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Have
you ever experienced a "Deja Vu" feeling? Well, if you have never
experienced one, maybe after reading this post you will.
Let's
start with a technical chart of Gold. These days, gold is holding up
strongly, and is only $80 below its all-time high.
If
this continues, we might consolidate for a couple of weeks, to work off the
overbought condition of the MACD indicator.
 
Chart: Prorealtime
Now
have a look at the following Chart:
Chart: Prorealtime
The
chart above is the gold price in 1970, right before it more than doubled 2
months later.
Don't
they look very similar? To show you, I will now place one chart on top of the
other one:
Chart: Prorealtime
Well,
since Gold is acting very much like in the seventies, let's see what happened
after... Based on this chart, Gold could consolidate until mid-late October,
and then Double again in the weeks/months following.
As
of late, the shares of mining companies have been lagging the Gold price Big
time!
However,
as we can see in the chart below, the mining shares (represented by the
Barron's Gold Mining Index) follow the gold price nicely over time. It looks
like the Mining companies are breaking out of a multi-decade long
consolidation pattern:
When
we measure the BGMI (Barron's Gold Mining Index) in Gold, we can plot the
outperformance or underperformance of Gold stocks compared to Physical Gold.
A falling ratio means Gold stocks Underperform Gold, or equivalently, Gold
outperforms Gold stocks.
Notice
that the gold stocks were also underperforming gold before the top of 1980!
The
following chart is the same chart as above, but now with some support and
resistance lines.
However,
the most interesting observation is that as gold peaked in 1980, the Mining
Stocks first retreated along with Gold, but then doubled in the months that
followed, while gold did not make a new high until 2008!
What
will happen to Silver if Gold doubles over the next couple of months?
If
history is any guide, silver will also rally substantially.
At
the top of 1980, on January 21st, ONE ounce of Silver was 4.79% of the price
of ONE ounce of Gold. Right now it is only 2.28% of the price of Gold. So if
Gold is about to double from here, Silver should at least double as well, and
if we would get back to the high of 1980 (Silver Price as a % of the Gold
Price), Silver could potentially more than QUADRUPLE from here...
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