Forecast: Shining Roadmap For Mining Stocks In 2019

Tuesday, May 7, 2019

gold forecast

Light at End of Tunnel

The Precious Mining Stocks have been suffering in the basement for a long time.  The good news is that there is light the end of the tunnel.

In this article, we will present our technical analysis and a special Fourier cycle analysis of the Gold Mining Stock (FSAGX).

Key Observation

The Gold Mining stocks and the gold price are highly correlated.  While both may be subject to market manipulation via the derivatives, the Mining stocks can be more affected.  We used the technical analysis approach, as we believe all the market driven elements are already displayed in the chart.  We also used our specialized Fourier cycle analysis which is based on the fact that past behavior likely repeats itself.

Gold & Gold Mining Stocks

Chart 1 – Comparing FSAGX with GOLD

We have selected Fidelity’s gold mining fund (FSAGX) because of the availability of its data.  It is not surprising that FSAGX and gold price are highly correlated to a positive value of +0.82 over a time period 1991 to present.

Our earlier “roadmap” articles, we showed that the gold and silver prices are going to increase rapidly very soon.  We expect the Mining stocks will not only rise but eventually outshine the precious metals.

Chart 2 – Fourier Cycle Analysis of Monthly FSAGX

Here we used the monthly FSAGX data to facilitate Fourier analysis.  Our key observations are:

  • FSAGX will start to rise from present local low.  We only used 6 cycle components to save computation time.
  • The Major Cycle (Component 1) has reached its low in 2015-2016.  This is marked by a red circle.
  • We believe our estimations are conservative.

Gold Mining Stocks versus DOW Index

Chart 3 – Comparing FSAGX and DOW

First of all, FSAGX and DOW have little correlations (-0.14).  They are independent assets.  We consider FSAGX and Gold are hard and tangible assets, while DOW represents intangible assets.  In the last section of this article, we will explain further with a 20-year generational picture.

Here we observe:

  • FSAGX will rise from here onwards like gold price.  FSAGX will eventually outperform gold.
  • DOW on the other hand will have little or no probability to rise, as we discussed in our recent articles.
  • The important indicator to watch is the volatility index (e.g. $VIX).  DOW tends to rise under low VIX while Gold and Mining Stocks behave in opposite way.  In a sense, when crisis comes, people tend to flock to hard and tangible assets.

The Big Picture

Chart 4 – Generational Chart of Tangible versus Intangible Assets

We had used the above chart numerous time before, as it reminds use of the big picture in the rise and fall in Tangible assets (Gold and Silver) as compared to the Intangible assets (as represented by DOW index).  In our earlier article, we identified the 20-year generational lines.  As shown in the above chart, in the period 2000 to 2020, gold and silver will outperform DOW.

Summary

Based on our analysis above, we believe there is light at the end of the tunnel for precious metal mining stocks.  We further believe that good quality and well managed mining stocks will be the star performers in 2019-2020.

Sometimes our patience may pay off.

“The Lord is not slow in keeping his promise, as some understand slowness..”

2 Peter 3:9

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F.T. Dao is a private investor and recently left the corporate world for technical analysis of stock markets.  He holds a PhD degree in physics and has done technical analysis of the market on the side for many years.  He welcomes constructive discussion and can be reached at:  ftdao245@gmail.com  ,ftdao245@comcast.net