Gold & Silver Mining Stocks Have Bottomed!

It's been a wild ride for investors in Gold and Silver mining shares this year. The benchmark Philadelphia Gold/Silver Mining Shares Index (symbol XAU) carved out a roller-coaster path that probably thwarted bulls and bears alike.

Here are the XAU intra-day highs and lows over the last 52 weeks and the % changes from the previous turn:

1. Low on December 19, 2013 at 79.73

2. High on March 14, 2014 at 107.39 (+34.69%)

3. Low on May 28, 2014 at 83.27 (-22.46%)

4. High on July 10, 2014 at 106.01 (+27.31%)

5. Low on November 5, 2014 at 61.39 (-42.09%)

Unlike the S&P 500 Index, which never corrected a full 10% the entire year so far in 2014, the two-way swings in Gold/Silver mining shares were massive.

Is another major swing in Gold/Silver mining shares now underway?

A weekly chart buy signal was triggered by my computer trading system in the XAU as of Friday's close, December 19th. It was last year around this time that Gold/Silver mining shares also bottomed (after tax selling season was basically done) and then rallied 34.69% over the next 3 months!

Weekly chart buy signals were also triggered at Friday's close in the following Gold/Silver mining shares and related ETF's:

Agnico Eagle Mines (symbol AEM)

Anglogold Ltd (symbol AU)

Endeavour Silver (symbol EXK)

Gold Junior Mining Shares ETF (symbol GDXJ)

Philadelphia Gold/Silver Mining Shares Index (symbol XAU)

Silver Junior Mining Shares ETF (symbol SILJ)

Silver Mining Shares ETF (symbol SIL)

Yamaha Gold (symbol AUY)

Rumors that Russia has been selling its gold reserves recently, in an attempt to halt the slide in the Russian Ruble on foreign exchange markets, are spurious and without merit. In fact, according to latest report from the Russian Central Bank, Russia actually bought 600,000 ounces of gold in November. While we won't know for sure whether Russia bought or sold gold in December, I have no doubt that when the next report is delivered in January it will show that Russia bought gold again in December to add to the 150 tonnes of gold that it has already purchased so far this year in 2014! I now believe that Russia will be the first of many countries to announce an official gold backing to its currency, and I would not be at all surprised if China then quickly followed Russia with its own gold backing for its currency.

Here are two weekly charts worth reviewing in any decision to commit long-side capital to Gold/Silver mining shares over the very near term. In the interest of full disclosure, I have already allocated 30% of my assets under management to Gold/Silver mining shares.

Philadelphia Gold/Silver Mining Shares Index (XAU) with 200-Week Moving Average Line & Computer Signals

Silver Mining Shares ETF (SIL) with 200-Week Moving Average Line & Computer-generated Buy & Sell Signals

The Perfect Storm

The S&P 500 Index was down 3.52% last week, which was fairly representative of almost every broadly-based major stock market barometer. However, except for the Russell 2000 Index which is now down on the year (-0.96%), most major indexes are still nicely higher year-to-date so far in 2014. In fact, the Dow Jones Transportation Index is up almost 20% so far this year, Semiconductor stocks have risen about 25%, and Biotech shares are up almost 50% year-to-date. There are two sectors that stand apart from this sea of green arrows. Oil and related Oil-service stocks are down more than 30% and Gold/Silver mining shares are down about 18%, on average, so far this year.

In the interest of full disclosure, over the last six weeks I built a significant hedged position with short sales in the S&P 500 against long purchases in Gold/Silver mining shares and related ETF's. Until this past week, this strategy was less than favorable (to say the least). My ratio was $4 in SPX shorts for every $1 in Gold/Silver longs. With Gold up 2.47% last week, Silver up 4.60% last week, and the S&P 500 Index down 3.52% last week, you would think that I had the perfect hedge with major profits on both sides. While all the portfolios that I manage performed extremely well last week, Gold/Silver mining shares did NOT track the underlying precious metals like they normally do. In fact, Gold/Silver mining shares, as measured by the Philadelphia Gold/Silver Index (XAU) were actually down 2.10% on the week And one last portfolio disclosure before I discuss "The Perfect Storm" that is unfolding now globally. On Friday, December 12th, I covered my entire short in the S&P 500 Index "market-on-close". So now I am long Gold/Silver mining shares (unhedged) with a 30% portfolio allocation, 10% in top-rated corporate bonds, and 60% in cash.

Despite my longer term bearish view on the U.S. stock market, I was never really comfortable with my short position in the S&P 500 Index. In fact, I would never have guessed that it would be my short SPX position that would make the money in my 4:1 hedge with Gold/Silver mining shares as it did this past week (in spades). However, I now believe that a "The Perfect Storm" is unfolding for Gold/Silver mining shares in terms of their massive upside potential. Many of these stocks are now down 75% or more from their peaks set in 2011. In fact, the Gold Junior Mining Share ETF (symbol GDXJ) is down 86.60% from it's all-time high set 4 years ago. And even more incredible is the fact that this ETF is down 48.30% in just the last 5 months alone! Among major gold mining shares, the damage isn't as bad, but the popular Gold Mining Shares ETF (symbol GDX) is still down 32.90% over the last 5 months in response to just a 9.13% decline in the price of Gold over this same period. Silver mining shares have been annihilated over the last 5 months, with individual losses of 67% or more on a 21% decline in the underlying price of silver of the same period.

