Gold and Silver Mining Stocks Are Flashing GREEN !!

One of the highlights of my 10-year career as Director of Research at Sutton Financial Services, and Editor and Publisher of the Sutton Advisory Letter between 1988 and 1998, was winning Timer Digest's "Gold Timer of the Year" in 1994. It was my first of several "Timer of the Year" awards, and it was an important form of validation of my research for me. While ALL my clients at that time were focused on the U.S. stock and bond markets, I was convinced then, and am still convinced now, that quality stock and bond market research MUST include rigorous analysis of the precious metals markets and the U.S. Dollar in foreign exchange dealings.

I think it's safe to state now, with 100% certainty, that stock and bond markets (globally) are being manipulated by central banks in an attempt to promote economic growth (in part through the so-called wealth effect). And I am fine with that, although it makes my job as an investment adviser a little tougher. While the Federal Reserve has NOT yet admitted to buying stocks (even though I feel confident that the Fed's "helping" hand has been there to support stocks quite often since the Crash of 1987), the Bank of Japan is now an open book on this issue and is actively participating in several of the major global stock markets (exclusively on the buy side!). Comments from prominent ECB officials over the last six months strongly suggest that the ECB will "do whatever it takes" to support the economies of the EU and to fight the potentially devastating effects of deflationary forces that now seem widespread. "Doing whatever it takes" seems to include the buying of almost every asset imaginable (including stocks), although there has been rhetoric suggesting that Gold is not included here (LOL), and we already know about the much publicized 16-month $1.3 trillion QE program that just got underway.

Bottom line:

1. The Fed will eliminate the word "patient" from its next post-FOMC meeting statement, which will then open the door to its first interest rate hike since the Fed's zero percent policy target was implemented in 2008. Jon Hilsenrath, reporter for the Wall Street Journal, and well-known mouth piece for the Federal Reserve, has pretty much already confirmed this upcoming "tightening" action in terms of monetary policy.

2. However, while the Fed has clearly been attempting to begin the "normalizing" of interest rates away from ZIRP to a higher level (perhaps near 2%), I strongly disagree with the consensus view that the Fed will raise its Fed Funds target by 0.25% in June 2015. In fact, I don't think the Fed will raise interest rates at all in 2015, and I even see the possibility of a new QE program (#4?) in an attempt to fight recessionary forces that are already impacting the U.S. economy right now.

3. Gold and Silver prices have bottomed! The November 2014 lows in both of these precious metals will not be broken. And the testing of these lows that we have witnessed over the last 6 trading days since the stronger than expected employment report on March 6th is done!

4. A major new advance in Gold and Silver prices is now underway, and the upside price action will surprise even the most ardent bulls!!

Daily and weekly chart buy signals were triggered last week in several of the Gold and Silver mining stocks that I follow. At Friday's close March 13th, daily chart buy signals were triggered in AG, AUY, GG, PAAS, PPP, SSRI, SLW, and XAU. Within this group, "daily double" chart buy signals were triggered in AG, AUY, GG, PAAS, PPP, and XAU. These "double" buy signals are relatively rare and offer added reliability to the accuracy of the signal. Weekly chart buy signals were triggered last week in AUY and PPP. Please see the charts below, which are representative of the entire precious metals sector.

In the interest of full disclosure, my current allocation to gold and silver mining shares is 38% of assets under management. My precious metals positions include AG, CDE, EXK, PPP, GDX, and GDXJ.

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

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

Yamaha Gold (AUY) Daily Chart with Computer-generated Buy & Sell Signals

Pan American Silver (PAAS) Daily Chart with Computer-generated Buy & Sell Signals

The U.S. Dollar (DXY): Ripe For A Downside Reversal?

Why would anyone step in front of the Northbound train that is the U.S. Dollar in foreign exchange dealings right now? Here are just a few bullish arguments from Wall Street analysts claiming that continued strength in the Dollar is a sure bet:

1. The U.S. Dollar Index (symbol DXY) is up 26% since May 2014, with almost no meaningful corrections along the way! Is the "trend" still your friend?

2. The Federal Reserve is hinting strongly that an interest rate hike is now on the not-too-distant horizon (June 2015 seems to be the consensus view for this action).

3. John Hilsenrath of the Wall Street Journal, who appears well connected to Fed officials (or is just the mouthpiece for the Fed when a policy change may be imminent), wrote an article earlier this week that the key word "patience" will be dropped from the Fed's official statement that will follow the upcoming March FOMC meeting. With this key word gone from the next Fed statement, Wall Street pundits are now proclaiming that a rate hike would then be imminent (within two or three months).

4. The European Central Bank has just started its 16-month $1.1 trillion QE program.

5. U.S. Employment Reports have been surprisingly robust over the last several months (at least on the headline numbers).

The Greenback is King right now! And maybe deservedly so!!

Today, the U.S. Dollar Index (symbol DXY) traded as high as 100.06 intra-day, before relatively minor profit-taking took hold. DXY ended at 99.44. Today's advance above 100.00 was the first above this key level since April 2003.

