Precious Metals – Where’s The Bottom? (Market Situation Report’s Transcription)


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Precious Metals – Where’s The Bottom?

Precious Metal stocks are getting crushed today…and have been so far this year.

So far, they are down 18% for the year.  During the exact same time, the S&P 500 is up 7%. 

That is a 25 percentage point difference between the Precious Metal sector and the Stock Market itself.

That is bad.

1.  Did something change fundamentally?
2.  Is this just part of owning something that has been going up for twelve years?
3.  Are precious metals done falling?

The first price chart we should look at is the Amex Gold Bug Index.  The chart starts at the end of the year 2000; giving us 12 years of data to review.  So, let’s take a look.

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You can see the three pink circles on the chart. They represent each time the Gold Bug Index hit its upward trend line:  Once in 2000; once in 2008, and once again in 2013.

From a technical point of view, we could see another 8-10% fall in Precious Metal Mining stocks before the pain is over.

Most people didn’t notice the correction in 2008 because everything was falling. This time around, Precious Metal stocks are the only sector falling.  So everyone is noticing; especially if you own them.

The next chart is a zoomed-in view of the Gold Bug Index.

Here we can see that HUI is at about 380.  We could probably go down to about 340.  That is about eight more percentage points down.

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For those who already own these stocks, are keeping the big picture in mind, and have been collecting this index over the last two, three, or five years, then just continue to collect.  You can also appreciate that the stocks are slightly cheaper this month.

If you are brand new to Precious Metal stocks, then the next few days (perhaps even weeks), will be a great time for you to establish a new position.  You will look back and be very happy with yourself.

If you have been trading these stocks and thought they were about to go up, then I’m sorry. Never trade a bull market; just keep buying it.

Next, I want to dig into the sector a little bit and see how silver and gold are performing against each other.

Look at the chart below.  It compares silver mining with gold mining.

Notice how silver mining is up about 26% over the past 36 months.

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During the same time period, gold mining is actually down 19%.  Silver mining is doing much better, even though silver has more price fluctuation.  Remember, price fluctuation is not the same as risk.

I have been a big proponent of owning silver over gold since at least 2008.  Now it appears that silver mining might also be the better bet, too. 

Next, let’s look at how gold is doing compared to gold mining stocks.  Let’s look below.

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In this chart, you see that gold is the red line, and is down 8% over the past 12 months.

Precious Metal Mining stocks during the exact same period are doing badly.  They are down about 29%!  That is a huge volatility.   People have had to survive what I call a “clean-out period”.  During every secular bull market, there are always three major clean-out periods.

The one that Precious Metals are in right now is clean-out period number two.

The next chart I want us to look at is silver mining stocks against silver itself.  Silver mining is the blue line, and the metal is the red line.  Notice how silver mining is not doing that bad considering mining stocks are much more volatile.

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What is the take-away from all of this information?

1)      Owning Precious Metal Mining stocks has been very difficult this year.
2)      Please don’t trade these markets; they are volatile.  I suggest that you just collect the
long-term bull market that is in place.  Buy more metal and mining each month.  Don’t
look at the price; look at the calendar instead.
3)      Silver is clearly beating gold in both metals and mining.
4)      If you are NOT going to change your strategy on how you are playing this bull market,
then looking at the price each day doesn’t help you.
5)      Five years from now, Precious Metal Mining and metals will be much higher than where
they are today, while the S&P 500 has a very high chance of being exactly where it is
today.

This is a tough time to be owners of precious metals and Precious Metal Mining stocks. BUT, the fundamentals have not changed.  The money printing has not changed, and the deficit and debt problems have not changed.

Keep the faith.  We are almost through this clean-out period.

Together, we are growing and protecting your wealth,

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