The gold (GLD) and silver (SLV) price may be reversing over the next couple
of weeks. The junior miner gold ETF (GDXJ) is reversing above the 50 day moving
average and breaking above its recent three month downtrend.
When the huge cash positions waiting on the sidelines or taking profits in
the equity market rising on low volume return to the ignored resource sector
the gains could be huge. Already the volume in GDXJ in 2014, has jumped outpacing
2012 and 2013. On the other hand the S&P500 has been rising on light volume
which is often a warning sign that the extended rally is getting exhausted.
This indicates to me that possibly the large institutions are accumulating
the juniors after all the retail investors jumped ship. Prices could jump rapidly
in the Toronto Venture Exchange where most of the legit junior miners are traded.
These small cap juniors could gap higher as the major institutions are hardly
exposed to the mining sector at all.
It appears that some of my charts are showing a potential reversal in the
precious metals. Get ready for an incredible bounce higher in precious metals.
Here are five reasons why.
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Increased M&A in the gold mining space and equity investments in junior
miners should tell you where the smart money is headed. Take a look at
the recent Osisko deal where Yamana outbid Goldcorp for their Quebec mine
as a recent example and a straw in the wind. Look at Gold Resource Corp
(GORO) and Hecla's (HL) increased investments in the junior space.
-
Gold and silver are trading way below their three year trailing averages
which indicates that the price is way oversold and a major bounce is likely.
Furthermore, gold is priced below production putting strain on future supply
as miners mothball marginal projects.
-
The equity markets are too high reaching extreme overbought and speculative
levels similar to 2007 before the crash. A correction in equities sparked
by fears of deflation could spark the return to gold and silver as a safe
haven as Central Banks may continue to push negative interest rate policies
similar to what the ECB recently announced.
-
Gold and silver have been basing for three+ years and the junior miners
have been in arguably a seven year bear market reaching historic oversold
levels.
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Watch geopolitics especially the Ukrainian-Russian and the Middle East
situation in Iraq, Libya, Syria, Iran and Turkey. If tensions escalate
it could send metals, commodity and oil prices soaring. Do not be surprised
to see further chaos and increased violence as the U.S. pulls its troops
out of the region.
Disclosure: I own physical gold and silver and many junior mining
stocks which are not mentioned in this article.
