The “3 White Knights” Pattern: the Next Phase of the Gold Bull Market

The reemergence of a bull market often is marked by doubt and pessimism. Swiss Gold Letter observed the very significant "3 White Knights" Chart Pattern that occurred earlier this month (right before the 4th of July), indicating that the next phase of the gold bull market had begun! 

Underscoring the doubt that is endemic during market turns, SGL debated internally whether to flag this important technical indicator to subscribers. Although we had an article drafted and ready to go, the market action in gold stocks caused us to chicken out and hit the pause button! 

Nevertheless, recent action in the gold stocks has further supported our belief that "all systems are go" on the next phase of the bull market.

Below are SGL's comments on this pattern and its significance for gold stocks.

July 4 2023 GDX Chart Showing 3 White Knights

Monday, July 17, 2023

After a recent correction from 36 down to 29, the VanEck Gold Miners ETF (GDX) is showing a strong reversal pattern which should lead this sector up, up and away.

 The GDX Uptrend Since October 2022

GDX has been in an uptrend since October 2022.

In our three global macro calls,
The New Gold Newsletter for the Next Gold Bull Market, Bull Markets Start with a Bang and Junior Gold Stocks: the Historic Breakout, SGL was quite fortunate to spot the bottoming process in the fall of 2022, after the devastating 50% drawdown which occurred from the August 2020 high in the GDX of 45.72 and the September 2022 low of 21.50. 

Since then, it looked like the gold miners index was in a clear uptrend with higher lows and higher highs since September 30th 2022.

The June 27th false breakdown!

Of course, nothing goes up in a straight line and after two very dynamic up moves - the first from 23 on the GDX up to 33, and then from 26.50 to 36 - a new correction took place from May 4 until the end of June 2023.

Around June 27th, the nice clear up trend on the GDX broke down. In this context, again massive pessimism was prevalent. Even the permabulls and the mining specialists were all on buying strike!

SGL has noticed that it has been more and more difficult for junior gold mining companies to finance through private placements. The rationale was that nobody buys any precious metal shares before mid-August, when the Vancouver crowd comes back from its summer holidays.

Against this thick spell of pessimism, the market on June 29th unexpectedly painted a nice strong, one day reversal - with the GDX index hitting a new low, then reversing and closing above the low of the preceding day. It would have been even better to have a higher volume on this key reversal day, but as we all know, July is not known for its high volumes!

The "Three White Knights" Chart Pattern Should Lead Gold Stocks Up, Up and Away

The three white knights (or three white soldiers) chart pattern is a classic, yet strong bullish candlestick pattern that is used to mark the reversal of a down trend. This Japanese candlestick pattern consists of three back-to-back long bodied candlesticks that open within the body of the previous candlestick and then close at a high that exceeds the previous candlestick high. This pattern generally suggests that negative market sentiment has reversed.

In plain English, this means that there is a high probability that the current recent correction is over, and that the bullish pattern for gold miners is back in full force. For those who do not have enough exposure to the sector, even though this article has arrived a week late, it may still be an appropriate time to add to positions in junior mining stocks. (However to control one's risk, stop losses could be set below the GDX's recent low of 28.76.)

Of course, no chart pattern is ever fool-proof. Additionally SGL is concerned by the overly exuberant action of the Nasdaq and general market in the United States. If this market weakens in the weeks ahead, as usual gold junior mining stocks might also retrace. (In such a scenario, investors might be wise to add on any retracement. We suspect that the gold bull market should ultimately be strong enough to decouple from the US stock market - like it did in the 1970s.)

So far, recent market action in the gold stocks has only confirmed our views.

Junior Gold and Silver Equities Should Not Be Forgotten

Of course, the stocks with the biggest capitalization start moving up first. But some small cap mining stocks are already starting to show signs of life again, and the Toronto Stock Exchange Venture (TSX-V) Index is again not looking bad.

Where to Add to Positions? 

Since silver and gold stocks are still massively undervalued all the stocks mentioned in this newsletter can be accumulated at current prices.

Additionally, SGL wishes to mention four exploration companies that either are or will shortly be drilling with good probabilities of hitting something significant.

Blackwolf Copper And Gold ($BWCG.V) 

Blackwolf Copper And Gold ($BWCG.V) will be drilling at Cantoo, their property in Alaska. SGL believes that BWCG's current drilling program has a significant chance to hit interesting mineralization.  BWCG also has just announced the appointment of Morgan Lekstrom as CEO.  As CEO of Tearlach Resources, Mr. Lekstrom successfully grew the company from grassroots lithium exploration to a multi-asset company. He also had senior technical roles with Freeport McMoran's Grasberg site in Indonesia and Rio Tinto's Oyu Tolgoi Project in Mongolia. BWCG also recently acquired Optimum Ventures Limited and concurrently named successful mining entrepreneur Andrew Bowering to its board of directors. Along with the famous geologist Robert McLeod, who has been named as Executive Chairman, this certainly is a killer team.

