Is Gold Still The Most Hated Asset Class?

Gold traded at $1,297 today and silver traded at $18.07. It seems like yesterday when almost everyone on the planet was proclaiming the "end-of-days" for the yellow metal and $1,000 gold (or lower) was forecast by many to be inevitable. Of course, at the same time there were quite a few silver bears who were sure that silver would trade below $12.00.

Facts:

Gold traded down to a low at $1,130 on November 7th, 2014. It's now 14.5% higher at $1,294.

Silver traded down to a low at $14.16 on December 1st, 2014. It's now 27.4% higher at $18.04.

Most gold and silver mining shares are now up more than 50% from their mid-December lows!

Perhaps gold and silver are no longer the most hated asset class?

Like many investment advisers, I worry every day about the potential "big surprise" that will upset my grand plans for superior investment performance and exceptional risk/reward potential. My wife tells me almost every day that "markets are fixed" with U.S. stocks destined to head higher, while alternative investments like gold and silver will suffer surprising setbacks even in the most "friendly" precious metals environments. Even though I don't think she's right about stocks "destined" to move higher or gold destined to move lower, I do hope she's right about the markets being "fixed", or at least a little fixed. The reason why I hope the markets are at least a little fixed is because I don't think that "smart money" or the "fixers" can hide from my computer-based trading system.

And now back to Earth.....

1. The rally in gold, silver, and related precious metals mining shares is extended and due for a pause (or even a minor correction).

2. Given the extent of the rally in gold and silver prices since late last year, I think gold and silver mining shares should actually be much higher than they are now. This worries me!

3. Everyone is expecting a "bazooka" sized monetary easing from the European Central Bank this coming Thursday, January 22nd. Given last week's SNB shocker, can we really trust the major central banks to follow through on even their strongest rhetoric? If the ECB fails to deliver this Thursday, then gold and silver prices will fall sharply for several days, at least. I would prefer to be on the sidelines during this potential risk.

Here at $1,300 gold and $18.00 silver, I am not sure there is an edge for gold and silver investors. The "hate" just isn't there anymore! While there are still plenty of bears, the bullish camp is no longer in hibernation!! It's time to liquidate precious metals investments, or at least scale back significantly. And no frowns please, as gold and silver mining shares have been the best performing stock sector so far this year, with no other sector even close!! The benchmark Philadelphia Gold/Silver Mining Stock Index is now up 19.32% year-to-date. The next best performing group is Biotech with a 7.09% gain. The S&P 500 Index is down 1.77% year-to-date, and almost every other sector is also in negative territory this year so far!

Central Bank Omnipotence

"Top 10" lists, we all have them. Some favorites might include "Top 10 Movies of All Time", "Top 10 Baseball Players of All Time", Best Presidents, Richest Individuals, Greatest Golfers, "Top 10 Stocks", etc.

How about "Top 10 Most Important Dates of All Time"?

Everyone's list will be different, of course, but most will probably include December 7th, 1941 and September 11th, 2001. It may be interesting to see if January 15th, 2015 will be on anyone's list in the months and years ahead.

On January 15th, 2015, the Swiss National Bank (SNB) abandoned its pledge to support the Euro at a 1.20 ratio versus the Swiss Franc in foreign exchange dealings.

Since this pledge was first made in September 2011, how many Euros has the Swiss National Bank had to buy to keep the Euro above this key level? When the 1.20 peg was finally abandoned on January 15th this past week, how much money was then lost by the Swiss National Bank on its $500 billion balance sheet of reserve currencies (of which approximately 50% was allocated to Euros)? We may never know the full extent of the almost unimaginable losses sustained by the Swiss National Bank this past week. However, I have no doubt that when the final tally is in, total SNB losses will exceed the equivalent of $75 billion dollars (almost 20% of Swiss GDP). Is Thomas Jordan (the Chairman of the Swiss National Bank and architect of this failed policy of massive foreign exchange interventions) now considered the biggest losing trader of all time? Probably, but more importantly, does the SNB shocker of January 15, 2015 finally dispel the current myth of global central bank omnipotence? I believe the answer may be YES!

