Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20

Market Oracle FREE Newsletter


Why Gold Stocks are Certain to Go Higher

Commodities / Gold and Silver 2010 Aug 02, 2010 - 05:36 PM GMT

By: Jordan_Roy_Byrne


Best Financial Markets Analysis ArticleCertain may not be the best word to use in a post-bubble world. Is anything truly certain? Ok maybe not. If you don't like certain then lets replace it with “highly probable.”

So why is it highly probable that gold stocks will go higher? Let me digress for a moment. Making big money isn't all that difficult. It doesn't involve making numerous profitable trades or correct investment decisions. Simply put, one needs to find the long-term trends and ride them from their infancy to their apex. Currently, there are three long-term secular trends that still have a ways to go. In future commentaries we will discss the other two trends.

So why are precious metals shares bound to go much higher? Firstly, the trend is firmly in place and no one can argue that we are not in a secular bull market.  Now take a look at just a few charts. These charts illustrate that the vast majority remains uninvested in precious metals stocks. This means that the bull market has huge gains ahead whether it lasts five years or ten years.  

I've used this one before but it is so illuminating that it needs to be seen again and again. Anyone who thinks gold is in a bubble needs to see this chart. Yes, despite a 10-year bull market, gold stocks barely register. And just to confirm this data, there was a chart from Barrick Gold last year that showed precious metals as only 0.7% of all global managed assets.

Aside from looking at gold stocks by theirselves, they should be compared to the S&P 500. This comparison will give us an idea of how far along the bull market in gold stocks is. For the gold stocks we use the Barrons Gold Mining Index which dates back to 1938. Nick Laird of sharelynx provided us this chart and he reconstructed the BGMI back to 1890. 

In the mid 1930s, the BGMI/SPX ratio reached 4 and 5. In the 1970s the ratio reached nearly 8 and then 10 in 1980/1981. In the mid 1980s, the ratio rebounded to 7. While the ratio has climbed from near 0.2 to 1.0, it is nowhere close to the peaks seen in previous secular bull markets.

As you can tell from the next chart, precious metals shares are at an inflection point. The Dow Jones PM Index has built nearly a 5-year base while the HUI Gold Bugs Index has built nearly a 3-year base.

Most traders will wait for the breakout rather than buying support. Tell me, if you believe this sector is going higher in the long-term, then why buy at 520 on the HUI instead of at 420 or 400?

In our professional advisory service, we look at numerous technical and sentiment indicators in order to get our subscribers into the market at the best time. Buying weakness can be difficult but not when you have a professional at your side with reliable and time-tested indicators. Furthermore, it is important to know which vehicles and stocks to employ in order to get the best leverage and risk-reward. Consider a no-risk free 14-day trial to our professional service.

As the summer winds down, keep your eyes on the big picture and the opportunities that come only once in a while. Good Luck!

Jordan Roy-Byrne, CMT

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.

© 2005-2019 - 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

6 Critical Money Making Rules