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Time to Buy Precious Metals Now

Since the end of December we’ve been writing about the coming bottom in precious metals. Our forecast for 2013 was to see a low in Q1 and then continued consolidation until the end of the summer in which Gold could be in good position to break $1800. That forecast remains largely intact, although it appears the mining stocks will bottom quite a bit lower than we thought two months ago and even five months ago. Three weeks ago we noted that a potential final bottom was on the way. After beating around the bush we are ready to say that now is the time to begin buying and we’ll show you why.

Technicals

In our article three weeks ago we noted this major trendline support for the gold stocks. The market is about 6% from this major trendline which also coincides with the 62% retracement of the 2008 to 2011 cyclical bull.

Let’s zoom in on the short-term for GDX as we prefer it to the HUI above. We already know the major support trendline (for the sector) is nearby. The sector is approaching that support in an extreme oversold condition. GDX has shed 31% in the past five months and 18% in just 21 days. Moreover, note the three open gaps and how they’ve occurred following an already substantial decline. Hence, these gaps are a reflection of emotion which leads to panic. If we see a final gap then it is likely to be an exhaustion gap which would signal a reversal is imminent.

For Gold & Silver I show weekly candle charts as they give us an idea of the bigger picture. That picture is one of long consolidation after significant gains following the 2008 low. Recall the price action from 2009 to the 2011 peaks. Gold gained from $950 in the summer of 2009 to a peak of $1923 in the summer of 2011. In the same period Silver went from $13 to $49. Folks, these are massive moves that take time to be digested. By time we mean quarters to years, not weeks or months. As we sometimes try to decipher every wiggle, it’s easy to forget that point. Turning back to the present, pay attention to how the metals close this week and the next few weeks. There is major support at these levels and we expect to see the metals hold the ranges denoted on the chart.

Let’s throw in the S&P 500 for a little intermarket analysis. We have the gold stocks extremely oversold and Gold and Silver at major support while conventional equities are nearing major resistance. Which side seems to be a better buy right now? Moreover, note how each subsequent advance is getting weaker as well as shorter. Mainstream pundits like to laud this as a great bull market. The S&P rebounded 105% in the first two plus but in the 22 months since it is up only 8.8%. This is hardly a resemblance of a new secular bull market. Go look at 1942 to 1946 and 1982-1986 to see how secular bull markets actually begin. The S&P 500 has a cyclical bear market in between now and the start of the next secular bull.

Sentiment

Jason Goepfert the brilliant creator of sentimentrader.com, notes that Gold’s public opinion is at its second lowest reading in a decade. Gold has declined in price since this data was updated. Perhaps it could reach the lowest in 10 years?

Meanwhile, in other sentiment news, Dan Norcini notes that hedge fund short positions in Gold are at a 5-year high and Bloomberg noted that bets on higher Gold prices fell to the lowest since 2008.

I stumbled upon this chart which I think is from Option Strategist. It shows the weighted put-call ratio for GDX. It’s at a 27-month high.

Another from sentimentrader.com is data from the Rydex Precious Metals Fund. This is a fund focused on mining stocks. Assets in the fund have declined 50% in just the past four months! From Q1 2011 to Q2 2012, assets gradually declined. Recent action shows panic and capitulation. Relative to all sectors, this fund’s assets are inches away from reaching a minimum of a six-year low.

Conclusion

The technicals show the precious metals complex as extremely oversold and nearing strong support. This coincides with extremely negative sentiment which is bullish from a contrary perspective. Anecdotally speaking, I am amazed at the explosion of negative press in just the past few days. I can’t remember anything like it since I began following this market in 2002. Some stocks may have already bottomed while the HUI/GDX could have one nasty day left. We have begun to layer into a few positions and will continue to next week. If you have cash, now is the time to use it on both the metals and the stocks. If you’d be interested in professional guidance in uncovering the producers and explorers poised for big gains then we invite you to learn more about our service.   

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

  • Sparrows345

    Actually “Trendsman” you’ve been dead wrong since 2011, after the easy money was made. Being yet another broken clock doesn’t work until gee.. it does. Will it this time? Who knows. How convenient of you to not even mention the huge H&S on the HUI and XAU. Worst public opinion stat? That would be expected at the dawn of a cyclical bear if that’s instead what this is, the jury is still out. That very same chart showed the best public opinion number in 2009 when gold was $1,200, it hardly served as a contrarian signal then so why would it be so convenient this time only in reverse. Hmm. How about providing your investment returns/track record, that would go quite a ways to perhaps restore credibility. Maybe even objectivity. So far all you’ve shown is that you can be a danger to yourself and others.

  • TheDailyGold

    Comments not directed towards the editorial and its content will be removed.

  • smithy

    quit trying to predict bottoms, the recent trend in gold and silver has been lower, and the s&p trend has been higher, both gold and silver have broken some higher sloping support lines on the daily and weekly charts, both these lower trends in gold and silver will remain intact until price proves otherwise. strange when i join the lows on the hui chart myself the last low you mention is nowhere near your trendline, it’s still much higher above it, with lots more room to fall. hmmm

  • major

    Its simple, the powers that be are trying prevent investors from jumping into gold at the bottom. I assume big players are in or are about to come in with big transactions, which should greatly accelerate pricing when it happens

  • TheDailyGold

    G&S have been in a long consolidation…no trend has been broken until Gold falls below $1520 and Silver $26. With those markets as extremely oversold right now, I think its more probably an important low is coming. Regarding the trendline, perhaps you missed my last paragraph in which I indicated one nasty down day left. The market is about 6% away from the trendline.

  • AntVI

    I’ve also noticed the elevated negative gold talk from eg, WSJ; Citi the last few weeks. I think you make some good arguments in this article.

  • smithy

    i agree that the major horizontal support lines on gold and silver are still holding at present, but can you tell me why the price increments on the right of your chart of the hui are not equally spaced, which if they were equally spaced the gap between the price and trendline would be much greater? (i.e. much more than 6%)

  • smithy

    sorry just learn’t the differences in price scaling :)

  • Musivick

    for 3 months i have been replacing the redeemed gold shares i used in 2012, big saving involved (but it was risky)

    also…. even with the high premiums for silver, i am purchasing coins/bullion/bars & intend to do so all the next 8 months
    it seems ‘somebody’ is looking after my best interest.. i just need to be attuned & ready to be able to take advantage of this opportunity

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