Here are just some of the reasons why Gold/Silver mining shares may double in price over the next three months:

1. The recent collapse in crude oil prices, and the related shock to global financial markets, will cause the U.S. Federal Reserve to maintain its dovish stance on monetary policy over the very near term at least.

2. The recent collapse in crude oil prices will allow other major global central banks to rationalize "stepping on the monetary accelerator" with major new "quantitative easing" programs to "fight" potentially harmful deflationary forces.

3. Lower oil prices will benefit Japan significantly more than the United States given the dramatic uptick in domestic U.S. oil production in recent years. After 7 straight weeks of upticks for the U.S. Dollar in foreign exchange dealings, the Greenback now looks like it finally topped out last week. A weaker Dollar will provide fuel for sharply higher gold and silver prices immediately ahead.

4. Lower oil prices will greatly enhance profit margins for Gold/Silver mining shares, where diesel oil for mining equipment is a major cost component.

5. On both precious metals charts, Gold and Silver, prices have now advanced above their key 50-day moving average lines, and the key 20-day moving average line is now pointing higher for the first time in 5 months in both. In fact, a crossover buy signal, where the 20-day MA crosses above the 50-day MA, is expected this coming week for Gold and Silver.

6. Gold bullish sentiment among often wrong investors fell to a record low of just 3% in early November. While sentiment has improved slightly since then, there still remains a dearth of believers in the yellow metal after 38 months of lower prices (September 2011 through early November 2014).

7. More and more countries are repatriating their sovereign gold supplies as uncertainty continues to escalate with respect to fiat paper currencies and their real value moving forward. Global central banks have been printing money at a record pace over the last six years, WITH NO END IN SIGHT! Talk of moving to some kind of "gold standard" is quietly building among many central bankers
8. Sales of 1-oz Silver Eagle coins by the U.S. Mint are now on-track to post a new record high this year. According to actual production figures presented daily at the www.usmint.gov website, 42,669,500 silver eagle coins have been sold so far this year as compared to last year's record full-year total of 42,675,000. Reports of silver shortages at sovereign-sponsored mints around the globe are becoming more common as investors and coin collectors step up their purchases in the face of increased uncertainty relating to the value of fiat (paper) currencies.
9. On Friday afternoon, December 12th, France's credit rating was downgraded one notch to AA from AA+ by Fitch Ratings, given the lack of material improvement in the outlook for the country's budget deficit. This is just another example of deteriorating economic conditions in Europe which sets the stage for a major transformation (and possible breakup) of the European Union as we know it today.
10. While the proof is illusive, I strongly believe that the size of gold purchases by China are dramatically understated in official reports. However, even if we use the "official" reported numbers, total combined gold purchases this year (2014) by India, Russia, and China are likely to exceed the entire year's global mined production now estimated at just short of 3,000 tonnes. It's just a question of time now before a major central bank announces some sort of gold backing for its domestic currency. My prediction is that a smaller central bank will act first (seemingly out of the blue), but then China will quickly follow with its own gold standard. Gold prices will jump at least 5% on that day, and a 10% single-day advance can't be ruled out!

First Majestic Silver (symbol AG) Weekly Chart with 200-Week Moving Average Line

U.S. Dollar Index (DXY) Monthly Chart with 200-Month Moving Average Line

Gold ETF (GLD) Weekly Chart

Silver ETF (SLV) Weekly Chart

Disdain For Gold

I think it's pretty safe to say that last week's news climate for Gold was just about as bearish as it could get. And the "narrative" in the financial press seemed more negative than ever. Here are just a few examples:

1. Last Sunday, the Swiss Gold Referendum ("Save Our Gold") was handily defeated by Swiss voters. The financial press had a field day with this story. I counted more than three dozen separate headlines in a 24-hour period following the release of the Swiss poll results on this issue. However, an equally important story about the lifting of import restrictions on gold in India received almost no coverage during this period.

2. On Thursday, December 4th, Mario Draghi, President of the European Central Bank, seemed to go out of his way to emphasize that any future asset purchases (with printed money) to stimulate the EU economy would NOT include gold. His comments put to rest some minor speculation over the last 10 days or so that any future ECB "quantitative easing" measures might actually include gold.

3. Crude Oil prices continued to be pressured lower following the Thanksgiving announcement by OPEC that output would NOT be cut by swing producers (i.e. Saudi Arabia). Wall Street research and the financial press have focused almost entirely on the potential deflationary forces connected to lower oil prices and how these forces may be negative for gold prices. Of course, almost no press has been given to the potential defaults in the energy sector where many companies are heavily leveraged in support of expensive drilling and exploration activities that are probably NOT profitable without substantially higher oil prices. And almost no one is talking about the potential negative impact on employment or CapEx spending if serious problems persist in the U.S. energy sector.

