In the last five years, gold has done this:

And so far this year, GDX (an ETF that owns most of the large gold miners), has done this:

As a result, we now have the problem that every investor wants: serious paper profits that we’d like to protect. But how do we do that?

Is it time to sell some physical metal?

No. Despite the occasional correction, gold’s bull run will likely persist as long as governments continue to inflate their currencies. And that process is just kicking into high gear. Note the US government’s debt going parabolic:

So…be right and sit tight, stackers. The coming monetary turmoil will send a tsunami of capital into safe havens like gold and silver, and their prices will soar from here.

What about mining stocks?

If gold rises over time, so will the typical gold miner. But stocks are volatile, and if gold corrects (which it will multiple times in the coming decade’s bull market), stocks will correct harder.

The question then becomes, how likely is a correction in the near term? Let’s look at the factors that might affect those odds.

Gold seasonality

Demand for gold —and therefore its near-term price action — is partially seasonal because Asians like to give gold jewelry as wedding gifts, and they typically have their weddings in the Spring. So jewelers buy their inventory in advance, which boosts demand and therefore prices in autumn and winter. Then, in the following spring, the jewelers stop buying, which causes the dreaded “summer doldrums” and leads traders to mutter things like “sell in May and go away.”

According to the above chart, gold has made it through the summer doldrums in pretty good shape and is now entering its typically strong season. So seasonality says, Don’t worry, keep buying.

Consolidation

Gold has been “consolidating” for the past eight or so months. This is a process by which people with embedded profits (known as “weak hands”) sell to buyers (“strong hands”) who have no interest in selling at the current price. Consolidations continue until the weak hands are exhausted, after which the market, bereft of sellers, starts a new upleg. So…the gold chart looks good. No reason to sell here.

Federal Reserve easing

It’s worth noting that those Fed rate cuts will occur with inflation still above the Fed’s 2% target range. One important measure, the core services PPI, just spiked:

For monetary policy to ease while inflation remains above target implies that the US has given up on maintaining the dollar’s purchasing power. For what that means, see Portrait of a Crack-Up Boom, in Four Charts.

The takeaway: Monetary policy is about to become recklessly favorable for gold. Still no reason to sell.

Just one big problem

So far, the stars seem to have aligned for gold, and mining stock profit-taking seems unwarranted.

If only the “AI-driven” stock market weren’t so crazy.

Bank of America shares an eye-popping chart showing a potential stock-market bubble: ‘It better be different this time’

(Business Insider) – Stock-market bulls convinced of the power of AI to transform the economy often shrug off comparisons to the dot-com bubble a quarter century ago. The real profits are already showing up, unlike in the early days of the internet boom — so it is different this time, the thinking goes.

But Bank of America strategist Michael Hartnett has a message for these investors: “It better be different this time.”

Hartnett, who has often expressed skepticism of the market’s bull run over the last few years, shared a head-turning chart that highlights just how optimistic investors have become about the impact AI will have. It shows the S&P 500’s price-to-book ratio, which measures the total market cap of the index’s constituents compared to their total assets minus liabilities.

The valuation measure is at a record high of 5.3, topping the 5.1 level seen in March 2000, at the peak of the dot-com bubble.

Pretty much every other equity valuation metric is also flashing red. So if past is still prologue, a stock market crash is a very real possibility in the year ahead. And that could hit the miners hard. In the last serious stock market crash, during the Great Recession of the 2000s, GDX fell by 70%:

Conclusion

Stackers should keep stacking, with the goal of owning massive amounts of real money when fiat finally dies. Mining stock investors, however, might want to consider strategies for protecting some of their gains when and if history catches up with the AI stock bubble.

Tomorrow’s post will present some ideas.