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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Powerful Reversal and Shakeout in the Junior Gold Mining Stocks at May Lows Around $33

Commodities / Gold and Silver Stocks 2014 Oct 13, 2014 - 06:45 PM GMT

By: Jeb_Handwerger

Commodities

Summary

  1. Three years ago in early 2011, I cautioned my readers to be careful to chase gold and silver higher as it was moving parabolic. Now it is oversold and ignored.
  2. Be careful now of parabolic rises in the S&P500 (SPY), Long term US Treasuries (TLT) and US dollar (UUP). Investors are scared and looking for liquidity.
  3. Silver (SLV) is trading below $17, Gold (GLD) is testing major support at $1200. The GDXJ has been outperforming and has not violated 2013 lows.
  4. If $1180 does not hold, gold (GLD) may test lower prices near $1050 as that is the approximate 50% retracement of the 2001-2011 bull market.
  5. Some smart traders are expecting a triple bottom at $1180 on gold with a bounce off current oversold levels with a small pullback in December for tax loss selling.
  6. Junior Gold Mining ETF (GDXJ) Makes Bullish Reversal at May Lows around $33.

Over three years ago on April 28, 2011 at a time when investors were piling with two fists into gold and silver ETFs, I wrote in this popular article published on Seeking Alpha, "The virtues of gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) are being addressed far and wide. My readers know the steady drumbeat of praise that is reaching a crescendo for the white metal scares the hell out of me. A parabolic rise has formed in silver and gold… Please note that at these times of extreme optimism volatile pullbacks become more prevalent. Parabolic rises must be approached with caution." At that time all over the mainstream media huge gold predictions of $5000 were forecasted as Central Banks became net buyers of gold for the first time in many years.

The Chinese and Russians were some of the largest acquirers of physical gold. Also large hedge funds, some managed by industry giants such as Paulson, Soros, Rogers and Einhorn, began buying ETFs and junior miners. This led to a parabolic and overbought move in precious metals, which I cautioned my readers about in the referenced article above. It should be noted that a few days after this article was published, silver topped at $50 and gold rolled over a few months later at $1900.

Now silver is trading below $17 at prices not seen in years below its 2010 breakout price. Silver does look like it is approaching a major support uptrend at the $15 level. If $1180 does not hold, gold may test lower prices near $1050 as that is the approximate 50% retracement of the move from $300 in 2001 to $1900 in 2011.

It is evident that both precious metals are in a long term secular uptrend, yet the mainstream is completely ignoring gold and silver, the exact opposite of what was happening in 2011. Now we hear the steady drumbeat of the shorts who say deflation is here to stay with low interest rates. They say stick to financial assets like the dollar and large caps which brings music to my contrarian ears. Low interest rates and low inflation do not last forever. They fuel asset bubbles which burst.

Notice the recent bullish engulfing outside reversal in the junior gold miners on high volume.  Major support may be entering the junior gold miners at May Lows at $33.  This powerful reversal day could be a harbinger of a bullish change in trend.

The best investments are found with real assets in neglected sectors such as the junior miners which are trading at historic discount valuations. The junior mining sector has grown completely out of favor which gives me excitement in continuing my search for the best real assets in the world when there is not much competition.

The junior gold mining sector (NYSEARCA:GDXJ) is completely overlooked by the retail public, which makes contrarian investors who accumulate real assets content as they can find the best deals at big discounts. Now the same momentum funds that were piling into gold and silver in 2011, have been buying real estate (NYSEARCA:XHB), the dollar (NYSEARCA:UUP) and S&P500 ignoring mining and commodities.

For the past three years, the US economy has had low interest rates with supposedly low inflation. How long can that last when governments all over the world are using the printing press like never seen before? The financial markets are 100s of trillions of monopoly money not backed by anything. Remember, all the gold ever mined is under $7 trillion. The US government alone has a $17 trillion debt.

I will continue to search all over the Earth for the best real assets to hedge against inflation and decline of paper currencies. The worst way to hedge against inflation is by buying inflated assets. Right now, the S&P500 and dollar are historically overpriced, while real mineral properties can be bought for virtually pennies of a penny on the dollar. Despite record demand for gold and silver coin sales, the price continues to drop because of the strong dollar providing deeper value for acquirers of the most reliable form of money known to man.

On another note, the dollar is very strong right now moving parabolically, but that could be a trap. There are many potential black swans to change this trend of rate hikes. Ebola, Jihad Terrorism, Ukraine, Iraq and now China crackdown on Hong Kong protestors could spiral foreign exchange and commodity markets out of control. Gold and silver is the best financial hedge against war, uncertainty and instability. It may be time now if you are sitting on cash to diversify into physical gold and silver and the highest quality junior gold and silver miners (NYSEARCA:SIL) which have top properties, strong treasuries and experienced management teams.

Sign up to my premium service to stay up to speed.

By Jeb Handwerger

Disclosure: Author owns no stocks mentioned.

http://goldstocktrades.com

© 2014 Copyright Jeb Handwerger - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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