4. And most important, the U.S. Dollar continued to soar in foreign exchange dealings, with the benchmark U.S. Dollar Index advancing 1.24% last week to its highest level since March 2009. Almost every negative report on Gold attributes bearish price action in the yellow metal to the rise in the U.S. Dollar. However, I have yet to read any mainstream report on how resilient gold prices have been in the face of the stronger Dollar, and even though it may SEEM that Gold prices are sharply lower on the year so far in 2014, Gold is actually FLAT on the year! The U.S. Dollar Index is up a staggering 11.64% year-to-date, which effectively means that Gold is up 11.64% against the average foreign currency component in the U.S. Dollar Index!!

So what happened to Gold and Silver prices last week against the backdrop of all this bearish narrative?

Gold ended the week at $1192.60/oz, which was UP 2.23% from the prior Friday close and UP 4.46% from its intra-day low on Monday, December 1st.

Silver ended the week at $16.29/oz, which was UP 5.23% from the prior Friday close and UP 15.04% from its intra-day low on Monday December 1st.

Food for thought?

In the interest of full disclosure, I am short the S&P 500 Index and long Gold/Silver mining stocks on a ratio of four to one ($4 short in the SPX for every $1 long in Gold/Silver stocks).

Am I the only one who thinks the latest U.S. Employment Report (for November) looks a bit strange as reported early Friday morning, December 5th? The headline Non-Farm Payrolls increase was reported at +321,000 for November (a giant upside surprise to Wall Street analysts). However, the Household Survey increase for November employment was reported at just +4,000. And the BLS "Adjusted Household Survey" Employment, which is supposed to mimic Non-Farm Payrolls, actually showed a decline in employment of -115,000 in November. Which number is correct?

The National Retail Federation estimated that shoppers on average spent $380.95 at stores this past Thanksgiving holiday weekend, four days which began on Thursday (11/27), compared with $407.02 a year ago, and that total spending fell about 11 percent year-over-year to $50.9 billion over this key sales weekend. These negative retail sales results seem much more consistent with the sharply lower Household Survey November Employment results as compared to the more visible and more popular headline Non-Farm Payrolls results. More food for thought!

Postscript (Sunday Evening, December 7th): Apparently, there are others who see something strange in last Friday's U.S. Non-Farm Payrolls Report. I just read an extraordinary piece of research on U.S. Payroll Tax receipts as written by Jeffrey Snider of Alhambra Investment Partners (and reprinted on www.zerohedge.com). It looks like total U.S. Payroll Tax receipts are NOT consistent with the surprisingly strong Non-Farm Payrolls growth as reported by the BLS recently or for this entire year. Here is the link for your convenience:

http://www.zerohedge.com/news/2014-12-07/something-stinks-inside-bls-jobs-data

U.S. Dollar: The Buck Stops Here!

The U.S. Dollar has been on a tear over the last 8 months. In early morning dealings today, Wednesday, December 3rd, the U.S. Dollar Index (DXY) advanced above its June 2010 peak of 88.71, and as of this time at 7:30 AM Central Time, the intra-day high so far today is 88.96. 

As can been seen below on the attached monthly chart, the U.S. Dollar Index is approaching its March 2009 peak at 89.51. There is also fairly significant overhead resistance at the 200-month moving average line.

I strongly believe that the U.S. Dollar Index will soon reverse to the downside as the U.S. Treasury begins a "stealth" program of selling Greenbacks in the open market to protect the U.S. export market and to halt the import of deflationary forces attributed to a strong Dollar.

The implications of a downside reversal in the Dollar are significant. Gold will be the primary beneficiary, of course!

U.S. Dollar Index (DXY) Monthly Chart with 200-Month Moving Average Line

Swiss Voters Reject Gold Referendum; India Ends Restrictions on Gold Imports

It was reported by Reuters this morning (Sunday) that the proposal stipulating the Swiss National Bank (SNB) hold at least 20 percent of its balance sheet in gold was voted down, according to projections by Swiss television SRF as of 1:00 p.m. local time. The initiative “Save Our Swiss Gold” also would have prohibited the SNB from ever selling any of its bullion and required the 30 percent currently stored in Canada and the U.K. to be repatriated. Polls, including one by gfs.bern, had correctly forecast the Initiative’s rejection.

However, in a surprise move mid-day on Friday, India announced that it has scrapped a rule mandating traders to export 20 percent of all gold imported into the country. This action is expected to cut smuggling and raise legal shipments of gold into the world's second-biggest consumer of the metal after China. India had introduced the so-called 80:20 import rule tying imports to exports of jewelry last year to bring down inbound shipments and narrow the current account deficit that had hit a record.

"It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold," the Reserve Bank of India (RBI) said on Friday, without giving a reason for the change in the rule. 

Traders said before the decision on Friday that India's gold imports could climb to around 100 tonnes for a third straight month in November as dealers bought heavily ahead of the wedding season.

October shipments to India, the world's No.2 gold consumer behind China, jumped to about 150 tonnes from less less than 25 tonnes a year earlier and 143 tonnes in September, according to India's Finance Ministry. The October jump follows a 450 percent increase in September imports to $3.75 billion.

