Gold Stock Jigsaw Puzzle
Weekly Market Update Excerpt
Morris HubbarttUS Dollar Bear Arc Chart
18 May 2012
- Germany, France, and Greece are three European nations that have had elections recently. Not all of these elections were for top posts, yet they all point to the same conclusion; austerity is being voted down.
- The most recent vote was in Germany. A self-described "social, liberal, and progressive" group won the election. They will likely be harsh critics of the sitting government's austerity programs. If a government's "solution" is not austerity it is usually money printing. Governments use money printing to renege on their obligations.
- The dollar is benefiting from the euro debt crisis. In the short term, the temporary strength in the dollar could continue, although yesterday Ms. Merkel strongly implied that she is willing to support printing money for Greece.
- The falling stock market could help the dollar temporarily, but a great currency does well when the nation's other assets do well. Our dollar only rises now if other assets are sold in a panic. Is that a great currency? Gold is the strongest currency in the world and it's the only one that is debt-free.
Gold Comparison Chart
- Although initially I didn't see gold moving as low as it did, my studies indicate that the "technical rails" are being cleared for a substantial advance by the gold train.
- The fact that it moved somewhat lower with such strong commercial support could intensify the move that is developing now. Major bottoms form deeply in "the pain zone". The current process of price discovery suggests that the bottom forming could produce an astronomical rally. Patience is required.
- Like putting together an immense jigsaw puzzle, more and more evidence of an enormous bottom is being put into place, but only hindsight will reveal the fitting of the final piece of the puzzle!
- The RSI indicator is positioned much like it was at the lows of the 2006-2007 consolidation.
- Note the volume comparison. The difference is that volume has grown drastically. That volume could be the fuel needed to push gold to the prices that the gold community dreams about.
Historic Gold Stock Corrections Chart
- Using the HUI Gold Bugs Index as a proxy, you can see gold stocks have sold off by about 41% from their highs.
- The fundamental case for gold is unchanged. On this monthly chart, the "slow stokes" (slow Stochastics) indicator is dramatically oversold. Oversold conditions on monthly charts can fuel some of the largest rallies in any market.
- My favorite technical indicator is the CCI. It is also extremely oversold. For the life of this bull market, it has never been this oversold.
Historic Gold Stock Rallies Chart
- This chart gives you a look at the norm gain after major bottoms occur in this bull market.
- I want to alert investors to the possibility of a quick test to the HUI 350 level on the chart. That corresponds roughly with $35 for GDX.
- Every major HUI rally has started with the appearance of a long-tailed candle. This technical condition occurs when the price dives lower and then springs back quickly, leaving a long "tail". While there is some evidence that a "final bottom" is in, a long-tailed candle remains elusive.
- There is good news for those sticking it out or able to buy. After major corrections in this gold bull market, gold stocks have gained 200% and more.
- I'd like you to look at the CCI indicator on that chart. It has signaled all three of the major rallies that have occurred. Look at its positioning now. Gold stocks represent outstanding value.
- GDX has had two "fuel cell volume" signals recently. These are days that come in a sustained decline where price is suddenly up and volume is heavier than the previous down day. The two fuel cells are very constructive signs from a standpoint of technical analysis.
- I'm producing a "Fuel Cell Volume" video this week-end, and will make it available to the general gold community. It's a two part video that covers GDX and GDXJ. Send me an email to firstname.lastname@example.org and I'll send it to you. Thank-you.
GDX Versus Gold Chart
- This chart illustrates the tremendous potential reward offered by gold stocks. Note the position of the RSI oscillator.
- The "slow stokes" are even more oversold than they were at the lows of 2008, and the gold:GDX ratio is almost at its lows. Gold stocks are clearly a buy for all value-oriented technicians.
GDXJ Capitulation Chart
- The above chart is not a pretty picture. You could make the argument that a complicated head and shoulders top is in play that predicts much lower prices. I believe that would be a total misrepresentation of the condition of the current juniors market.
- Note the panic volume that has just occurred. I don't believe there are many sellers left in this market, and those volume bars indicate that I am probably correct.
- While my personal buying has been focused more on GDXJ than GDX, my main analysis at this juncture is to focus on the senior gold stocks. If the gold seniors react like they have in the past, and my work on every level indicates that they will, then junior gold stocks will soon be flying high. In my opinion, junior gold shares at current prices offer solid value.
- Data that I use from www.sentimentrader.com shows a massive sell-out by holders of the precious metals sector.
- This Rydex data works as proxy for the entire precious metals sector. The findings are exactly the kind of action you expect at major market bottoms. While the value of the fund is down by 40%, the assets in the fund are down by 72%, indicating a mass exodus from the entire precious metals sector.
- From a standpoint of contrary opinion, the entire precious metals complex is an outstanding buy.
Silver Fibonacci Chart
- Silver finally got back into my buy zone earlier this week. The correction is likely coming to an end and silver at the current price represents great value.
- I prefer to buy the physical metal and have the product safely stored. My intermediate and long term targets are for substantially higher prices.
- Yesterday I called silver the "impressive mover", because it was able to move up strongly alongside gold while the general stock market was hit quite hard.
- Remember that silver tends to put on its best performances during the latter part of an uptrend. If yesterday's price action is any indication of the underlying strength of this metal, I think you'll be very pleased with what lies ahead!
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