The Fed minutes were dovish and this helped push Gold above $1310 to $1320.
However, the miners, which usually lead the metals did little to confirm the
rise. In fact, the miners have been relatively weak in recent days and had
a bearish reversal on Thursday. Their rebound from an oversold condition has
petered out. Another point is Gold, during this rebound has made no progress
against foreign currencies. It's starting to show some strength against the
equity market but it needs to show strength against all currencies and not
function only as the inverse of the US Dollar. Be on alert as the short-term
trend for precious metals (especially the miners) could resume to the downside.
Looking further out, forthcoming weakness shouldn't last that long in the
big picture. The miners have been basing for quite a while and started to gain
traction in Q1. The next low at worst could be a double bottom or otherwise
would mark the first higher low in this bottoming process. In the chart below
we plot GDX (large caps), GDXJ (juniors), SIL (silver stocks) and GLDX (explorers).
We note how much each would have to decline to test its December low.
Our gold stock bear analogs chart, which helped us call the June
2013 low and anticipate the December
2013 low, makes a strong argument that the final low (on a weekly basis)
occurred in December. The low is circled but we kept the plot going for further
comparison. Compared to the present, there are only two bears that lasted
longer and at present both were down less than 50%. Note that at the December
low when gold stocks were down 64%, the three bears which lasted longer were
off no more than 50%.
The 1996-1999 bear which ended at this time down 69% is an interesting case.
It did reach lower levels in 2000 before the current secular bull started.
However, after the 1999 low gold stocks exploded led by the GDM index (forerunner
to GDX) which surged 75% in a few months. Then the stocks consolidated for
many months before popping again. During this brief 14-month respite the GDM
gained 90%, the XAU 83% and the HUI 68%. After the bottom in 1999, GDM and
XAU broke to new lows two years and two months later. The HUI, which was more
attached to the epic junior bubble of the mid 1990s, reached new lows one year
and nine months later.
Considering this history, even the most bearish person would have to admit
that the market needs to consolidate for a while (as in way more than a year)
to have any chance to reach new sustained lows. Gold stocks enjoyed a huge
short covering rally shortly after the 1999 low. Yet even after the short covering
ended the preceding bear market low wasn't breached for roughly two years!
Why is this bottom taking so long? A few weeks ago we posited that it could
be because of the extended topping process in 2011-2012. Perhaps that unusual
topping process is giving way to an unusual bottoming process. In any event,
the best plan is to wait patiently for the next oversold condition or in case
we are wrong, wait for the next breakout. I don't expect a breakout anytime
soon. The indices look weak and TheDailyGold
Top 15 Index (15 of our favorite companies) also appears to have downside
potential in the coming days and weeks. Nevertheless, I am actively researching
companies as well as watching their price action. The coming months could be
your last best chance to accumulate the companies poised to benefit from the
coming revival in precious metals.
Good Luck!
If you'd be interested in learning about the companies poised
to outperform, then we invite you
to learn more about our premium service.