The rejection of the Swiss Gold Referendum is clearly a blow to gold bulls. However, since this negative result was widely expected, perhaps India's bullish surprise announcement late Friday may be at least partially offsetting. It's not hard to imagine that if the Swiss Gold Referendum had passed, the Swiss National Bank would have found a way to circumvent the Referendum's constraints by using the derivatives market in some creative way. India's announcement may actually be more bullish for gold when all the dust settles early this coming week. Last year, India imported 825 tonnes of gold. In the January-September period, gold imports stood at 525 tonnes. With almost 300 tonnes imported in October and November, total gold imports for all of 2014 will almost certainly exceed last year's total!

Postscript (Sunday 5:15 PM CT): In the futures market, Gold just opened down about $8.00/oz. If you are long gold, you never like to see it down on the day, but given this morning's negative vote on the Swiss Golf Referendum, this decline seems extremely modest. And I think it is fascinating that there have been more than three dozen stories today so far on the Swiss vote to reject its Gold Referendum, but NO stories all weekend long on the much more important shocking news out of India that its 80:20 import rule has been totally scrapped! If the Swiss Gold Referendum had been approved, the Swiss National Bank would have had to buy a minimum of 25 tonnes of gold per month for the next five years. Imports of Gold into India are on a pace to exceed 900 tonnes this year, or 75 tonnes/month on average (more than triple!). Since total global mined production this year will probably not exceed 3,000 tonnes, India is now on pace to import more than 30% of total annual mined production this year alone!

Update: Gold And The U.S. Dollar

Following an avalanche of bearish articles and forecasts for gold from the financial media and Wall Street "research" analysts in early November near the exact bottom in gold prices, a few brave souls have finally surfaced in support of the yellow metal this week. Barron's Magazine is front and center now with two recent articles that strongly suggest that a major bottom may now be in place for gold and precious metals mining shares. Links to these articles are attached here.

In the interest of full disclosure, I am long precious metals mining shares and short the S&P 500 Index.

I think it may be noteworthy that the price of gold was up more than 1% last week despite the fact that the U.S. Dollar Index (DXY) was also up sharply (+0.89%) on the week. The U.S. Dollar Index is now up 11.91% since May 9th, 2014 (see chart below), but gold prices have remained resilient against the backdrop of the most negative sentiment that I have ever witnessed in my 36-year career in the securities industry.

Was November 7th THE major bottom in gold and silver prices? Yes, I think so!

Will Swiss voters approve the Swiss Gold Referendum on November 30th? Based upon everything that I have read about this issue (and all the latest poll information), I believe that the outcome here is a "toss up" right now. However, in a surprise move, the Netherlands announced last week that it has repatriated 122.47 tonnes of gold from the vaults of the Federal Reserve in New York to the Dutch Central Bank in Amsterdam. This is approximately 4 million ounces valued at about $5 billion. Officially, the Dutch Central Bank said that this repatriation was just part of a larger re-balancing of where its gold was stored. Unofficially, it's not hard to imagine that the Dutch Central Bank has a diminished level of confidence in the U.S. Federal Reserve and that maybe Netherlands is better off having its own gold stored on its own soil. Could this timely announcement by the Dutch Central Bank have any impact on the Swiss Gold Referendum? Perhaps YES! More importantly, however, I strongly believe that even a "No" vote on this key referendum will NOT derail the current rally in gold prices which began on November 7th. And in my view, a "YES" vote on the Swiss Gold Referendum will result in at least a 10% surge in gold prices over the very near term (before the end of this year)!

In terms of the potential outcome, why is the Swiss Gold Referendum different than the Scottish Vote For Independence?  Many uninformed research analysts, gold naysayers, and inexperienced journalists in the financial press are comparing the upcoming Swiss Gold Referendum with the recent failed Vote for Scottish Independence. The outcome will be the same they claim, with the "NO" votes prevailing. Swiss Nation Bank (SNB) President Thomas Jordan was out in full force this morning (11/23) strongly suggesting that "The [gold] initiative is dangerous because it would weaken the SNB". Of course, that's the whole point of the Swiss Gold Referendum! The SNB has been printing money at a pace equal to or greater than the U.S. Federal Reserve over the last 5 1/2 years. Interventions by the SNB in the foreign exchange market to effectively "cap" the Swiss Franc against the Euro at 1.20 have resulted in serious ongoing devaluation of the Swiss Franc.The Swiss Gold Referendum won't stop this outrageous and ill-fated action, but it WILL slow it down! The Vote For Scotland's Independence failed because the people of Scotland were threatened using heavy-handed tactics. Older people were actually told they would lose their pensions. Business owners were told they would lose all of their international business (and also business within the UK) because the Bank of England said it would not allow an independent Scotland to use the British Pound as it currency. Almost the entire "No" vote on Scottish Independence came from voters over the age of 55! However, most of the threats that were used to defeat the Scottish Independence Vote are irrelevant and don't apply with respect to the Swiss Gold Referendum. While the Swiss people ARE being told by the SNB and Swiss central government officials that the Swiss economy will suffer and that Swiss unemployment will rise significantly if the "YES" vote prevails, it is my strong view that Swiss voters will see through these trumped up threats of disaster, discount them appropriately, and then seriously consider a "YES" vote to this key Gold Referendum.