After 35+ years experience observing and participating in the financial markets, I feel confident in saying that almost any market opinion can be justified with a well constructed suite of carefully selected charts. However, with full knowledge that charts can sometimes be dangerous to your pocketbook, I still spend most of my research time reviewing my favorite charts and applying all my favorite indicators. 

Bottom Line: The U.S. Dollar now looks vulnerable to a meaningful correction! Here are a few charts that lend support to this minority view: Of course, if the Dollar does break now, then my current favorite investment of choice, Gold/Silver mining shares, will soar !!

U.S. Dollar Index (DXY) Monthly Chart with 3-Std. Dev. Bollinger Bands, Gann Lines, & Fibonacci Retracement

U.S. Dollar Index (DXY) Weekly Chart with 3-Std. Dev. Bollinger Bands and Computer-generated Buy & Sell Signals

Special Update: Classic Selling Climax In Gold/Silver Mining Stocks!

Since the January 21st, 2015 reaction high, when gold and silver mining stocks were up about 20% year-to-date, losses in these same stocks have been historic. The average loss is probably more than 30% from the January 21st intra-day highs to this morning's intra-day lows. Here is a representative sampling:

Goldcorp (GG)                                  -28%

Junior Gold Miners ETF (GDXJ)    -33%

Philadelphia Gold/Silver Miners Index (XAU)   -22%

First Majestic Silver (AG)              -35%

Endeavour Silver (EXK)                -51%

Silver Miners ETF (SIL)                 -31%

While it's true that the underlying precious metals prices fell sharply during this period (Gold down 12%, Silver down 16%), the volatility in this sector is off-the-charts right now, especially over the last four trading days. Most Gold and Silver mining shares fell 5% per day, on average, over the last four days in a classic selling climax that ended at approximately 11:15 AM ET this morning. The V-shaped rally in gold and silver stocks after the intra-day lows were posted today was exceptional. By the end of the day today, one small silver stock (EXK) actually jumped 16% from its intra-day low. Most gold and silver stocks rebounded at least 5%, with the average closer to +8%.

In the interest of full disclosure, gold and silver mining shares now account for a 40% allocation of my assets under management. 75% of these positions were accumulated over the last four trading days. 

Was this morning's heavy selling in the gold and silver mining shares a classic selling climax? Yes, I think so! Underlying gold and silver prices were actually down on the day today, which strongly suggests that the extraordinary rebound of gold and silver mining shares in afternoon dealings was potentially a significant bullish tone change for this entire sector. My strong feeling is that this entire group is dramatically underweighted by fund managers, and that this sector is officially among the "most hated" again in terms of investors sentiment! Today's oversold bounce could easily represent the beginning of an extended advance lasting several quarters.

If today was a major low in gold and silver mining shares, how much upside can we expect over the near-term and intermediate-term horizons? If we define 60 days as "near term", then I think gold and silver mining shares could easily advance 50%, or more, on average. If we define 150 days as the intermediate term, then I think gold and silver mining shares could advance 100% or more from today's intra-day lows.

Daily chart buy signals were triggered by my computer trading system in the following gold and silver mining shares at today's NY close: AEM, AG, AXU, AU, AUY, CDE, EXK, FSM, GDX, GG, PAAS, PPP, RGLD, SIL, and XAU. And here are a few representative charts:

Gold Miner Shares ETF (GDX) Daily Chart with 3-Std Dev. Bollinger Bands

Silver Miner Shares ETF (SIL) Daily Chart with 3-Std Dev. Bollinger Bands

Philadelphia Gold/Silver Miners Index (XAU) Daily Chart with 3-Std Dev. Bollinger Bands

Bullish Relative Price Action In Gold & Silver Mining Shares

In mid-January I became concerned that the explosive early 2015 rally in gold and silver mining shares was overdone and therefore subject to a meaningful correction. Please see my January 20th post entitled "Is Gold Still The Most Hated Asset Class?". I personally liquidated all my precious metals position in favor of cash at that time.

Gold and Silver prices have broken sharply since their mid-January highs and have now retraced almost all the strong advance that had unfolded between early November and mid-January.

The most popular Gold ETF (symbol GLD) had rallied 14.5% from its early November 2014 low, but now it's up only 3.3% from that low.

The most popular Silver ETF (symbol SLV) had rallied 20.8% from its early November 2014 low, but now it's up only 3.8%.

Friday was a fairly significant down day for Gold and Silver prices as investors reacted to a stronger than expected February U.S. non-farm payrolls report, which will supposedly push the U.S. Federal Reserve to raise short term interest rates as soon as June 2015. While I have my doubts about the veracity of the latest employment data from the Bureau of Labor Statistics (BLS - where are the 40,000 confirmed job losses from the energy sector in the two monthly employment reports so far this year?), that's a story for another day. 