Cartier Silver (CFE.CN)

While Cartier Silver (CFE.CN) is now trading about 100% above the "insider prices" we mentioned as presenting a very favorable risk/reward scenario in our December 2022 article, we are excited about the June 29th announcement that Cartier has commenced diamond drilling on its Gonalbert property. It is not unreasonable that Cartier could make a discovery because this property is only about 15 kilometers from the huge Eloro Resources Iska Iska discovery. 

As we mentioned, Cartier Silver's project exhibits the same geology and has the exact same team of successful geologists (Bill Pearson and Oswaldo Arce, as well as input from Quinton Hennigh) who made Eloro's astonishing new polymetallic resource in Bolivia. (They are drilling straight under a small silver producing mine, which is not a bad place to start!)

Assays could be received within 4-6 weeks, which could potentially propel the stock to higher prices. Although it appears that the train may have already left the station, in the event of a pullback due to an overbought situation, the stock could still be accumulated.

Aurion Resources (AU.V)

We continue to believe that  Aurion Resources (AU.V) is a deeply undervalued exploration company.

First, Aurion holds a large land package of approximately 100,000 hectares in Finland, a tier-one mining jurisdiction with abundant (but largely unexplored) mineral potential. (In comparison, Great Bear's Dixie Project was only 9,100 hectares.) Having such a dominant land package in Finland is similar to being an early mover in the Abitibi region many decades ago. Aurion's tenements may contain multiple potential gold discoveries. 

Second, right across Aurion's project boundary, Rupert Resources (approximately C$850 market capitalization) discovered the world-class Ikkari deposit, which quickly grew to approximately 4 million gold ounces in the ground. Given Aurion's near boundary with Rupert Resources' Ikkari discovery, Aurion believes that an acquiror of Rupert will eventually need to also purchase Aurion's grounds that were joint ventured to B2Gold. Depending on the ultimate mine design, an acquiror might also need to utilize some of Aurion's wholly owned 100% ground as well.

Given that B2 Gold has already drilled over 20,000 meters on the JV grounds and encountered significant gold mineralization (e.g., 2.05 g/t gold over 77.50 meters and 2.44 g/t over 43.45 meters), Aurion believes that its ground bordering on Ikkari could be quite valuable, perhaps more than the current entire market capitalization of Aurion.

Third, the potential for significant mineral exploration on Aurion Resources grounds also provides the possibility for option agreements or spin-outs (Aurion already holds about C$2.5M in shares of Strategic Resources, acquired when it optioned a project in Finland to Strategic.)

Finally, its management team is fully aligned with shareholders. Aurion's Chairman, Dave Lotan, owns 12M shares in the company (more than 8% on a fully diluted basis). Amazingly, a large percentage of these shares were acquired in the market or through participating in private placements with no warrants attached. (Mr. Lotan bought around 1.5M shares in the market since 2022.) He takes no salary for serving as Chairman, so an investor benefits from the hard work of one of the savviest and most passionate professionals in the mining sector for free. The Aurion team also benefits from the geological expertise of CEO Mr. Matti Talikka, a native of Finland. 

At a market cap of around C$71M (i.e., around 60 cents per share), with working capital of approximately C$11 million, we believe Aurion is undervalued in terms of the potential value of its JV ground with B2Gold. Its wholly owned grounds also have a significant potential for further gold discoveries. As Kinross, Newmont, Adrian Day Asset Management and Konwave AG are significant shareholders, smart money investors also appear to share this view. 

Dolly Varden Silver (DV.V)

Lastly, SGL considers Dolly Varden Silver (DV.V) (81 cents, C$206M market capitalization) to be undervalued, even despite the recent increase in its shares. Dolly Varden has around 20M in cash, one of the best young CEOs in mining with Shawn Khunkhun, and is drilling 50,000 meters to further build its high grade silver and gold resource in BC's Golden Triangle. It currently has 4 drill rigs active.

While its current resource of 34M silver ounces indicated and 29M ounces inferred is notable, Dolly Varden believes that drilling on the Wolf Section could eventually add significant ounces to its resources. Hecla Mining owns 10% of the Dolly Varden and the company needs to create competitive tension if it wants to sell the asset.

Disclaimer: SGL does not provide investment advice and is not a registered investment advisor.  Always do your own due diligence before making an investment. Investing in securities, especially junior miners, can be risky and never invest money you cannot afford to lose. SGL cannot guarantee the accuracy of the information in this post. SGL or its contributors have attempted to present the information fairly, but they may own shares of the companies discussed so bias cannot be excluded. SGL or its contributors may buy or sell shares at any time.  SGL and its contributors have no relationship with any companies discussed in this post. 

SGL makes no representations, and specifically disclaims all warranties, express, implied, or statutory, regarding the accuracy, timeliness, or completeness of any material on this website. You should seek the advice of a securities professional regarding any stock transactions. SGL cannot guarantee in any way that it is providing all of the information that may be available. Please do your own due diligence before buying or selling any security.

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