The Remarkable Gold Rally Continues...
The remarkable gold rally continues... $1,400 is here... Prepare for a 'breather,' but don't get too bearish yet... Checking in on Tesla... Why Whitney is still as bearish as ever...
Regular Digest readers know we've been keeping a close eye on gold...
Earlier this month, we showed you that gold was close to breaking out of a multiyear consolidation.
Last week, it finally happened. And as we noted in the June 21 Digest, the price action in gold and gold stocks suggested even higher prices were likely...
Gold has now officially broken out to a new six-year high...
And as you can see in the next chart, the gold stocks to gold ratio has finally made a "higher high" as well...
These charts paint an incredibly bullish picture for gold... if it can close solidly above $1,400 an ounce, gold could rally several hundred dollars higher in a hurry.
Well, it didn't take long to clear this next hurdle...
Gold blew through $1,400 on Monday. Today, it closed at a fresh six-year high of more than $1,418 an ounce.
It is now up more than 11% in the last three weeks, and nearly 20% since we began tracking signs of a major gold-market bottom last summer.
Both gold and gold stocks are likely due for a 'breather' after such a sharp rally this month...
In fact, almost every gold momentum and sentiment indicator we follow has reached multiyear extremes that suggest at least a short-term correction is likely. So we'd recommend waiting for a pullback before making significant new purchases in the sector.
However, we'll also point out that this is exactly what you typically see in a major bull market. During the last bull run in the 2000s, dozens of similar extremes marked only temporary peaks as prices marched from less than $300 to nearly $2,000 an ounce.
In other words, today's extremes alone are not a reason to get bearish on gold. And as we like to say, if you still don't own any physical gold and silver, it's never really a bad time to buy.
Switching gears to our friend and former hedge-fund manager Whitney Tilson...
If you've been reading the Digest, you may recall Whitney recently made a bold prediction on Tesla (TSLA).
In short, after years of telling folks not to short the electric-car maker, Whitney famously "called the top" this spring. As he wrote in the April 5 Digest...
Ever since I (Whitney) got burned shorting the stock in 2013 – watching it march higher from $35 to $205 a share – I've warned my readers about betting against CEO Elon Musk and his team. They've simply pulled too many rabbits out of their hat over the years...
But Tesla has almost done too good of a job. Now, it faces a massive wave of competition. Electric cars from high-end European manufacturers Audi and Jaguar are already vastly outselling Tesla's Model S and Model X cars in Europe. Meanwhile... Toyota, Kia, Hyundai, Volkswagen, Nissan, and Renault are developing their own lower-priced electric vehicles.
As a result of this new competition, I told readers of my free daily e-letter last month that Musk has no more rabbits to pull out of his hat.
I believe Tesla's stock – which closed yesterday around $268 a share – will be trading below $100 by the end of 2019.
When we last checked in on Tesla in May, Whitney's call was already looking prescient. Shares had fallen nearly nonstop since he first issued his warning, and had just closed below $200 for the first time since 2016.
Of course, even the best short sales don't move in a straight line lower...
Since then, shares have rebounded sharply to near $225 today, leading many Tesla bulls to declare the worst is over.
So, is Whitney ready to throw in the towel? He shared his latest thoughts on the stock with his Empire Financial Daily readers on Monday. Because he knows many Digest readers are following this story, he's allowed us to share some of it with you today. From his note...
Despite its recent bounce, the stock is still down 30% since my March 4 prediction that it would hit $100 by the end of the year, while the Nasdaq is up 7%...
As Whitney explained, the recent rebound has been fueled by optimism that Tesla's second quarter won't be as bad as some feared...
In particular, Tesla CEO Elon Musk recently told employees that the company could deliver a record number of deliveries and sales this quarter. But Whitney remains unconvinced. More from his note...
This is unlikely. Recall that when the company reported first-quarter earnings, it guided to 90,000-100,000 deliveries in the second quarter.
For a while, it looked like it wouldn't even hit 80,000. But as usual, there's been a mad rush of late-quarter deliveries. My best estimate is that the company might hit 85,000. That's still more than 10% below the guidance midpoint, but not a total debacle on this metric. Thus, the stock might even pop when the company releases this number (likely sometime between July 1 and July 3), especially if it maintains its outlook for full-year deliveries to be between 360,000 and 400,000 vehicles.
The key question is, how much price-cutting did Tesla have to do to move cars? After all, if the company sold cars for $1, it could sell an almost infinite number... This, plus how well it controlled expenses, will determine how much money Tesla made or lost in the second quarter. (We won't know this until the company reports earnings on or about August 7.) I expect the company to show a big loss in the second quarter – though less than it did in the first quarter, when it only delivered 63,000 cars and lost a staggering $702 million.
In the meantime, the avalanche of senior executive departures continues and another analyst admitted he "got it wrong this year" and cut his price target from $400 to $300. Plus, Morgan Stanley analyst Adam Jonas is sticking to his $230-a-share price target, but last month he admitted it could go as low as $10 in a worst-case scenario...
I stand by my $100 target by year-end.
One last thing...
As regular readers know, Whitney launched his own flagship investment newsletter – the Empire Investment Report – earlier this spring...
We know many Digest readers took advantage of the opportunity to try this new service at a huge discount. But if you weren't able to join them, you now have a second chance...
Whitney has decided to open the Empire Investment Report to new subscribers at a significant discount for a limited time. While it's too late to become a charter member of this service, you can still take advantage of a 40% discount off the normal price.
Click here for all the details.
New 52-week highs (as of 6/24/19): Sprott Physical Gold and Silver Trust (CEF), Western Asset Emerging Markets Debt Fund (EMD), Franco-Nevada (FNV), SPDR Gold Shares (GLD), Barrick Gold (GOLD), Kirkland Lake Gold (KL), Coca-Cola (KO), Lundin Gold (TSX: LUG), MAG Silver (MAG), Microsoft (MSFT), NovaGold Resources (NG), Nuveen Municipal Value Fund (NUV), Procter & Gamble (PG), Polymetal (LSE: POLY), Royal Gold (RGLD), and Stryker (SYK).
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June 25, 2019