In recent columns here, I have offered the suggestion that the recent correction in Gold and Silver prices has about run it course (and that a new advance was ready to get underway). In fact, as of Thursday's close, March 5th, I had accumulated a 10% allocation in gold mining shares (mostly in GDX and GDXJ), with the intent to increase this stake to near 20%. Of course, I didn't anticipate the "slam" in precious metals mining shares that unfolded yesterday, Friday, March 6th. Most Gold and Silver mining shares were down between 5% and 10% yesterday in reaction to about a 2.5% drop in the underlying precious metal prices.

So where do we stand now? I added significantly to my gold mining shares yesterday afternoon and I also bought meaningful positions in two silver stocks yesterday (AG and CDE). My allocation to this sector is now 30% of assets under management. 

Despite the fact that Gold and Silver prices have given back almost all of their gains as posted in the November 2014 to January 2015 advance, most precious metals mining shares are still up sharply, on balance, from their late 2014 intra-day lows. Here is a representative sample of key stocks in this sector and their respective gains relative to intra-day lows posted late last year::

Goldcorp (GG)             +12.0%

Barrick Gold (ABX)      +13.1%

Newmont Mining          +32.4%

Major Gold Mining Shares ETF (GDX)       +12.9%

Junior Gold Mining Shares ETF (GDXJ)      +9.4%

First Majestic Silver (AG)    +46.7%

Coeur D Alene (CDE)         +49.3%

Gold ETF (GLD)        +3.3%

Silver ETF (SLV)        +3.8%

Bottom Line: I see the recent relative strength in the gold and silver mining stocks, as compared to the underlying precious metals prices, as VERY positive and bullish for the entire sector immediately ahead!

P.S. Weekly chart sell signals were triggered at Friday's close, March 6th, in several major U.S. stock indexes as well as several sector indices. In the interest of full disclosure, I missed the entire decline in U.S. stock prices this past Friday and I do not have any short positions right now. Weekly chart buy and sell signals are the most reliable signals from my computer-based trading system. Here is the complete list of weekly chart computer-based sell signals in major indexes and sector indices at Friday's close, March 6th:

Dow Jones Industrial Average (DJIA)
Dow Jones Industrial Average ETF (DIA)
Nasdaq Composite Index (OTC)
Nasdaq-100 Index (QQQ & NDX))
Russell 2000 Index (RUT)
Russell 2000 Index ETF (IWM)
Russell 2000 Value Index ETF (IWN)
Morgan Stanley High Tech Index (MSH)
Philadelphia Semiconductor Index (SOX)
Semiconductor ETF (SMH)

Dow Jones Industrial Average Weekly Chart with Computer-generated Buy & Sell Signals

Nasdaq Composite Index Weekly Chart with Computer-generated Buy & Sell Signals

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

Golden Apple

Apple, Inc. has a market capitalization of about $750 billion, which makes Apple the largest publicly traded company in the world. And there really isn't a "second place" when it comes to market capitalization. Other great companies, like Exxon, Microsoft, Google, and Berkshire Hathaway have market capitalizations of approximately 50% of Apple.

Why do we care? 

Am I recommending Apple for purchase? NO

Am I recommending Apple for short sale? NO

So why is Apple the most interesting company on the planet to me right now?

Apple is about to introduce its long awaited Apple Watch. Just another time piece? Probably not! At least not when it comes to the Gold market. Yes, the GOLD MARKET !!

The Apple Watch featured on the far right of the above picture is called the "Edition" collection. Early reports indicate it may contain as much as two ounces of gold, with models ranging in price from $5,000 to $7,500 each. There is actually a research report out on the Street right now that forecasts monthly sales of the Gold Edition in the neighborhood of one million units a month!

Is this even possible? Let's go with this incredible forecast, just for a moment. If Apple sells one million gold edition units per month, Apple would need to buy two million ounces of gold per month, or 24 million ounces over the next year. That's 750 tons of gold that would be needed for just one year's "Edition" collection of Apple watches. This kind of demand could easily make Apple the largest buyer of gold in the world, even ahead of China and India (the current largest buyers of gold in the world). In fact, Apple's demand for gold, at 750 tons, would represent approximately 25% of the entire annual mined gold production in all of 2014.

Let's back up a minute. Can Apple really sell one million luxury watches per year? Maybe we can take a closer look at this market and make a reasonable assessment of this outrageous forecast. Rolex, the world's largest luxury watch maker, currently sells slightly less than one million units per year. Since Rolex watches are in the same price range of the new Apple luxury "Edition", I doubt that Apple will sell one million units per month. However, I have personally underestimated Apple's capabilities over the last decade, at least!

So here's the key question then.....Will Apple's entry into the luxury watch market have any impact on gold prices? The answer is definitely YES !!

How soon? The answer is NOW !!

In the interest of full disclosure, I am long both of the most popular Gold Miners ETF's (GDX and GDXJ) with 10% of my assets under management. My objective is to increase this position to as much as 20% over the very near term. 

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

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