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Now that my subscribers and I are fully into bullish
positions in the precious metals sector, I hope they won't mind me telling
you that I called for the bottom in Gold stocks on Thursday morning (12/29).
I believe the bottom is in for silver, Gold and their respective stocks,
although the metals may need a re-test of the bottom while I think Gold or
silver stocks (as sectors) will only make higher lows on any corrective
action.
There are some major bells ringing in the sentiment department for the PM
sector that should not be ignored. First up, a chart from Guy Lerner (link to
article pasted onto the chart), which plots the Market Vane sentiment (i.e.
percentage of bulls, bottom of chart) against the price plot of Gold:
Since this chart was published, according to Richard Russell via a blog post
on King World News (I don't subscribe to Market Vane, so I'll take Sir
Richard and King World News at their word), the number has dropped further
down to 56%. As the chart above shows, major bottoms in Gold have been formed
in the 50s range on this sentiment indicator. We are there.
Next up, a chart I created in Excel for the Rydex
Precious Metals Mutual Fund using the net asset value of the fund, which
measures the flow of money into and out of the fund. When the plot in the
chart covering the last 5 years below is low, the herd is bearish (i.e.
bullish from a contrarian perspective):
The persistent multi-month malaise in this sentiment indicator I think is
indicative of the lethargy in the Gold stock bull camp. Gold stocks have
sucked over the past year or so, let's be honest.
"Gold up, Gold stocks down" is not the way to build enthusiasm
among Gold stock investors, to be sure. But these sentiment indicators tell
us that the time to be bullish on the precious metals sector is at hand.
Furthermore, Gold and silver have complete-looking corrections to me using
both time and price. The late September swoon in the metals (Gold to low
1500s and silver to low 26 level in USD terms) was
enough price damage, but the current re-test satisfies a time dimension that
was needed to reset the sentiment in the sector. Now that we have re-tested
the lows, all the experts have intelligent and coherent reasons for why the
PM sector will continue to decline. I wish them well, but I am betting
against them with everything I've got. I am now 100% long Gold stocks in my
trading account and my physical metal stash has been improved by some timely
holiday gifts of silver from Mrs. Claus.
And how about that COT report for silver? It was bullish last week and this
week added a sliver of further bullishness to the picture. See prior post and
here's the current COT report courtesy of Software North:
Meanwhile, the Dow to Gold ratio is stretched to the upside like it has been
only a few times in the past decade (14 year log scale chart of $INDU:$GOLD
follows), indicating a significant reversal has likely already begun this
week:
The Gold stocks tend to rise when the Dow to Gold ratio is falling (outside
of meltdowns/crashes like in 2008) and who hasn't seen a chart of the Gold
stocks to Gold ratio telling us that Gold stocks are cheap on a relative
basis (12 year log scale chart of Philadelphia Gold and Silver Mining Index
to Gold price ratio [$XAU:$GOLD]):
While others are bearish on Gold, silver and Gold and silver stocks, I am
staunchly bullish here. And please keep in mind that I have been bearish on
Gold stocks since August. See my late
August post that elicited hate-type email from Gold stock
bulls. And now that we reached the low 20s in the GDXJ ETF as predicted in
late August, I am very bullish on the GDXJ ETF and all Gold stock indices.
In my subscription service, I send out weekly updates as well as interim
updates when indicated and email trading alerts when I think it is time to
pull the trigger on a trade. Here is the interim update I sent out to
subscribers Wednesday night (12/28/11), which was followed up by an email
trading alert Thursday morning advising subscribers to buy Gold stocks (as
well as metal, although I think the metal stocks will outperform this cycle):
Gold Versus Paper December 28 2011 - Interim Update
Only time will tell if my call for the bottom Thursday morning was right. If
you are interested in analysis like this consider giving my low-cost
subscription service a try. I am a secular permabull when it comes to Gold, but I am pragmatic in my
paper trading account and will go long or short any sector (including
shorting the PM sector) if I think there is opportunity there. Right now, the
opportunity is in the precious metals sector from the long side and I think
my subscribers and I are going to make lots of money to start 2012.
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