Saturday, March 24, 2012

Calling Another Bottom in the Precious Metals Sector

The last time I called an important bottom in the precious metals sector was on December 29, 2011 (as documented here). Well, it's time for another important bottom. I believe the late December lows in the precious metals (PM) sector were THE lows for the metals, for the GDXJ ETF (a rough representation of the junior Gold mining sector) and for silver stocks (as represented by the SIL ETF). The current bottom is much more important for those seemingly perpetual laggards, the senior Gold mining stocks.

And why do I think this is such an important bottom? Well, there are several reasons. These were summarized in a recent subscriber letter dated March 16th, re-published below:

Gold Versus Paper March 16 2012 Letter

Subsequent to this letter, we had last week's action. I believe Tuesday was THE low for the senior Gold mining sector and my subscribers and I bought our remaining 50% bullish position on Tuesday. This week (for once), senior Gold stocks (as represented by the GDX ETF) refused to make a new lower low with Gold on Thursday, setting up a nice short-term divergence at a time when the PM sector was so under loved and undervalued on a short-to-intermediate term basis that a survey of professional Gold market timers recommended a net short position (according to a blogger I respect, as I don't subscribe to this information - link here) and this graphic from was floating around the internet:

And then we had the classic "fake out" drop in Gold on Thursday, as captured so well by candlestick charting, followed by a gap up candle on Friday morning. Here's a daily candlestick chart of the GLD ETF (as a proxy for the Gold price) over the past 8 months thru Friday's close to show you what I mean:

I think it is finally time for metal stocks to outperform the metal for a few months (at least). I am bullish on the whole PM sector, however, and think all items will do well. If this type of real-time actionable analysis appeals to you, consider trying my low cost subscription service - a one month trial is only $15.

For those uninterested in the risk of speculating on the short-term chart squiggles with a portion of their capital, my advice is simple: buy physical Gold (and a little silver) and store it outside the banking system until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle).

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