Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Epic Investor Opportunity in Gold Stocks

Commodities / Gold and Silver Stocks 2013 Jun 29, 2013 - 01:14 AM GMT

By: Jordan_Roy_Byrne

Commodities

First, let me say I've been way too early on this call. I've been wrong and don't deny it. You have to own up to mistakes, learn from them and be humble. Moving along, the precious metals sector is likely days or potentially hours away from a bottom. With respect to Gold, we are targeting $1180 or slightly below with $1080 as a worst-case scenario. The stocks are a bit more instructive for several reasons. First, they have a more consistent history and second, the stocks bottomed ahead of Gold (using daily closing prices) at the major lows in 2000-2001 and 2008. Using data from the Barron's Gold Mining Index (BGMI) and the HUI Gold Bugs Index (HUI) we put together a chart of all of the major declines in gold stocks. We also annotated the ensuing recoveries.


Downturns A, B and C occurred in a secular bull market while E occurred following the 1980 high. Note that the current downturn (D) is very similar to B,C, and E in terms of length and depth. A,B and C were followed by spectacular recoveries and even E resulted in a 205% rebound in only seven months. G and H also produced very strong rebounds. Also, Mebane Faber has provided some data that show how a particular market can perform after enduring 60% to 90% declines. Source Link.

Below we plot monthly charts of GDM (GDX), XAU and HUI. The sector appears to be one more or perhaps two more down days away from touching major, multi-year support. One learning point for me is that when a market is in a severe decline, you have to wait for major support. That matters far more than negative sentiment or the secular trend.

The mainstream continues to be bearish on this sector and in some places, misinformed about the sector in general. Josh Brown is a widely read mainstream blogger who also appears on CNBC daily. I happen to agree with a fair amount of what he writes and his style is refreshing. He's also been bearish on the gold stocks for a while and I give him credit for that, while I became bullish way too early. A few days ago he posted some very negative thoughts on the sector following a television appearance by a gold fund manager who struggled to make a positive case for gold stocks. To be fair to the manager, one shouldn't expect to find any in-depth or long-term actionable analysis on a show known as "Fast Money," which is far more concerned about the next two days than the next two years.

Brown's blog post not only was devoid of any real fact-based analysis but highlights how the mainstream continues to misunderstand precious metals. Given that he blogs, appears on tv daily and has to meet with clients, he may not have the time to do exhaustive historical research. Furthermore, I was quite surprised to see his post highlighted in Seeking Alpha as if it provided any worthwhile analysis.

He disputes the fact that Gold benefits from cracks in the financial system and asserts that nobody bought Gold when the cracks appeared. He goes on to say that if the stock market crashes, gold stocks crash also.

If one is focusing on a very tiny period, then this is true. However, the cracks actually appeared in early 2007 when Gold was trading in the mid $600s. It reached $1000 in February 2009 before the bear market in stocks ended. The gold stocks didn't perform as well but they bottomed five months before the stock market and by late 2009 had rallied back to their pre-crisis highs. (They performed even better after 1929). And this is the entire sector. Most industry insiders say it is a terrible idea to buy the entire sector. Mainstream-oriented advisors like Brown play ETFs as they may not have the time to perform the research necessary to generate better returns. Furthermore, what is this obsession with such a small period of time? I don't know of anyone buying precious metals just to cash in on a potential immediate move. They buy because of long-term trends.

Here is Brown's biggest mistake. While gold stocks did crash in 1929 and 2007 (but quickly recovered in both cases), gold stocks can gain fantastically when the stock market is in a cyclical bear. The correlation between the two can take many different forms but when the two are negatively correlated it can be hugely positive for gold stocks.

The two were negatively correlated from 1972 through 1978. The gold stocks turned down in the middle of 1972 while the S&P 500 continued to make new highs for almost six months. While the S&P had its nasty bear market, the gold stocks absolutely exploded by nearly 400%. Once the stock market bottomed, the gold stocks consolidated beneath their highs. As the recovery gained steam, the gold stocks brokedown. From 1976-1977 the gold stocks recovered as the S&P declined about 20%.

The next example is from the late 1990s until late 2002. The two markets were negatively correlated during the end of the bull market and that correlation remained well intact until late 2002. The HUI Gold Bugs Index surged roughly 600% from late 2000 to 2003.

This is an extremely important point. The gold stocks were positively correlated with the stock market prior to the 1929 and 2008 crashes. That's why they crashed with the overall market. However, prior to the cyclical bull markets which began in 1973, 1977 and 2000, the gold stocks were negatively correlated with the stock market. That's also been the case for the past 22 months.

Brown concludes:

The game is up and all that's left is denial what's happening right in front of people's faces. If your job is to run a gold fund though, what are you going to say? If you're the strategist at a Canadian investment bank that's doing gold miner financing and shit, what choice do you have but to be "constructive"? It's, frankly, depressing. I hope for a huge bounce from the miners so that people who've made a big mistake can use that bounce to make some changes.

Had Brown studied this sector and its history (and he can quickly look at our first chart) he'd see that these types of declines are like clockwork and so too are the massive recoveries. In terms of the length and depth of this decline it is remarkably similar to both the declines that occurred within the 1960-1980 secular bull market. In terms of depth its nearly as much as the 2008 crash. Our first chart illustrates that this downturn is in-line with an overall secular bull market. It's not the end, it's just the start of the last run.

The game that is up or will be up shortly is the cyclical bear market in precious metals as well as the cyclical bull market in the S&P 500. When the S&P 500 and economy struggle it's going to be glorious for precious metals. The authorities in the US and abroad will do everything they can to prevent another bear market and recession. The result will be a global currency crisis, higher inflation and stock markets won't go up. Don't think it can happen? You might want to review history and take a long view. Frankly, when Mom and Pop investor are stuck in stock funds for the next several years with barely any return and no exposure to precious metals- that will be depressing. I hope people don't make that big mistake.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2013 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

Jordan Roy-Byrne Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in