 185

    PM's & DA's go hand in hand

    Mike Maloney an advocate on PM’s and Digital Assets as insurance for the “Everything Bubble”  

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  • Sat, Feb 24, 2018 - 8:34am

    Reply to #6
    dhoulden

    dhoulden

    Status Member (Offline)

    Joined: Sep 14 2014

    Posts: 2

    California Farm

     It would need to be listed with an asking price in Bitcoin to be truly using Bitcoin as the medium.  

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  • Wed, Feb 28, 2018 - 6:28am

    #8
    Mohammed Mast

    Mohammed Mast

    Status Bronze Member (Offline)

    Joined: May 17 2017

    Posts: 113

    For sale

    Lot’s of junk but some gems as well

    https://bitcointalk.org/index.php?board=51.0

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