Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17
Crude Oil Price Outlook 2017 - Video - 16th Mar 17
Dutch and French Electons - Winners are Losers and Left is Right - 16th Mar 17
The Straddle Trade Stock Market Brief - 16th Mar 17
Gold Up 1.8%, Silver Up 2.6% After Dovish Fed Signals Slow Interest Rate Rises - 16th Mar 17
Stocks Get Close To Record High Again As Fed Hikes Interest Rates - 16th Mar 17
Scotland Second Independence Referendum War - SNP Determined to Destroy the UK - 16th Mar 17
Here’s How Pharma Is Using AI Deep Learning To Cure Aging - 16th Mar 17
Stock Market Chaos in the Chicken Coop - 15th Mar 17
Gold and Silver Price Manipulation: The Biggest Financial Crime In History - 15th Mar 17
“Ryancare” Dead on Arrival: Can We Please Now Try Single Payer? - 15th Mar 17
Fanaticism, Stock Market Crash 2017 or Continuation of Bull Market - 15th Mar 17
Stock Market Most Overvalued On Record — Worse Than 1929? - 15th Mar 17
Desperate Saudi Arabia Turns to Asia for Investment - 15th Mar 17
Startups Will Define the Future of US Employment - 15th Mar 17
Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold? - 15th Mar 17
SNP Declare Scotland to Commit Economic Suicide Early 2019, 2nd Independence Referendum - 14th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Precious Metals Ignore Correction Calls 

Commodities / Gold and Silver 2016 Mar 19, 2016 - 05:28 AM GMT

By: Jordan_Roy_Byrne

Commodities

Gold and gold stocks have refused to correct for more than a few days at a time. Weakness is being bought and quickly. Gold has gained over $200/oz but not corrected by more than 6%. The miners (GDX) have endured three roughly 10% corrections in the past six weeks but nothing greater. A few weeks ago we noted a comparison to the 2008 rally which hinted that miners could correct 20% before moving higher. So far, no dice. Many gold bulls continue to expect a correction while losing sight of the bigger picture: precious metals are in a new bull market.


Many have expected a correction due to the CoT, which shows a net speculative position of 37.6% of open interest. While this figure appears high, we should note that from 2001 through 2012 the net speculative position often peaked from 50% to 60%. Moreover, everyone has completely missed the rise in open interest, which reached a more than 4-year high! Open interest is not a leading indicator but a confirming indicator. Strong increases in open interest validate the strong increases in Gold. The recent increase in open interest mirrors the increases that followed the 2001 and 2008 lows in Gold.

Silver is also defying “conventional” CoT analysis. In recent weeks, Silver’s net speculative position of 43% actually was the highest in more than 5 years! That means Silver has to decline, right? While Silver hasn’t broken above $16/oz yet, it closed above its 80-week moving average (by a penny) for the first time since 2012. Moreover, the recent strength in Silver stocks strongly argues that Silver will move higher. Look for an upside target in the mid to high $18s. 

There are two problems with the recent, widespread conventional analysis of the CoT. (By the way you can’t swing a dead cat without hitting a “bearish CoT” article or blog post in the past few weeks).

First, bullish and bearish parameters have to adjust during a trend change. In a bear market sentiment usually reaches “extremely bearish” before that market can rebound. Also, even neutral or slightly bullish sentiment is enough to bring about more selling. In a bull market it is the opposite. Sentiment can get really bullish before that market corrects.

The second point is sentiment analysis can be tricky and counterproductive when a market has just made a major trend change. An extreme sentiment reading during a brand new bull trend is often a false signal because the majority remain on the sidelines. This is why new bull markets recover quickly and remain overbought for months amid bullish sentiment.   

Here are some examples. Recall the huge moves equities made from the 2002 and 2009 lows. Following its 2002 low the Nasdaq rebounded 94% in 15 months and only endured one real correction (15%). Following its 2009 low the Nasdaq rebounded roughly 100% in 13 months and never corrected more than 9%! Gold, following its 1976 low rebounded roughly 62% over the next 15 months and its worst correction was 11%. Gold from its 2008 low rallied roughly 45% in five months and only endured one 10% correction.

Where are we now?

As we noted last week, if Gold follows the path of the 1976 and 2008 rebounds then it would soon reach $1400/oz and continue to reach higher levels in the months and quarters ahead.

Meanwhile, the gold stocks are certainly overbought but history argues they could trend higher in the months ahead. Note the bull analog chart below. If the HUI follows its 2008 path then it would gain 46% over the next five months and 88% over the next 11 months. If the HUI follows its path after its 2000 bottom then it would rally 128% over the next 16 months.

While it is very difficult to buy into a market that has already gained substantially, history argues that the larger risk is staying out of that market especially if it only recently made a major bottom. The epic “forever” bear market of 2011-2015 lingers in the minds of many and that is why it is so difficult to believe the recent strength can continue. Hence, many continue to apply bear market thinking and bear market parameters without realizing the sector has made a major character change. That doesn’t preclude the likelihood of pullbacks. We even made a solid case two weeks ago for GDX to correct 20%. It will come to pass soon or later. Going forward, look to accumulate select shares on weakness. Buy and hold. You don’t make money in a bull market by trading.

Consider learning more about our premium service including our favorite junior miners which we expect to outperform in 2016.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2014 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

Jordan Roy-Byrne Archive

© 2005-2016 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

Catching a Falling Financial Knife