The following charts are attached for your review, with all signals from my computer-based trading system reflected on each chart:

1. Gold ETF (GLD) Weekly Chart
2. Gold ETF (GLD) Monthly Chart
3. Silver ETF (SLV) Weekly Chart
4. Silver ETF (SLV) Monthly Chart
5. Pan American Silver shares (symbol PAAS) Monthly Chart
6. S&P 500 Index ETF (SPY) Weekly Chart
7. U.S. Dollar Index (DXY) Weekly Chart
8. U.S. Dollar Index (DXY) Monthly Chart


Recent Gold-related articles in Barron's Magazine:

Gold: It’s Time to Buy by Michael Kahn (online commentary 11/19)

 http://online.barrons.com/articles/gold-its-time-to-buy-1416432694

Gold No Longer Slumbers by Randall Forsyth (Barron's Cover yesterday, 11/22)

http://online.barrons.com/articles/gold-no-longer-slumbers-1416626100?mod=BOL_hp_we_columns&cb=logged0.33949157019902076

Gold ETF Monthly Chart

Gold ETF Weekly Chart

Silver ETF Monthly Chart

Silver ETF Weekly Chart

Pan American Silver (PAAS) Monthly Chart

S&P 500 ETF (SPY) Weekly Chart

U.S. Dollar Index (DXY) Weekly Chart

U.S. Dollar Index (DXY) Monthly Chart

Gold & Silver Prices: The Big Bang, Spontaneous Combustion!

Yesterday, Friday, November 14th, the near-term December Comex Gold contract traded down to $1146.00/oz in early morning dealings. Around the same time, the December Comex Silver contract traded down to a low at $15.25/oz. While both of these intra-day lows were above the November 7th panic lows, sellers clearly had the upper hand and it was questionable at that time whether key support would hold.

And then there was THE BIG BANG!  

Gold and Silver prices suddenly caught a strong bid around 9:30 AM Eastern Time. While it's difficult to exactly pinpoint the reason for this spontaneous combustion, ZeroHedge.com suggested that a research report from Robin Winkler at Deutsche Bank (DB) may have been the trigger. Here are selected key passages from that DB report, courtesy of www.zerohedge.com:

• On 30 November, the Swiss will vote in a referendum to decide whether the SNB’s constitutional mandate should be changed to require the central bank to 1) never sell any gold reserves once acquired, 2) store all its gold on Swiss territory, 3) hold at least 20% of its official reserve assets in gold.
• The likelihood of a yes vote is considerable. The proposal requires a simple country-wide majority to pass, as well as a majority in at least 50% of Swiss cantons. Current polling shows the ‘yes’ campaign with a narrow but clear lead and there are reasons to believe that factors on the day could be favorable for the amendment. If an affirmative vote was recorded, there is little political leeway to delay or dilute implementation.

In the absence of official polls, the proposal’s likelihood of success can only be gauged from polls conducted by newspapers and other media outlets. The most respected polls are published by the radio and TV platform SRG. According to their latest poll (another poll is due next week), 44% of respondents intended to vote in favor of the amendment, with 39% rejecting it.

From JP Morgan, "If the referendum is passed, the Swiss National Bank (SNB) will be forced to increase reserves by around 1,500 tonnes over five years, i.e. 300 tonnes per year. This 300 tonnes per year accounts for 7.5% of annual gold demand of 4,000 tonnes per year." I think is may be noteworthy that JP Morgan used annual "gold demand" estimates in its attempt to place the potential consequences of a "YES" vote from the Swiss Gold Referendum in perspective. In this specific analysis, I believe the more relevant and more important number is annual "gold SUPPLY" from mined production. In 2013, mined gold production was approximately 3,000 tonnes, and it's not hard to guess that 2014's production will be less than 3,000 tonnes given the 30% decline in gold prices over the last two years and the current average "all in" cost of production of about $1,250/oz. In this light, if the Swiss Gold Referendum is passed, then the Swiss National Bank will have to purchase more than 10% of the global annual Gold production every year for the next five years!!

In a 4-hour stretch between 9:00 AM and 1:00 PM Eastern Time, Gold rallied 4.09% and Silver surged 7.41%! And both precious metals ended the day near their highest levels at $1192.90/oz and $16.38/oz, respectively. A significant rebound in Crude Oil prices probably contributed to the stronger precious metals market on Friday. Crude bounced 3.66% from its intra-day low at $73.25/barrel to end the day at $75.93.

Not surprisingly, daily chart buy signals were triggered by my computer trading system in the following Gold/Silver-related stocks and ETF's:

GLD, SLV, XAU, GDX, GDXJ, SIL, SILJ, AEM, AG, AU, AUY, ABX, EXK, GG, NEM, PAAS, and PPP.

To add insult to injury for the Gold bears, a daily chart sell signal was triggered in the U.S. Dollar Index (DXY) yesterday, which tumbled 1.03% from its intra-day high while Gold and Silver prices were soaring.

Clearly, it's a new dawn for Gold, Silver, and related investments!

