Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Stocks: Bottom, Re-Test, Launch?

Commodities / Gold & Silver Stocks Jul 16, 2012 - 03:42 AM GMT

By: Adam_Brochert

Commodities

Best Financial Markets Analysis ArticleThough I favor physical Gold held outside the banking system that can't get MF Global'd over those paper Gold derivatives known as Gold stocks, there are times when a speculative opportunity presents itself that cannot be ignored (at least not by me). Now is such a time in Gold stocks. In my last post, I welcomed a new cyclical Gold stock bull market. I continue to believe a new cyclical Gold stock bull market has already begun and we are now completing (if we haven't already) the re-test of the mid-May, 2012 lows. What comes next? The launch!


Here's a 6 month daily chart of the GDX ETF thru Friday's close to show you my thoughts:

It is important to understand that fundamental valuations and "bigger picture"/longer term technical analysis both support a bottoming process here. My last post discussed some of these factors. And here is yet another important fundamental piece of data courtesy of the Tocqueville Gold Fund 2nd quarter 2012 investor letter (there are many other great data points at this link and the chart below is apparently courtesy of BMO Capital Markets):

The dark blue line in the chart above demonstrates that the price of senior Gold mining stocks relative to their current year cash flows is at levels last seen at the depths of the 2008 crash and the beginning of the current Gold stock secular bull market at the end of 2000. The Gold stock bears keep screaming about the rising costs of Gold mining. They are right about rising costs, but they neglect to mention the other side of the argument, which is more important: margins are RISING for large cap Gold miners, not falling, because the price of Gold is rising faster than costs are. And we are entering another coordinated global recession (no, there won't be any decoupling this time, either), which means the price of general commodities (like oil) should fall relative to Gold. This will further improve margins for Gold miners.

We have seen several bottoms in Gold stocks in the past that resemble the current set-up. Here are some examples of the "bottom, re-test, launch" sequence that I believe is repeating right in front of our eyes. First up, the 2004 bottom, using the HUI Mining Index ($HUI):

Next up, late 2008, also using the HUI mining index:

Or even way back in 2000 to start the secular Gold stock bull market using the XAU mining index:

Could this time be different? Sure, anything is possible in markets. But given the low valuations in Gold stocks by multiple measures, recent 40% bear market in Gold stocks (2nd worst of the last 12 years in percentage terms and longer than average duration), and suicidal sentiment in the PM sector, the odds are now heavily favoring the Gold stock bulls here. Here is a chart of the "bullish percent index" for the GDM (the index that backs the GDX ETF) over the past 6 months to also show how beaten up the senior Gold stocks are ($BPGDM):

Gold stocks are a speculation for me while physical Gold is my way of protecting my savings from the ravages of a financial and bureaucratic system out of control. Until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle), it is silly to be overly bearish on the precious metals sector. While traders bicker over whether Gold is about to break up or down right now, they miss the "forest": by the time we reach December 31st, Gold is likely to be up in percentage terms for the year, which would mark its 12TH YEAR IN A ROW. Is Gold a bubble or are there just a lot of sour grapes out there from those that have either missed the move so far or are desperately trying to prevent the inevitable "official" return of Gold as the anchor for a new international monetary system?

Hold onto your Gold. This thing is far from over. If you'd like to try speculating in the paper PM sector once you've established a core physical metal position, consider giving my low-cost subscription service a try. A one month trial subscription is only $15.

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2012 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules