Jordan Roy-Byrne: Gold, Silver Price Setup is Simple, How to Maximize Gains

Key Concepts

Secular Bull Market: A long-term upward trend in asset prices, typically lasting several years or even decades.
Cup and Handle Pattern: A bullish continuation pattern in technical analysis that signals a potential upward price movement.
Post-Breakout Correction: A temporary decline in price after a significant breakout, often seen as a healthy consolidation phase.
Moving Averages (200-day, 150-day): Technical indicators used to smooth out price data and identify trends.
Breadth Indicators: Technical indicators that measure the overall participation of stocks in a market move.
Cost Inflation: An increase in the costs of production for businesses, which can impact profit margins.
Net Present Value (NPV): A financial metric used to estimate the current value of future cash flows.
Producers, Developers, Explorers: Different types of mining companies based on their stage of operation.
Macro Doom Porn: Pessimistic macroeconomic forecasts that are often sensationalized.

Sentiment at the New Orleans Investment Conference

Jordan Roy Burn notes that the attendance at the New Orleans Investment Conference is lower than expected. He views this as a positive sign for gold and silver, suggesting that the market is still in the earlier stages of a secular bull market, with more participants likely to join in the future.

Gold and Silver Market Analysis and Outlook

Gold's Post-Breakout Correction

Historical Context: Gold has experienced three major breakouts in its history: 1972 (considered the greatest), 2005 (breaking a 20-21 year base), and the recent one after a 13-year cup and handle pattern.
Correction Duration: Historically, these types of corrections tend to last around 5 months. The price damage is often concentrated in the first two months.
Price Targets: Burn anticipates gold could decline to the $3,600-$3,700 range, which he identifies as a support area.
Analogous Corrections:
- 1972: A mild correction followed by a steeper one in 1973 (28% over 4-5 months). Burn notes that current gold prices would need to reach $5,800-$6,000 to match the severity of the 1973 correction.
- 2005: A correction of about 1-2 months in price damage, followed by 4-5 months of consolidation.
Potential Upside: Based on historical averages of the 1972 and 2005 breakouts, projected to the current scale, gold could reach $6,900 by February/March 2027. Burn emphasizes that this is a conservative estimate based on historical patterns.
Buying Opportunity: The current correction is viewed as a significant buying opportunity, potentially the last chance to acquire gold and silver at reasonable prices before the next major upward move.

Silver's Outlook

Support Levels: Silver has support in the low $40s, with a specific level at $43. An open gap in the mid-$40s could also be tested.
Historical Performance Post-Breakout: In three instances where silver broke out to a new all-time high, it subsequently doubled in value within 7 to 11 months.
Future Target: Burn suggests that once silver breaks above $50 decisively, it could double to $100 per ounce within a year.

Identifying the Next Leg Up: Triggers and Indicators

Moving Averages as Support

Post-Breakout Correction Behavior: Historically, post-breakout corrections in gold often retrace to or near the 200-day moving average.
Key Levels: Burn is watching the 150-day and 200-day moving averages. He estimates the 200-day moving average to be around $3,300 currently, projected to reach $3,500-$3,600 in the next 1-2 months.
Signal: Gold coming very close to these moving averages over the next few months would be a powerful signal for a bottom.

Breadth Indicators for Mining Stocks

Leading Indicators: Burn looks at the percentage of gold and silver miners (including GDXJ stocks) closing above their 20-day, 50-day, and 200-day moving averages.
Peak Behavior: Leading up to the recent peak, these indicators were at 100% across the board, with a surge in new 52-week highs for HUI, GDX, and GDXJ. This indicates an overheated market that needs time to cool off.
Bottoming Signals:
- Percentage of stocks above the 20-day and 50-day moving averages falling below 10%.
- Percentage of stocks above the 200-day moving average declining from near 100% to around 70-80%.
Current Status: Burn believes that while some price damage has occurred, there's a little more to go, and time is also a factor.

Gold and Silver Mining Stocks: Opportunities and Considerations

Outperformance Potential

General Expectation: Mining stocks are expected to outperform the metals themselves.
Buying Opportunity: The current correction presents a buying opportunity for mining stocks, but individual company research is crucial. Some stocks may be ready to buy, while others may need more time to correct.