Postscript (written Sunday, November 16th):  

For Gold bulls and bears alike, I think the upcoming Swiss Gold Referendum is a sentinel event. In one of my recent columns I referred to Abraham Lincoln's famous quote that begins "You can fool some of the people some of the time...". Almost every major central bank has been printing money for several years, but because ALL of them are executing this questionable strategy simultaneously, purchasing power parity across major currencies has been mostly preserved and the citizens of the world have been successfully duped. I think it's safe to say that the global "monetizing" of debt by central banks will end at some point, but how it will end and when it will end are two great unknowns. Here are a few questions that may be especially relevant at this point in time, and just for fun I have answers for all of them:

1. Are central banks omnipotent? For the last 5 1/2 years since March 2009, the answer has clearly been yes! We know the real answer is NO, but when will the financial markets finally see the real power of the "wizard behind the curtain"? The Swiss National Bank (SNB) has been successful so far in defending the 120 level against the Euro, but for how much longer? The Eurozone as we know today is doomed (Greece, Italy, Spain, Portugal, and others will not remain in the EU in its current form). How much longer can the SNB stem the tide of repatriation from Euro's to Swiss Francs by Swiss citizens (who already know this end game)? My guess is that the 120 level gets broken convincing over the very near term!

2. If you had to pick a country that had the most financially savvy citizens (and you couldn't pick your own country), what country would you pick? My guess is that Switzerland would be at the top of almost everyone's list. The SNB has been printing money at almost the same pace as the U.S. over the last six years. AND the Swiss National Bank sold over 1300 tonnes of gold (half its reserves) between 2000 and 2005 at an average price LESS than 40% of today's prices. If you were a Swiss citizen right now, would you trust the current protests by officials at the SNB that a YES vote on the Gold referendum would be disastrous and cost Switzerland the necessary flexibility it needs to deal with any potential monetary crisis ahead? My guess is that a majority of Swiss citizens really DO understand all the implications of a YES vote right now, AND that THEY WILL ACTUALLY EMBRACE A YES VOTE!

3. It is my strong belief that a YES vote in the upcoming Swiss Gold Referendum will dramatically change the landscape for ALL major central banks throughout the world. As a gold bull right now, I still greatly fear the power of the central banks. I saw what happened to the Scotland Independence Vote. The massive (successful) effort by government politicians (and the Bank of England) to preserve the UK was off-the-charts with its fear mongering and disinformation campaign (claims that pensions would be at risk, claims that vendors would lose all their business, claims that Scotland would not be able to compete on the world stage without the British Pound, etc., etc). Could that happen here? You bet! With only two weeks to go, you can bet your last Swiss Franc that the SNB and the entire leadership of the Swiss government will do everything they can to defeat the Swiss Gold Referendum. However, it is my humble view that the SNB and all its uninformed supporters are too late! They have underestimated the resolve of those ready to vote "YES", and the majority of the Swiss people are too smart to fall for last minute claims by the SNB that disaster awaits Switzerland if the YES vote succeeds.

Gold ETF (symbol GLD) Weekly Chart

Silver ETF (symbol SLV) Weekly Chart

U.S. Dollar Index (DXY) Daily Chart

Mid-morning Special Update: Gold/Silver Mining Stocks

This special update was written at 10:55 AM Eastern Time on Friday, November 14th.

 

A major upside reversal is now underway in the Gold/Silver mining shares. Daily chart buy signals will probably be triggered by my computer trading system at today's close. I strongly believe that today's intra-day lows in most of the stocks in this unloved group will mark the beginning of an extraordinary advance which could easily result in gains of 50% to 100% (or more) in most of these issues over a very short time horizon of three or four months.

 

A complete update will be available here later this weekend. In the interest of full disclosure, I am long several Gold/Silver mining shares and also short the S&P 500 Index and the Russell 2000 Index.

Russell 2000 Stock Index: Daily Chart Sell Signal Triggered Today

Just a quick note here this evening, Thursday, November 13th.

A daily chart sell signal was triggered by my computer trading system in the Russell 2000 Index at today's NY close. At today's intra-day high at 1188.65 in this closely watched stock market barometer, the Russell 2000 Index had rallied 14.25% from its intra-day low at 1140.45 as set on October 15, 2014.

Daily chart sell signals were also triggered in the related indexes as follows:

Russell 2000 Index ETF (symbol IWM)
Russell 2000 Value Index ETF (symbol IWN)
Russell 2000 Growth Index ETF (symbol IWO)

In the interest of full disclosure, I am long Gold/Silver mining shares and short the S&P 500 Index.

Russell 2000 Index Daily Chart with Computer-generated Buy & Sell Signals

Special Update: Gold

Here are just a few of the negative headlines on the price of Gold in the financial media today:

"Gold is doing something it hasn't done in 17 years"
 

"Gold loses luster"
 

"Here's why gold could be headed to $800: Insana"
 

"A final purge to $700? What gold bulls' surrender might look like"

You would think with all these bearish headlines, Gold prices must have totally collapsed recently and that there is no hope for any rebound or sustained advance for Gold on almost any time horizon.

