After a WILD weekend that saw silver prices run from $19 to $21.19 and back to $19.50, PM Fund Manager Dave Kranzler offers some “gold and silver porn for your viewing pleasure“…
Gold and silver have fallen hard since 2011 and gold and silver stocks have been crushed.
The chart of the XAU shows a November low not seen since 2000. The ratios of the XAU to the S&P and to gold show that gold and silver stocks have been “out of favor” as easy money has levitated the broad stock market at the expense of gold and silver stocks.
Those stocks should “regress to the mean” and move much higher.
I suspect 2015 will clearly show the bottom occurred in 2014 for gold, silver and the XAU. The US dollar already has or will soon peak in 2015, which will add to the volatility and “tailwind” for gold, silver, and their stocks.
A new force that is bullish for gold has unexpectedly appeared, which is the Swiss franc’s mauling of the US dollar.
The franc has a stellar track record of being a hard currency, and a key lead indicator for the price of gold.
Please view the monthly chart of the dollar versus the franc below. The dollar has essentially imploded.
Entire brokerages and funds have been destroyed, as the dollar has gone into “meltdown mode” against the franc.
As painful as it’s been for these dollar bugs, I think there’s much more pain to come.
Take a look at the HUI/gold ratio chart below in the year 2000 – 2001 period.
While gold went nowhere, gold stocks surged from late November in the year 2000, until the spring of 2001.
I think a similar situation is on the horizon now.
Is the Western gold community prepared to profit, if it happens? I hope so!
Gold, not stock market casino chips, will be where India puts their growing riches, and rightly so!
With Indian gold demand potentially moving into “overdrive” mode, most gold stocks appear ready to have a great year in 2015!
As we’ve been claiming all year, gold put in a Double Bottom in late 2013 and is now on the road to recovery and a resumption of its bull market. Since January, I’ve had a price target of $1500 for 2014 and I see no reason to adjust that forecast. The HUI has recovered, too, and has already moved more than 30% off of the late 2013 lows.
So, the questions become:
Is that it? Will the miners now roll over and continue their downtrend or will they continue to rally?
The answer is in the charts.
The American GDX Gold Miners ETF is slowly becoming the de-facto standard for measuring gold-stock performance.
Now on those rare days when gold stocks are discussed on CNBC, the HUI is never mentioned. In this new ETF-dominated world, the dominant ETFs have replaced minor sector indexes as the leading benchmarks of choice. So to mainstreamers not steeped in gold-stock trading experience, GDX is the gold-stock sector. So we’re long overdue for revisiting its construction, components, and performance.
Submitted by Adam Hamilton, Zeal
The loathed and left-for-dead gold miners look to have begun their usual spring rally. This sector has actually exhibited strong seasonality for its entire secular bull. For well over a decade, most years have enjoyed a major gold-stock rally between mid-March and early June. These favorable seasonals are a welcome tailwind for a sector that is radically undervalued fundamentally and overdue to explode higher.
Submitted by Stewart Thomson:
Every baseball player knows the saying, “3 strikes and you’re out!” Well, the dollar bugs may be about to strike out, against silver bullion. In the previous 2 corrections, silver made a “capitulation low”, and that was followed by a final lower low, which looks like a spike.
The same set-up is in play now. Of additional interest, is the fact that the silver market now shows three corrective phases, since topping in October. It’s quite possible that the next rally will be of “intermediate trend quality”, rather than just a minor uptrend that ends quickly.
If I had to buy just one metal now, I would choose silver, but all investors should own more gold than silver, in a super-crisis.
Submitted by Adam Hamilton:
Before investors can sell high and multiply their wealth, they first have to buy low. The lower any trade’s entry price, the greater its ultimate profits. The best time to buy low is when stocks are deeply out of favor, when few others are willing to buy. And that certainly describes gold and silver stocks today. This sector is universally loathed despite fantastic fundamentals, offering vast opportunities for brave contrarians.
Gold stocks are trading today as if gold was far lower, as if they had little hope of ever earning big future profits. There is a vast fundamental disconnect between these miners and the price of the metal that drives their profitability. This critical point is easily illustrated through a simple construct known as the HUI/Gold Ratio. It divides the premier gold-stock index, known as its symbol HUI, by the price of gold.
Contrarian investing is simple in concept, yet very difficult in execution. The fortunes of stocks flow and ebb, their prices rising and falling. After they’ve risen, they quickly become popular. Everyone wants them and bids up their prices. That’s when it feels the best to buy, so that’s when the great majority of investors rush in to chase the rally. But following the herd leads to buying high, the recipe for failure.