Over the past two weeks the precious metals complex has retested its
Brexit breakout and rebounded back to the July highs. Today's jobs report has
pushed the complex lower but has delivered an opportunity to cash heavy
portfolios which have missed the bulk of the move. With that said, we wanted
to share our current analog charts for Gold, gold stocks and junior gold
stocks which suggest continued upside potential in the sector.
The first chart plots the current rebound in Gold compared to the average
of its two strongest cyclical rebounds (1976 and 2008) and the average of
four rebounds (including 1976 and 2008) within its secular bull markets. As
we can see, the current rebound is closely following the average of the four
rebounds. If Gold continues to follow that path then it could reach $1500/oz
before the end of the year and retest its all time high of $1900/oz by the
end of next year.
Turning to the stocks we find that the large miners are fairly extended at
present. The HUI is currently above the other two rebounds. If the HUI
continues to follow the path of the last cyclical bull market (2008-2011)
then it has somewhat limited upside. However, considering my research and
analysis, the recent low in gold stocks figures to be quite a bit more like
the 2000 low. By following that path the miners could triple over the next
two and a half years.
My own research and discussions with industry sources (folks with more
experience and knowledge than me) leads me to believe the best value is
currently in the juniors and the smallest juniors. My junior index bull
analog chart shown below confirms that view. My index has already tripled but
has plenty of upside potential over the next six months and two years.
Thus far Gold and gold stocks appear to be tracking history quite well. If
the bull market continues then these charts should continue to provide some
context as to where things could go. History is a very good guide but it is
not perfect. No indicator by itself is infallible. In addition to historical
analogs we also employ technical analysis, intermarket analysis and various
sentiment indicators. We reiterate our view that precious metals are in the
early stages of a cyclical bull market that has a chance to turn into a full
blown mania. Our views are always subject to change but we remain bullish
over the near term.
