We've believed that Gold would need to break $1100 before we thought a bottom
could start to develop. While that could still be the case, we are starting
to see building evidence that precious metals could be forming a bottom.
In the past we've written about the importance of Gold's performance against
other asset classes. Relative strength in Gold has preceded important bottoms
in the Gold price during 2001, 2005 and 2008. That relative strength is starting
to show. Below we plot Gold against various asset classes, which are noted
in the chart. Several days ago Gold against foreign currencies (and the Euro)
closed at a 15-month high. Gold has also moved to a 13-month high against Commodities.
Also Gold may have bottomed against global equities as it has held support
three times in 2014. Gold is weak only against the S&P 500.
Below we plot Silver and Gold in a monthly chart along with the discount/premium
to NAV for CEF, the Central Fund of Canada which holds physical precious metals.
There are still two weeks left this month but thus far the monthly chart is
making a strong statement. Silver has formed a strong bullish hammer after
testing $14. The candle has just about engulfed the previous two months of
trading. If the candle holds then this will be the strongest and most bullish
candle since the bear began. In addition, CEF's discount to NAV recently peaked
at 13%. That is the highest discount in 14 years! Meanwhile, Gold is also in
position to engulf the previous two candles. During the bear, Gold never came
close to doing that at any of its lows.
Sticking with Silver, lets take a look at the bear analog chart. Silver's
bear is already the second worst in price and the third worst in time. The
two bears which lasted longer (albeit by only a few months) were considerably
higher in price at this juncture. It's really hard to imagine downside in Silver
below $14-$15.
These are only a few charts from many we follow and consider but they are
sending strong signals. We focus on Silver as it peaked before Gold and needs
to show bullish signs for the bear market to terminate. Silver has put in what
at this point appears to be a major bullish reversal and from major support
at $15. Meanwhile, some (but not all) of its sentiment indicators reached true
extremes and its bear analog tells us the current bear has gone deep enough
and far enough. On the other side, we like what we are seeing from Gold. It
is showing increasing relative strength against foreign currencies, commodities
and to a lesser degree global equities. Strength in the US$ and US equities
are the only things holding it back from a strong rebound. Those markets could
be due for a correction.
Going forward, here are some things I will be watching to determine if a real
bottom is in place. First, metals need to close the month strong and not lose
current gains. Second, Gold needs to continue to show relative strength and
especially against the S&P 500. Third, the miners (HUI, GDX, GDXJ) need
to rebound strongly from this next low, whether it be a double bottom or false
new low. In the past we've written that opportunities are coming. It appears
that opportunities are now fast approaching with respect to the mining equities.
We are working hard to prepare subscribers for these opportunities.
Good Luck!