Holdings in the SPDR Gold Shares (symbol GLD), the biggest exchange-traded product backed by the yellow metal, fell to a six-year low today, contracting for a seventh day in the longest run of declines since June 2013. And the Gold price is heading for the first consecutive annual retreat since 2000.

As of this writing (8:00 PM Central Time on Wednesday evening), Gold for December delivery is trading at about $1,159 an ounce on the Comex in New York.

Wow! Has bearish sentiment in the Gold market ever been higher? Maybe so, but not in my recollection.

If holdings in the Gold Shares ETF (GLD) are at the lowest in 6 years, and if almost every financial media article and research report is negative, and if large vocal Wall Street trading firms are calling for Gold prices to soon fall below $1,000/oz, perhaps we should ask the question ARE THERE ANY WEAK HANDS LEFT IN THIS MARKET?

Gold prices were about unchanged today, despite all the negative rhetoric. And Gold is actually up about 2.65% since the recent intra-day bottom at $1,130/oz on November 7th. And the GDX Market Vectors Gold Miners ETF posted a plus day today and is now up 10.88% from its recent low!

What am I missing? 

Recent price action in Gold looks extremely bullish to me! Recent price action in many Gold mining shares looks extremely bullish to me! Recent buying patterns in the actual physical gold market look extremely bullish to me. Real interest rates in most of the major global economies are actually negative despite loud central bank protests claiming that "deflation" is a looming threat to growth and prosperity. Negative real interest rates will provide the "rocket fuel" for sharply higher Gold prices immediately ahead!

In the interest of full disclosure, I am long Gold/Silver mining shares and short the S&P 500 Index.

Gold/Silver: You Can Fool Some Of The People...

"You can fool some of the people all the time, and all of the people some of the time, but you cannot fool all of the people all the time." Abraham Lincoln

Friday was an interesting day in the precious metals futures market, to say the least. Silver and Gold prices traded sharply lower in overnight dealings, but then found a strong bid as the sun rose on Wall Street. The rally that followed was exceptional!

Gold traded down to an intra-day low at $1130.40/oz and then rebounded sharply to an intra-day high at $1179.00 before ending the extended session at $1178.00 (+3.16% on the day). Silver traded down to an intra-day low at $15.04/oz, then rallied to an intra-day high at $15.88 before ending the extended session at $15.81 (+2.58% on the day). In morning dealings, Silver futures actually stopped trading at one point because of an Exchange software glitch when prices reached $15.88/oz, up 0.84 cents/oz or +5.60% from the intra-day low. I think the timing of the trading "glitch" in this market is noteworthy!

Precious metals mining shares, which have been absolutely battered recently, also rebounded sharply on Friday. The most popular Gold Mining Shares ETF, symbol GDX, advanced 8.31% on Friday. The Silver Mining Shares ETF jumped 7.87%. Stories of shortages in the global Silver coin market are now commonplace, and the U.S. Mint announced to dealers on Thursday last week that it had actually "sold out" of all its Silver Eagle 1-ounce coins (temporarily, of course). Despite sharply lower Gold and Silver prices over the last several months, sales of Gold and Silver freshly minted coins are "through the roof" according to the latest sales figures from the U.S. Mint.

Was Friday, November 7th, a significant day in the precious metals market? Most definitely! Was Friday THE turning point in a major new bull market for this unloved and under-weighted investment class? I think so!

You cannot fool all of the people all the time! Gold and Silver are REAL currency! Government paper money is what? Perhaps the answer is as simple as "Fiat" currency, which is easily debased and often subject to massive manipulation! Which "currency" would you like to own in this environment right now? "Real" or "Fiat"? Is the recent surge in Gold and Silver coin purchases one measure of how "people" are now voting on this issue? YES!!
 

Gold ETF (symbol GLD) Monthly Chart

Gold ETF (symbol GLD) Weekly Chart

Silver ETF (symbol SLV) Monthly Chart

Silver ETF (symbol SLV) Weekly Chart

U.S. Dollar Index (DXY) Weekly Chart

U.S. Dollar Index (DXY) Monthly Chart

Race To The Bottom: Worldwide Debasement Of Fiat Currencies

In the interest of full disclosure, I am long gold/silver mining shares and short the S&P 500 Index. The gold/silver mining share position has been accumulated over the last two weeks, while the short S&P 500 position was first initiated last Monday, October 27th. While it may be an understatement to write that this "hedge" was less than ideal late last week, I remain convinced that the next major move in precious metals prices will be sharply higher, and the next major move in U.S. equity prices will be sharply lower.

As of 8:00 PM Central Time Sunday night, when this latest column is being written, Gold is trading at $1,165/oz, while Silver is trading at $15.85/oz. Both prices are modestly lower than Friday afternoon's close.

On Friday, October 31, the Bank of Japan fired the latest cannon with respect to the debasement of worldwide currencies. The BOJ said it will increase its purchases of government bonds and other assets by between 10 trillion yen and 20 trillion yen ($91 billion to $181 billion) to about 80 trillion yen ($725 billion) annually. The European Central Bank will clearly be next with its own massive QE program, and China is the largest culprit of all, of course, with its ongoing stealth program of currency debasement.