Cost Inflation Impact

Contained Costs: In the last 18 months, the cost of mining production has been contained, meaning real gains in gold and silver have closely mirrored nominal gains.
Future Concern: The primary concern for the next 12-24 months is potential cost inflation (energy prices, oil rebound, general economic inflation) filtering down to miners.
Margin Compression: This cost inflation could reduce the margin expansion captured from higher metal prices. For example, a $2,000 move from $4,000 to $6,000 in gold might not translate to the same profit margin as a $2,000 move from $2,000 to $4,000.
Valuation Impact: Burn factors in cost inflation (10-20% per year, depending on the project) when assessing valuations for producers and explorers, particularly for Net Present Value (NPV) calculations. Higher-grade, non-open-pit mines may experience less cost inflation.

Investment Strategy for Mining Stocks

Focus on Individual Companies: Researching and becoming an expert on individual companies is paramount.
Producers and Developers: Burn focuses more on producers and developers than explorers.
Current Valuations: Valuations for mining stocks have increased but are currently considered historically average.
Margin Expansion Potential: The real opportunity lies in continued margin expansion if the bull market persists. Even a small increase in margins, combined with production growth and mine development, can significantly increase company value over 2-3 years.
Buy, Hold, and Trim Strategy:
- Buy: Acquire good companies at good values.
- Hold: Maintain positions as prices rise.
- Trim: Sell small portions as prices increase significantly to reduce risk and potentially reallocate capital to better opportunities.
Re-evaluation: If a stock declines by 20-30% without a valid reason to hold, it should be sold and replaced.

Broader Market Context: Bonds, Stocks, and Precious Metals

Secular Bear Market in Bonds and Stocks

Bond Market: Burn anticipates a secular bear market in bonds.
Stock Market: He also expects a secular bear market in the general stock market.

Timing of Market Shifts

Midpoint Indicator: The end of the secular bull market in US stocks could coincide with the midpoint of the secular bull market in precious metals.
Explosive Moves: Typically, after this midpoint, the most explosive moves in precious metals and resources occur.
Uncertain Timeline: Burn admits he doesn't have a precise timeline but estimates it could be "a couple of years" away (18 months to 3 years).
Catalyst for Recession/Bear Market: A potential catalyst for the next recession and bear market in US stocks could be economic growth picking up, leading to overheating, increased inflation, and subsequent interest rate hikes.

Capital Flows and Precious Metals

Bond Market Influence: The secular bear market in bonds is a significant driver for both gold and the stock market. Capital exiting bonds initially flows into stocks, then into gold.
Historical Parallel (1960s): In the 1960s, capital moved from bonds to stocks, then to gold.
Recent Trend: In the last 9-12 months, there has been a noticeable shift of capital moving more into gold and precious metals, followed by stocks.
Future Catalyst: The end of the secular bull market in stocks and the onset of a secular bear market will likely drive a substantial amount of capital into gold, precious metals, and hard assets, fueling the latter half of the secular bull market in these sectors. Burn believes this point is still a couple of years away.

Final Advice for Investors

Jordan Roy Burn's core advice to investors is to:

Focus on Individual Companies: Become an expert on specific companies rather than solely relying on macroeconomic forecasts.
Avoid "Macro Doom Porn": Be wary of sensationalized pessimistic macroeconomic predictions, as the industry has a history of inaccurate crash forecasts.
Simplify Macro Analysis for Gold/Silver: For gold and silver, the macro picture is straightforward: a new secular bull market is underway, prices are heading much higher, and the current overbought condition necessitates a correction.
Research and Expertise: Invest time in researching individual companies, potentially contacting CEOs, and attending conferences to gain expertise.
Buy Good Companies at Good Values: Focus on fundamental analysis and valuation.
Buy, Hold, and Trim: Employ a strategy of buying, holding for the long term, and trimming positions as they rise significantly to manage risk and reallocate capital.
Re-evaluate and Sell: Be prepared to sell if a position deteriorates significantly without a clear reason to hold.

Burn concludes by emphasizing that making money in the market comes from diligent research into individual companies, not from trading news or macroeconomic events.