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Bear of the Day: Equinox Gold (EQX)

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The last time we wrote about Equinox Gold (EQX - Free Report) as the Bear of the Day was Februrary 12 when it was trading above $9.50. By early March, the stock fell 16% to under $8 as its yellow metal fell only 7%.

At the time, my colleague Dave Bartosiak wrote this...

During this latest trend, with the dollar being routed and stimulus money falling from the sky, gold prices have surprisingly retreated a bit. It underlines the inverse correlation between interest rates and the base metal. Still, with gold over $1,800 an ounce things are good for gold miners. Which is why I was surprised to see earnings estimates moving in the wrong direction for a few of these miners.

He also observed that "Over the last week alone, analysts on Wall Street have cut their estimates for the current quarter, next quarter, current year and next year. The largest impact of these cuts can be seen in [2021] numbers where our Zacks Consensus Estimate has been slashed from $1.35 down to $1.05."

Well, two months later, the current year EPS consensus estimate among three covering analysts has been slashed another 27.6% to $0.76.

The Last Stand of the Barbarous Relic

This is not an isolated trend for this one gold miner. On Sunday March 21, when I wrote about Gold Fields (GFI - Free Report) as a Zacks #5 Rank for its deteriorating EPS outlook, I took the time to explain several factors driving the poor performance of the gold diggers.

But the biggest fact I wanted investors to recognize was that on most every major rally since the highs of 2011, the diggers had done worse than their precious. We can easily compare that performance for individual mining stocks and the basket ETF, VanEck Vectors Gold Miners (GDX - Free Report) , vs the barbarous relic.

Here's some of what I wrote that weekend and then expanded into a special report for Zacks Confidential members...

It's time to put the final nail in the gilded sarcophagus. Because many investors are still fighting the last war against inflation and throwing money away on gold and its miners while all around there are Software, Semiconductor, Bitcoin, and Biotech riches to be made.

So here is my latest screed against the barbarous relic and some fresh stock picks for great alternatives to grow and preserve your wealth.

Are you really ready for the bear case for gold and gold mining stocks? While I would love to pick on all the gold-digging dreamers, I found that a few prominent names are joining Equinox in the cellar of the Zacks Rank as the Gold Miner industry group lurks in the bottom 8% of over 250 industries.

Here are three more that have earned the Zacks #5 Rank (Strong Sell) as I write this on Sunday evening April 18: AngloGold Ashanti (AU - Free Report) , Gold Fields Limited, and Agnico Eagle Mines (AEM - Free Report) . I know the first two were #5s in March too.

So I really could have written about any one of them and it would be the same story.

Why? Because as you might imagine, since the price of spot gold retreated from new all-time highs above $2,000 hit last August, the earnings momentum of many gold miners also fell back just as quick.

And many analyst projections for the diggers into 2022 are looking for a decline in revenues and profits, almost as if their forecast for the price of gold doesn't include a magical trip to $3,000 -- can you imagine?!

Here are 4 important messages I have for gold bulls and their disciples...

1) Yes, the gold miners can and will rally with the yellow metal in big swings over many months, or even quarters.

And so there are many great trading opportunities to be had when you catch those momentum swings where the miners catch the tailwinds of the barbarous relic.

But take a look at some monthly charts so you can see that while spot gold just made new ATH (against 2011's $1,900), a LOT of the miners did not make new highs. GFI and AU are prime examples, where their share prices met major resistance at sub-2011 levels near $14 and $34, respectively.

In fact, AU was massively shy of its 2011 highs near $50. Why is that?

Is it because some miners are "over-hedged" where they sold too many forward contracts locking in a lower price for the sale of their gold than we are now seeing?

Yes, this is true for many who are tied to the heavy yellow metal... in a little stream, crowded with prospectors.

But there might be other factors keeping the diggers down while the relic rallies. Let's keep exploring...

2) Gold bulls remember my CNBC interview in Nov 2009 where I called the rally to $2,000.

I had written an article about what central bank QE could do for gold and was invited on Maria Bartiromo's Closing Bell when it spiked above $1,100 for the first time ever.

I had studied gold as a purely monetary phenomenon during the initial stages of QE dollar inflation and concluded that it could go to at least $2,000 on pure asset perception -- if several central banks and large investment funds viewed the yellow metal as a convertible monetary asset.

My view was based on the unprecedented bond buying from the Fed and how that might affect other central banks who saw their dollar holdings at risk of depreciation. But this was before I understood how "software was eating the world" or knew anything of Bitcoin.

Over the next 18 months, gold did indeed work its way fairly quickly above $1,900. But then what happened?

What happened was that investors began finding that deflation -- driven primarily by massive technology innovation -- was here to stay. In fact, Fed QE of zero rates and bond buying might actually be pushing on a string to get inflation to return as it fostered even more innovative and deflationary growth.

Thus bonds and stocks became more valuable assets than gold. I told gold bulls in 2017 that QE would not inflate their precious (metal) very much -- let alone save it -- and this has proven to be true.

Maybe you saw this vlog from me recently when PayPal made a huge statement about Bitcoin and one Fed governor was already in agreement...

Digital Gold: PayPal, Square, and the Fed Send Bitcoin Soaring

Well as precious coincidence would have it, just this morning I heard that Fed Chair Jerome Powell called Bitcoin a "substitute for gold."

It. Is. Almost. Over.

So now let's look at the super-attractor luster of stocks making gold look pale by comparison...

3) Software and Biotech are the New Gold to Clobber Inflation

I've been a gold bear for over 5 years. That means I missed the dramatic rallies in both the metal -- from $1,100 to $2,000 -- and the VanEck Vectors Gold Miners ETF (GDX - Free Report) from $14 to $44.

But I did not care the whole time as I wasn't actively short metals and miners the whole time. And as you might guess from our earlier discussion of miners who couldn't get it up (to new highs) along with their precious, the GDX high in 2011 was above $64. Whoo boy, that's another 45% higher than the $44 level hit recently.

More importantly, I made 5-10X that gold-digger move in Software and Biotech stocks.

In 2017, I wrote one of the most important research reports of my career that I called "The Technology Super Cycle." My goal was to explain why inflation was nonexistent and productivity was "missing in action." My call to action was to buy two industries that were crushing inflation with massive productivity gains unseen in the official gov stats.

But I'll give you a quick summary now: I learned a long time ago that you beat inflation by simply having exposure to innovative technology disruptors like Square (SQ), NVIDIA (NVDA), and The Trade Desk (TTD) .

And exposure to innovative biotech/medtech disruptors like CRISPR Therapeutics (CRSP), Align Technology (ALGN), and Invitae (NVTA).

4) Gold is Eventually Doomed as an Asset Class

Strong words, I know. But hear me out.

You must have already imagined that the exponential power of Software and Biotech earnings power will always trounce the value of a heavy gold bar that you must pay to store and transport, and which offers zero organic growth.

Now, brace yourself. While #FinTech is a huge threat to gold as an asset class, consider the wild possibility that in the next ten years asteroid miners will find more gold than exists on the earth.

I considered that possibility here in this article and related podcasts from 2019...

Why Gold is Headed to Zero -- And What You Should Buy Instead

That's my take on gold and its diggers. Trade them if you can, but don't bank on them for long-term ways to beat inflation. They never will.

If you need to check your biases and feelings here -- as I always do with investing -- check out the fantastic 2016 film Gold with Matthew McConaughey. There you'll get a glimpse of the 1980s "yellow fever" that is no longer relevant in a digitally exponential world.

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