Gold (mining shares) Bottomed on June 26th. Now What Should You Do?

 

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Gold (mining shares) Bottomed on June 26th.
Now What Should You Do?

If you own gold, have thought about owning gold or have owned gold over the past two years, the one question in mind is, “has gold bottomed?” Or more specifically, have precious metal mining stocks bottomed?

Now, before we answer that last question, how about a little bit of humor? During the month of June, UBS (the gigantic bank out of Switzerland) said something about gold possibly becoming obsolete.  This thought from a big bank is laughable and just goes to show how desperate and useless opinions are from big banks.

It reminds me of the time Goldman Sachs suggested oil was going to $250 a barrel, when oil had just made a move from $35 to $125. Remember, opinions follows price.

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Let’s look at the gold data.

The first chart below depicts the Bullish Percentage of gold miners.  This specific index tracks 30 precious metal mining stocks.  Just as a reference, the very bottom of the screen reflects zero.  If the line hits zero, which it did three times on this chart, it means that zero out of thirty precious metal mining stocks are trending.

So, back in April and May, and the beginning of July, there were no major precious metal mining stocks in the world that were trending up.  Zero.

You will also notice in the chart below that only three gold mining stocks started an uptrend in April and May.  You can tell that by noticing that the high point in April/May/June was 10%, or three mining companies out of 30.

Three bottoms at zero in less than three months. This is a very strong bottoming formation.  This is a very strong indicator that precious metal mining stocks have bottomed.  But let’s not stop there.

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Next, I want us to look inside each of the three bottoming periods in April, May and June. AND I want to compare how precious metal mining stocks did against what they mine.

Take a look at the chart below.  This is the April correction when the bullish percentage went to zero. The blue line depicted below represents precious metal mining stocks, and the red line represents physical gold and silver. 

What I noticed from the April bottoming (April 17 – May 8) was that precious metal mining stocks (GDX) moved up 2.5 times faster than the metal (equal balance of gold and silver).

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Next, look at the second bottoming process in May.  Check out the chart below.  What happened after the bottoming in May?  Precious metal mining stocks went up 10.5%, and the equal weighting of silver and gold went up 4%.  So, precious metal mining stocks went up 2.6 times faster then the metals after the May bottoming.  Mining is moving up faster than metal each time.

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This now takes us to the June bottoming, which is illustrated in the chart below.  This time, the precious metal mining stocks went up 2.75 times faster then the metal.  As you can see, even though there were three painful corrections, each time the mining stocks corrected upward stronger and stronger.

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Lastly, (and this is possibly the most important change in the last two years) precious metal mining bad news does not have the ability to push down the price of mining stocks anymore.  All the bad news has been priced in already.

Let us look at one example.

The chart below shows the third largest gold miner on planet Earth, AngloGold Ashanti Limited.  Down 75% from their high two years ago, it’s a pretty ugly chart.

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The next chart below is a zoomed-in portion of the chart above.  During that six-week period, four pieces of horrible news came out against AngloGold.

The first piece of news that came out was that AngloGold was going to have to take a $2.6 billion write-down.  Although that number may not mean much to you, let me put it in perspective.  AngloGold Ashanti isn’t even a $5 billion market cap company.

The second piece of news was that Standard & Poor’s rating agency came out and declared that AngloGold’s credit rating is now junk status.  Third, Moody’s rating agency declared the same thing…junk status. 

The fourth piece of bad news for AngloGold, was that their South African miners want their wages to double.  If there was ever a set of news to take down a stock, it would have been what came out against AngloGold over that six-week period. But it didn’t.

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So where does this leave people who have invested in the precious metal sector over the past two to twelve years?

It means the (almost) two-year correction period that started in August/September 2011 has completed its painful move. And from here on out, the mining stocks will out-perform the metal; just like they did from 2000 to 2011.

Together, we are growing and protecting your wealth,

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