The Character of the Gold Mining Sector is Changing

By: Toby_Connor

The big news for Thursday is that gold formed a weekly swing. Considering that the QE4 manipulation stretched the intermediate cycle way beyond its normal timing band, this weekly swing should confirm that the yearly cycle low is complete.

We did see profit-taking come into the market as soon as gold tagged its 50 day moving average. I don’t see anything unusual in that, as gold has delivered a 75 point rally in only nine trading days. The 50 day moving average is a logical place for short term traders to lock in some profits.

On another note, this was the third attempt in two weeks by the shorts to drive gold down. It worked for a couple of weeks after QE4 and even for two days at the beginning of January, but I think the complete failure today to hold gold down against its natural trend is probably the signal that the market has broken the short-term manipulation. I think any further attempt at short-term manipulation and the shorts are just asking to get their head handed to them. Shenanigans are not out of the ordinary on options expiration. So we could very well see another attempt to drive gold down on Friday. If this one fails also, and it probably will if the dollar is falling, then I don’t think it will be long before the gold chart starts to look like the platinum chart.

Next I want to discuss the mining stocks. It seems everyone has an excuse for why the miners have underperformed lately. Needless to say I don't really buy any of that nonsense. However, I am as confused as everyone else to come up with a reasonable explanation for why miners continue to sell for these ridiculously cheap valuations.

Whenever I am confused the first thing I usually do is pull up a very long-term chart so I can get a feel for what is really going on and thereby eliminate the distraction of the day to day wiggles. I think we are all wondering when the miners are going to join the party as it certainly appears that gold and silver both have formed major yearly cycle bottoms.

What I saw was quite a surprise. The character of the mining sector has changed completely. For the first time in this bull market miners are forming a rounded base instead of the typical V-shaped bottom. A rounded bottom is a much more powerful basing structure than a V-shaped recovery.

If you believe as I do that gold is going to $3500 - $4000 over the next two years, then I would have to say there is no way it is going that high without taking the miners with it. As a matter of fact, I don’t think there’s any way gold goes to even $1900 without taking the miners with it.


The complete loathing & disgust we are seeing for the mining sector, coupled with the character change in the bottoming process is the setup, in my opinion, for a huge move in this asset class over the next two years.

I can’t tell you exactly when the move will begin, but as I said, I don’t believe for a second that gold is going to $4000 without taking the miners along for the ride.

For what it’s worth, I saw the exact same sentiment in silver back in August of 2007. When silver broke through its last support level everyone threw in the towel. As you can see from the chart that was the exact moment one should have been buying, or if you already had positions, it was a huge mistake to get knocked off the bull.

This is just another example of technicals not working in the volatile precious metals sector. I’m pretty sure every technical trader in the world sold when silver broke through that $12 support level. It caused them to miss an almost 100% rally over the next six months.

If you believe in the bull market, and I think most everybody here does, as I tend to focus on gold, and I suspect that is the reason most people bought a subscription in the first place, then all one needs is the patience to let the bull run its course. If you get sidetracked like the silver traders in the summer of 2007, you aren’t going to do yourself any favors.

If you are here to ride the bull market, then ride it and don’t worry about whether or not you made money today or yesterday. The only thing that makes any difference is how much money you make by the time the next C-wave tops, and that has nothing to do with what happened this week, last week, or last month. It has to do with what is going to happen over the next two years.

If I’m right about where gold is going then it is definitely going to be worth the hassle of letting the miners complete this rounded base, because the upside once it’s finished is huge.

If you don’t believe in the bull market then you probably have the wrong newsletter. My goal isn’t to make a couple of percent trying to jump in and out of momentum stocks. My goal is to double or triple your portfolio by 2014. However, I can’t do that unless you have the patience to hold on through all of the bull’s tricks and curve balls. I can keep subscribers focused on the big picture, but patience is something everyone has to learn on their own.

I can say that the traders that had patience during the last C-wave were well rewarded.

The SMT premium newsletter is a daily and weekend market report covering the stock market, commodities, and the precious metals markets.

Toby Connor

Gold Scents  

GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market.   Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers.  If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.

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