In this article we are going to look at compelling
evidence that the Precious Metals sector is either at or very close to a
major bottom, and see why the chances are high that the sector will rally
strongly in the New Year.
You have all heard the old adages about Âbuying low and selling high and how the
time to buy is when there is Âblood running in the
streetsÂ. Never have these adages been more
applicable than they are now to the Precious Metals sector, where even the
most diehard bulls have had enough and thrown in the towel.
The abysmal sentiment towards the sector is starkly
illustrated by two of the indicators that we will now look at. The first of
these charts shows the Gold Miners Bullish Percent Index, going back 7 years.
On this chart we can see that only on two other occasions in the history of
this indicator has sentiment towards gold stocks hit rock bottom at 0% as it
has in recent weeks  once late in 2008 when the
sector bottomed at the trough of the broad market crash and again in the
middle of 2013, after which there was a rally before prices ran off sideways
for over a year. When you get readings this low it basically means that there
is no-one left to turn negative, and no-one left to sell. By itself
this bodes well for the sector.
![](http://www.24hgold.com/24hpmdata/articles/img/Clive%20MaundIT%20COULD%20NOT%20LOOK%20BETTER%20FOR%20THE%20PM%20SECTOR%20GOING%20INTO%202015...-2014-12-30-001.gif) ![](../style/all/img/bouton/Zoom_in_6.png)
In further support of the contention that we are at or
close to a major low is the 20-year chart for the ratio of the large stocks
XAU index over gold which is at record low levels. The rationale behind this
being bullish is simple to understand  when
investors are fearful towards the sector and negative on it, they favor
bullion over stocks, because they figure that while stocks can go to zero,
bullion cannot, and they are right about that. What they are not right about
is being fearful when everybody else is fearful Â
which means thereÂs no-one else left to get scared
and sell, as is the case now. When this ratio is at a negative extreme as
now, it means that the mob are extremely and universally negative  and that has to be bullish. Right now this ratio is at
astoundingly low levels  way below the levels it
was at late in 2000, right before the start of the great gold and silver
bullmarket, and at the depths of the 2008 market crash  Precious Metals stocks have already crashed and are friendless.
![](http://www.24hgold.com/24hpmdata/articles/img/Clive%20MaundIT%20COULD%20NOT%20LOOK%20BETTER%20FOR%20THE%20PM%20SECTOR%20GOING%20INTO%202015...-2014-12-30-002.gif) ![](../style/all/img/bouton/Zoom_in_6.png)
Finally we have another powerful indication that the
sector is bottoming in the volume pattern of junior mining stocks, expressed
collectively in the form of the Market Vectors Junior Gold Miners ETF, GDXJ,
whose 4-year chart is shown below. On this chart we can see that volume in
GDXJ has ramped exponentially all this year to extreme levels, that must
signify a bottom, because the sellers must by definition be Âdumb because they are obviously selling
at a massive loss  so who is doing all the buying, taking
the other side of the trade? Â Smart Money, thatÂs who. The enormous recent volume in this is evidence of a massive
transfer of stock from weak to strong hands, and since the new buyers are not
going to sell until they have turned a profit, it is easy to understand that
immediately an uptrend takes hold, new buyers are going to find no stock
available and will have to drive prices sharply higher to get their orders
filled.
![](http://www.24hgold.com/24hpmdata/articles/img/Clive%20MaundIT%20COULD%20NOT%20LOOK%20BETTER%20FOR%20THE%20PM%20SECTOR%20GOING%20INTO%202015...-2014-12-30-003.gif) ![](../style/all/img/bouton/Zoom_in_6.png)
Does this mean that most junior miners will survive?  sadly, it doesnÂt  hundreds of junior mining companies can be expected to fail next
year  itÂs too late for
rising stock prices to save many of them. What the volume in GDXJ is telling
us is that Smart Money is looking beyond the cull to the New Dawn that will
follow, when the better junior miners, especially those that are in
production or close to going into production, will reap the benefits of
having hunkered down and pulled through a very difficult time, which will be
magnified by the extra savings resulting from low oil prices, with fuel being
a major component of mining industry costs.
The worries about deflation dragging the sector further
into the mud are a Âred herring  gold does well during deflationary
times as old timers like Richard Russell will recall from the experience of
the 30Âs. So if we do see deflation, it should not
prove to be a problem for the sector.
Finally, end of year tax loss selling will be over this
week, so we are at a good point for a sector rally to start, as was the case
last year.
The conclusion to all this is that we appear to be at an
excellent point to buy the better mining stocks, and you shouldnÂt have to wait too long before investments in the sector start to
pay off.
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