Gold Miners Find Support

Chart 1: Gold Miners are trading 20% below 200 MA & on major support 

Gold Miners vs 200 MA 

Source: Short Side of Long

 

Gold miners have made a lower low in recent months, as discussed and anticipated many times on the blog. Sentiment is now becoming increasingly negative once again. On intra day basis, the sector did trade below the 2008 panic levels, shaking out a lot of stops – but on closing basis, we are still holding that all important support seen in the chart above. This line or so called buyers memory goes all the way back to 2004.

Now, the obvious question is… will this support hold and should I buy some gold miners? I do not know. Whether this support line will hold is anyones guess right now, however I would hesitate to bet against PMs sector. With sentiment is incredibly low, this is probably one of the worst times to short the sector. Furthermore, recent developments in Gold and Silver this week (outside reversal price action) suggest that we could see more upside in coming days and weeks ahead.

Furthermore, if we observe Chart 2, we should notice that not only are Gold Miners deeply oversold, but they also trade at incredibly low discount to Gold itself. The discount is as low as 2001, when the last bull market began. So finally, let me be crystal clear here without mincing my words: whether you buy this sector right now or at a lower price (if it goes there), you are buying only of the most undervalued and unloved asset classes. Returns could be spectacular going forward!

 

Chart 2: Gold Miners are trading at biggest discount to Gold since 2001

Gold vs Gold Miners Ratio 

Source: Short Side of Long