What does it all mean for traders and investors moving forward? Lots of questions, but as usual, no certain answers, just interesting speculation! Here are some known facts:

Year-to-date (YTD) - Gold, Silver, and precious metals related investments have been the biggest winners by a large margin so far in 2015:

Gold       +  8.1% (YTD)

Silver     +14.0% (YTD)

The Philadelphia Gold/Silver Stock Index (see chart below) is now up 15.6% year-to-date, which makes it the best performing index among major U.S. stock indexes so far in 2015. For comparison purposes, the S&P 500 Index is down 1.9% so far in 2015, while Oil and Oil-service stocks are down about 9.2% so far year-to-date.

Can Gold and Silver investments continue to outperform in the weeks and months ahead, or will profits fade again in this "most hated" sector just as they did after last year's blazing start? More questions, but no certain answers, as usual.

In the interest of full disclosure, my allocation to Gold and Silver mining shares reached 45% in mid-December 2014 from 0% in mid-October 2014. The 2-month period between mid-October and mid-December was brutal for Gold and Silver investors, and I was no exception. However, the investment returns since mid-December have been more than stellar, and well worth the sweat and tears of that 2-month losing period. Gains of 50% or more are the rule, and not the exception, for precious metals mining stocks since their mid-December lows! My current allocation to Gold and Silver mining shares is 25%.

When a stock investment is up 50% or more in less than a month, is it too greedy to expect more? Another question without a certain answer, but at this point I firmly believe that Gold and Silver investments will continue to be the best performers in 2015. Unlike last year, when there were several false starts for the precious metals mining shares, I think a major new bull market is now underway in this exceptional group that will surprise almost everyone with its longevity and upside scope!

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

Philadelphia Gold/Silver Stock Index (XAU) with 200-Week Moving Average Line

Gold ETF (symbol GLD) with 200-Week Moving Average Line and Computer-generated Buy & Sell Signals

Silver ETF (symbol SLV) with 200-Week Moving Average Line and Computer-generated Buy & Sell Signals

The Northbound Train Has Left The Station

One of my regular weekend research tasks is to review the Wall Street Journal's list of weekly changes in the "Major U.S. Stock Indexes". Attached here is this past week's final numbers from that list:

Given my recent columns here at www.suttonwatch.net, it may seem obvious to many of my readers why I included this WSJ chart today. However, for everyone else, you will please note that the Philadelphia Gold/Silver Mining Stock Index (symbol XAU) was up +3.07% last week. XAU was the only index that finished last week in positive territory! The S&P 500 Index was down 1.46% last week (which doesn't include a late Friday 5-point plunge (-0.25%) in the S&P 500 futures contract between the 4:00 PM Close of NYSE stock trading and the 4:15 PM close in CBOE option trading).

Philadelphia Gold/Silver Mining Stock Index (XAU) with Computer-generated Buy & Sell Signals

The Philadelphia Gold/Silver Mining Stock Index (symbol XAU) posted a 74% decline between December 2010 and November 2014. According to my computer trading program, the above weekly chart reflects several false starts for potential rallies following the December 2010 major top in XAU, but the latest weekly chart buy signal from two weeks ago looks extremely bullish.

Last week's exceptional gains among Gold/Silver mining stocks were experienced despite the fact that the U.S. Dollar Index was UP more than 1% on the week in foreign exchange dealings. In fact, if we were to consider Gold a real live currency (which I do), then Gold was the 2nd strongest currency in the world last year, only slightly behind the U.S. Dollar.

According to the latest research from JP Morgan, central banks are expected to monetize $1.30 trillion of debt in 2015, on the heels of $1.00 trillion monetized in 2014. If this 30% estimated increase proves correct (which is a near certainty), then I have no doubt the the #1 strongest "currency" in 2015 will be Gold !

At Friday's close, January 2, daily chart buy signals were triggered by my computer trading system in the following Gold/Silver mining stocks; AEM, AU, ABX, AG, EXK, GDX, GDXJ, GLD, GG, NEM, PPP, RGLD, SIL, SLW, and XAU.

For Gold and Silver stocks, the Northbound train has left the station !!