Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
3.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
4.Gold and Silver Price Ready To Go BOOM - Austin_Galt
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
8.Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - Nadeem_Walayat
9.Heavy Gold and Silver Shorting is Bullish - Zeal_LLC
10.10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - EconMatters
Last 5 days
Bitcoin Price Charts In-Depth Analysis - 19th Sept 14
Alibaba is Focused, Will Use Money in Emerging Areas - 19th Sept 14
Bird's Eye View of the Gold Stocks - 19th Sept 14
Scotland Independence Result NO Win 55% to Yes on 45% - 18th Sept 14
Silver Price: A Collapse and a Rally - 18th Sept 14
Here's Why Trendlines are Your New Trading Best Friend - 18th Sept 14
Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14
The "Hidden" Billions in the Alibaba IPO - 18th Sept 14
Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - 18th Sept 14
Monetary Policy Weighs on Gold and Silver - 18th Sept 14
Global Currencies Analysis...The World According to Chartology - 18th Sept 14
Gold Price Hammered by Strong U.S. Dollar - 18th Sept 14
Is Citigroup the Dumbest Bank Ever? - 18th Sept 14
Scotland Must Vote Yes! For All Of Us - 18th Sept 14
Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - 18th Sept 14
A Public Bank Option for and Independent Scotland - 17th Sept 14
The Charade of Independence for Scotland and UKIP - 17th Sept 14
Gold Report - U.S. National Debt Surges $1 Trillion In Just 12 Months - 17th Sept 14
How to Find Trading Opportunities in ANY Market Using Fibonacci Analysis - 17th Sept 14
Why Money Is Worse Than Debt - 17th Sept 14
Can Gold Price Finally Recover? - 17th Sept 14
Scotland Independence - Europe Holds Its Breath - 17th Sept 14
The Energy Prices at Risk with Scottish Independence - 17th Sept 14
Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency - 17th Sept 14
The Truth Behind the Dangerous "Helicopter Money" Delusion - 16th Sept 14
Central Bank Balance Bullying: Investor Implications - 16th Sept 14
U.S. Dollar and Gold Elliott Wave Projection - 16th Sept 14
The Origins and Implications of the Scottish Referendum - 16th Sept 14
The Collapse Of U.S. Silver Stocks As Public Debt Skyrockets - 16th Sept 14
Emerging Markets Are Set Up for a Crisis, What’s on Your Radar Screen? - 16th Sept 14
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

Gold Price Trend Forecast Into the End of 2013

Commodities / Gold and Silver 2013 Oct 07, 2013 - 10:09 AM GMT

By: Clive_Maund

Commodities

The reason for posting a new Gold Market update at this juncture is that we appear to be at an optimum 'buy spot', for gold, silver and Precious Metals ETFs and stocks, as both gold and silver have dropped back in recent weeks to mark out the Right Shoulder low of what is believed to be a large Head-and-Shoulders bottom.


After posting the 1-year chart for gold shown below on clivemaund.com a couple of days ago, a subscriber wrote and protested, saying how could I recommend buying the sector when it hasn't even completed the H&S pattern, which could abort, and that it would be far better to wait for a breakout, and then buy on a post breakout pullback. There are 2 points I would like to make about this. The first is that if we can be pretty sure this H&S pattern is valid, then why wait until gold is $100 higher to buy? The second point is that because we have clearly defined support right beneath the current price, we thus have an excellent risk/reward ratio, because we have the option of placing stops beneath this support. If the interpretation that this H&S bottom is valid, then gold is going a lot higher from here, and we will be in for most of the ride, if incorrect, we are out for a trivial loss. The experienced pure trader will instantly recognize this as an acceptable and attractive setup. The fact that a lot of investors are moaning about how awful the PM sector is and how they have no confidence that it will ever perform again is great to hear, because this is just the mood we expect to prevail at an important market bottom.

Gold 1-Year Chart

The long-term 13-year chart is, or should be, most heartening for gold bulls as it shows that the long-term uptrend remains intact and further that upside potential from here is very substantial, which should not be so surprising given that the cornered Fed has no choice but to continue with QE or even expand it, unless that is it wants to watch the markets implode and the economy collapse.

Gold 13-Year Chart

The latest COTs for gold (not shown) are bullish, although not at the bullish extremes that we saw late June - early July.

We can see the battering that the PM sector has suffered on the long-term 18-year chart for the HUI index below. It is now not that far above its 2008 panic lows, which means that it is way oversold relative to gold, which is still getting on for twice its price at its 2008 lows. Here we should remind ourselves that at times of extreme optimism characteristic of a top, stocks are more popular than bullion, while at times of extreme pessimism characteristic of a bottom, bullion is more popular than stocks (or less unpopular), which is what we are seeing right now.

Gold versus HUI Index 18-Year Chart

We can of course chart this mood swing between stocks and bullion by simply plotting one divided by the other as shown below. This startling chart of the HUI index over gold reveals that this ratio is even beneath its level at the 2008 panic lows - and we know what happened after that - and is incredibly approaching its level in late 2000, which is before the gold bull market even began! Go back again and compare the price of gold now to what it was back in late 2000 at the top of the chart above and you should be able to appreciate how out of whack and mad this is. It strongly suggests that the sector is forming a major bottom here, because let me assure you that there is going to be a gold mining business in the future.

HUI/Gold Ratio 18-Year Chart

The situation for the big gold (and silver) stocks relative to gold is even worse (better for buyers), as the 20-year chart for the XAU index plotted over gold below makes clear. This shocking chart shows that big gold and silver stocks are far more undervalued relative to gold not just than they were at the 2008 panic low, but than they were at the late 2000 low pre the gold and silver bullmarket. This is again another strong indication that we are either at, or very close to the lows. Here we should note that if the broad market tanks soon, the PM sector, which has been performing contra-cyclically to the broad stockmarket all year, and has already tanked, is expected to continue to perform contra-cyclically and rally.

XAU/Gold 18-Year Chart

I am going to end this with a very important message. We have seen that gold and silver are very probably completing Head-and-Shoulders bottom reversals, with prices having dropped down to suspected Right Shoulder low buy spots. In addition, and most importantly, we have seen for ourselves in this update the insane undervaluation of stocks relative to bullion, which is characteristic of a major sector bottom. What this means is that you can go ahead and buy large and mid-cap gold stocks now, and juniors with strong balance sheets that are either producers or close to production, with confidence, and quit worrying about day to day price movements afterwards, because you know that you are buying either at or very close to a major low. So rather than buy the sector and then sit on the edge of your chair biting your nails as you staring at changing prices on the screen, do what Smart Money does, buy them, bank them, and then go fishing or playing golf or whatever you enjoy doing with your leisure time, confident that you have bought stocks that are ludicrously undervalued and that it is only a matter of time before they rally to become more fairly valued.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2013 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2014 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

Free Report - Financial Markets 2014