With the U.S. Federal Reserve effectively "on hold" with no QE program currently in force, the U.S. Dollar has been exceptionally strong in foreign exchange dealings recently. The U.S. Treasury will soon have to halt this advance with intervention against the Dollar to prevent the complete collapse of U.S. exports and the related importation of less-than-desirable deflationary pressure on domestic prices for goods and services.

The race to the bottom for fiat currencies has accelerated, and the winner will soon be Gold/Silver prices!
 

Gold ETF (GLD) with 3-Std Deviation Bollinger Bands and Fibonacci Retracement Lines

Gold Update: Daily & Monthly Chart Buy Signals

Just a quick special update for this evening, Thursday, October 23rd.

Daily chart buy signals were triggered by my computer trading system today in the following gold mining stocks:

1. Agnico Eagle Mines (AEM)

2, Yamaha Gold (AUY)

3. Gold Junior Mining Shares ETF (GDXJ)

The AEM daily chart is attached for your review, with all computer-generated signals reflected.

Also, a preliminary monthly chart buy signal has now been triggered in the most popular Gold ETF (symbol GLD). This buy signal won't become official until October 31st, but it looks very strong to me right now. I believe that this particular buy signal is especially noteworthy because it's the second monthly chart buy signal in the Gold ETF (GLD) in the last five months. As you can see from the chart below, monthly chart buy signals in Gold are extremely rare. Back-to-back monthly chart buy signals in almost any stock, ETF, bond, or index are almost unheard of. In the interest of full disclosure, my "Long" allocation to gold/silver mining shares is now up to 26% of assets under management. My entire position is this unloved, out-of-favor group of ("precious") stocks has been accumulated over the last 13 days since October 10th.

I remain convinced that a major upside advance is now underway in Gold, Silver, and precious metals mining shares.While I am not sure what the catalyst will be for when the real upside fireworks begin, I have a strong feeling that the upcoming Swiss Gold Referendum, as scheduled for November 30th, will be a bullish factor.

AEM Daily Chart with Computer-generated Buy & Sell Signals

Gold ETF (GLD) Monthly Chart with Computer-generated Buy & Sell Signals

Gold/Silver: Ready To Shine Again!

The 3-year bear market in Gold and Silver prices is over. The October 3rd intra-day low in the prices for both precious metals was the clear turning point in the start of a major new bull market advance.

In the interest of full disclosure, on Friday, October 10th, I starting buying Gold/Silver mining shares (AG, EXK, PPP, & GDXJ) for the first time since I liquidated all my precious metals investments in early July 2014. I now have a 12% allocation to Gold/Silver mining shares, and I expect to add to this position over the next few trading days.

Daily chart buy signals were triggered in my computer trading system in almost every Gold/Silver mining stock this past Wednesday, October 8th (see daily charts below). Despite relative strength in underlying precious metals prices on Thursday and Friday to end last week, the mining shares retraced between 50% and 100% of their extraordinary single-day gains as posted on Wednesday, October 8th. The volatility is this unloved sector is off-the-charts right now, but the potential upside now in these out-of-favor and under-weighted stocks looks extremely attractive when measured against the potential downside risks.

Much has been published over the last few days about the latest FOMC minutes released by the Federal Reserve Board on Wednesday, October 8th. While some Fed Governors are talking tough (hawkish) on when short-term interest rates should be raised, it's clear to me that Fed Chair Janet Yellen is running the show now. Ms. Yellen is mostly concerned about the lack of wage growth and also the dis-inflationary factors that have come from the very strong U.S. Dollar in recent foreign exchange dealings. While interest rates may in fact be raised by the Fed sometime in 2015, the hawkish rhetoric will soon give way to more dovish comments from Fed officials over the next several months, at least! And a dovish Fed is bullish for Gold/Silver prices, especially at this point in time when uninformed (and often wrong) bearish sentiment is at record high levels in the precious metals markets.

One of the more interesting potential catalysts for Gold/Silver prices to advance sharply soon is the upcoming vote on a Swiss referendum to force the Swiss National Bank to hold a fixed portion of its assets in Gold. This vote is scheduled for November 30th, and if approved by Swiss voters, the Swiss central bank would then be forced by mandate to keep at least 20% of its reserve holdings in Gold. Since the Swiss central bank currently has total assets of approximately $500 trillion dollars, it would then have to purchase about 1500 tons of Gold to satisfy this mandate, which is approximately half the world's annual production right now!

The next seven weeks could be VERY interesting in the Gold/Silver market!!

Here are several Gold/Silver charts, with all signals reflected from my computer trading system:

Gold ETF (GLD) Weekly Chart with Computer-generated Buy & Sell Signals

Silver ETF (SLV) Monthly Chart with Computer-generated Buy & Sell Signals

First Majestic Silver (AG) Daily Chart with Computer-generated Buy & Sell Signals

Primero Gold (PPP) Daily Chart with Computer-generated Buy & Sell Signals

Junior Gold Mining Shares ETF (GDXJ) Daily Chart with Computer-generated Buy & Sell Signals

Endeavour Silver (EXK) Daily Chart with Computer-generated Buy & Sell Signals