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Precious Metals: Keep it Simple

This weekend I had a conversation with a fund manager friend who I admire. He lives in the Asia-pac region and has tremendous knowledge of and insight into markets. I asked him what his advice would be. He told me it’s simple. My advice for the next three months is patience. My advice for the next three years is precious metals. People often feel the need to complicate things by over-trading and over-thinking the situation. In this piece, we want to keep it simple for Gold and Silver and the mining shares.

The first chart is the chart we published back in May when suggesting that a major bottom could be at hand. This weekly chart shows a rebound that may be fading yet the breadth indicator at the bottom (when smoothed) remains as oversold as it was in December and back in 2008. Note that in September 2008, the bullish percent index (4-week MA) was at 50%. Today it lies at 14%.

The next chart from, shows the HUI Gold Bugs Index with three different breadth indicators. We show these not to state the obvious. We’ve drawn circles to let you draw your own conclusions. Should gold stocks retest the low then we’ll be looking at these breadth indicators for potential positive divergences which would send a strong bullish signal.

One reason we’ve been optimistic is because the shares have performed well amid the flaccid rebound in Gold and Silver. The shares always lead coming out of rebounds, so that recent action is a positive sign. However, the shares won’t perform well if Gold and Silver don’t confirm their bottoms. In fact, there is noticeable but slight deterioration in the charts.

Gold has failed to recapture its 65-week moving average which has essentially supported the entire bull market ex 2008. Meanwhile, Silver has failed to recapture its120-week moving average which provided key support in 2010 and at the end of December. All being said, it is important to recognize that a technical breakdown would be in the context of a correction in its latter stages. Gold is nearly 20% off its high while Silver is about 45% off its high. The shares have essentially been in a bear market for 18 months. In other words, the metals could break to new lows but we wouldn’t expect the lower prices incurred from a breakdown to be sustained beyond the short-term.

The plan of action should be fairly simple going forward. If the metals break to new lows, one should begin buying after the breakdown. Specific targets have been discussed with our subscribers. Regarding the shares, one should begin accumulation on a retest of the low. What happens if these markets firm? In that case, wait for support to be confirmed and then accumulate. It is simple but it requires constant patience. In the meantime, if one is too heavily long they could consider hedging their exposure with the inverse ETFs. In our research we continue to focus on those companies best suited to rebound quickly and prosper from the coming cyclical bull market. If you’d be interested in professional guidance in this endeavor, then we invite you to learn more about our service. So to conclude, exercise some patience in the short-term but make sure you are invested in the metals and the gold shares to take advantage of the next several years.

Good Luck!

Jordan Roy-Byrne, CMT

7 Responses to Precious Metals: Keep it Simple

  1. Peter Paul 06/26/2012 at 11:26 pm #

    Everything I read supports the notion that this is correction in metals and the bull cycle is not at an end.  Hence keep the faith and wait for the uptrend.  These seemingly never ending shakeouts are attempts to drive small investors out of the market and then force them to buy back in at a higher mark.  This basically destroys their accumulated profit and puts it in the stronger hands.  Dont succumb to emotional roller coasters, this is a deliberate market strategy by big players.  They assume small investors are weak, they assume small investors dont have nerve.

  2. Jordan Roy-Byrne 06/27/2012 at 12:30 am #

    I agree Peter.

    One important point though. Cyclical bears in this sector are nasty for the shares. Investors in the shares need to make sure they are hedged and own equities that can perform when the sector recovers. That is why I emphasize growth-oriented producers. If you own a junior that declined from 80 cents to 20 cents then you really have to examine if the company has a strong chance to get back to 80 cents or more. Many juniors went down 80% in 07-08 and then went up 10-20 fold in 09-11. I say many, but most did not. Some will repeat this again in the coming years. Bottom line- be picky with the stocks and especially picky with the juniors. 

  3. RUSS SMITH 06/27/2012 at 1:30 am #

    Hi!, Patrons Of The Daily Gold Et Al:

       My deceased mentor always reminded me that most people never learn history until it hits the history books but to look at today as becoming future history.  We are living in unparalled, perilous times that in my opinion only gold can rescue us eventually & so stick with it through thick and thin no matter, because, as the American Institute For Economic Research In Great Barrington, Mass. explains, when you own gold you have money under any & all circumstances don’t you?  This gold market will become one for the futures’ history books amd so stick with gold past the point of its’ history making evolution and you can’t go wrong can you?  Keep your eyes on the ball doing your own due diligence constantly, so you can prepare yourselves for every fork in the road ahead.  We’ve seen gold stocks make historical returns for their ownes in the past @facebook-100002485527287:disqus 
     critical times & so we need to trust they will reward their owners again through patience.  We will be rewarded long before this story is recorded in the history books, if we stay the coarse becoming The Strong Hands.  Economist John Exeter, in his treatise regards his inverted pyramid tells us: “There is a big contest going on in the world between paper I Owe You Nothing money & gold money.  Paper is abundant & gold is scarce.  Gold will win this war in a bigger and better way than anyone has ever immagined!”


  4. Miket1421 06/27/2012 at 1:43 am #

    I hope so I want to be rich and not become anyone’s slave :0)

  5. Gyzhao2000 06/30/2012 at 3:09 pm #

    I have been bullish on gold stocks since last spring..
    However, I learnt from my mistakes and I became more mature.  I would try using the buy low sell high strategy. I don’t want to catch falling knife again.
    Today I read the following article. I think I am convinced and I should be more patient. Only after the completion of this correction I will buy.


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