first majestic silver

Gold And The Ideal Buy Point

April 9, 2014

Next month marks the 3-year anniversary of the bear market in silver that started in May 2011.  Later this summer we will hit the 3-year anniversaries of the bear markets in gold and gold stocks.  We are now psychologically conditioned for pain and punishment in the gold markets and to beware of the next downward plunge.

In reality though gold has been in a basing phase.  It’s not going down anymore, it’s going sideways where the downward plunges are muted and the upward rallies are still fake bear market rallies (https://www.gold-eagle.com/article/learning-devious-gold-bear ).  What’s interesting about this base is that it started right at the height of bearishness in the gold market.  That two day massacre in gold back in April 2013 when gold plunged below $1400 actually started the left hand side of the base.  So right when everyone was panicking about gold, in reality it was starting to form a major bottom!

Just a couple months later after trying and failing to get back above $1400, gold made the low point in the base in June of 2013 around $1200.  Gold then tried once again to get back above $1400, but then failed and retested the bottom of the base in December 2013.  So a well established base formed in gold between $1200 and $1400 as you can see in the chart below.

Once gold held support again in December 2013 it rallied back to $1400 just last month, but then failed again and was turned back down to where it is today.  So gold has been basing now for about a year between $1200 and $1400.  Notice though in the previous chart the 30-week moving average has flattened out, and gold has now traded back above the 30-week moving average.  Stan Weinstein, author of one of the best books ever on trend trading called “Secrets for Profiting in Bull and Bear Markets”, would call this a Stage 1 base (https://www.gold-eagle.com/article/next-big-trade-unwind ).

Gold stocks have done essentially the same thing as gold.  They started forming the left hand side of a base in April 2013, then traded mostly sideways for the rest of the year.  Some of the gold stocks went on to make lower lows during the rest of 2013 but most of the damage had been done by the April-June time frame.

Taking a look a the GDXJ Junior Gold Miners ETF notice how the 30-week moving average has flattened out just like it has in gold.  After going back and reading what Weinstein said about Stage 1 bases recently I noticed this quote which might relate to what we are seeing in the gold stocks today:

“But often volume will start to expand late in Stage 1, even though prices remain little changed.  This is an indication that dumping of the stock by disgruntled owners is no longer driving down the price.  The buyers who are moving in to take the stock off their hands are not demanding any significant price concession.  This is a favorable indication.”

Notice the tremendous increase in volume in GDXJ since the start of 2014.  As Stan says this is an indication that buyers and sellers have reached equilibrium.  So after a year long base in gold and gold stocks, what we’re are looking for next is the breakout into a Stage 2 advance.

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