Gold & Silver Mining Stocks: Powerful Daily Chart Double Buy Signals Today!

It's time!

If my computer trading system is credible, then today's price action in the precious metals mining stocks is exceptional and noteworthy. Daily chart double buy signals were triggered in the following gold and silver stocks: ABX, AEM, AU, GDXJ, GG, and PAAS. The daily chart double buy signal is one of the most powerful signals in my system.

For those who are reading my column for the first time, I've never been a "trend is your friend" trader or investor. In fact, most of my research is dedicated to the finding tradable tops and bottoms in the financial markets. The search engine within my computer trading system attempts to identify potential major turning points in stocks, bonds, indexes, and popular ETF's. I designed this search engine using 35 years of actual trading experience and dedicated research as my guide.

In the interest of full disclosure, my allocation to precious metals (PM) mining stocks is substantial right now in all my managed accounts. I was short the Russell 2000 Index against my mining shares, but I covered my entire short Russell position yesterday morning. Based upon everything I know about gold, the Dollar, U.S. stocks, and global financial markets, being unhedged long in the most hated asset class in the world right now (gold) is the right move. And my computer trading system is now screaming "BUY" the PM mining shares in the loudest of terms!

In my last column written a few days ago, I mentioned that one of the potential catalysts for a potential rebound in gold/silver prices might be a successful central bank effort to support China's stock market after its recent severe shakeout. The PBOC appears to be pulling out all stops in this effort now, and yesterday's rebound in Chinese stock prices looks promising. Of course, all that newly printed Yuan won't just go to buy stocks! Gold will be a big winner as well !!

According to the U.S. Mint (www.usmint.gov), July sales of gold and silver coins to collectors are approaching a record for a single month. For gold, 164,500 ounces of gold eagles have been sold. While the record at 209,500 ounces sold in April 2013 will probably not be broken, July 2015 sales with be the second largest ever. For silver, 5.33 million ounces of silver eagles have been sold so far in July. The total for the month is likely to place July in the top 5 months of all time.

As mentioned in previous columns over the last week, I now strongly believe that the selling climax in gold, silver, and related precious metals mining stocks has run its course and that a major bull market in this sector has just begun. The gold/silver long trade, especially in the miners, has all the potential to be the single best trade from here through the rest of the year!

Barrick Gold (ABX) Monthly Chart with Computer-generated Buy & Sell Signals

Gold/Silver Mining Stocks: Greatest Buying Opportunity Since October 2008

On Friday morning, July 24th, a massive selling climax unfolded in the precious metals mining shares. Most popular names were down between 5% and 10% intra-day before finding support. This incredible sector-wide liquidation followed a month of relentless selling that clipped 40% or more from each individual gold/silver mining stock.The underlying gold and silver prices fell 10% and 12% respectively over the same 30-day period. 

The financial press is having a field day with daily reports of the carnage in precious metals and commodity prices in general. All the usual Wall Street suspects (I mean analysts and economists) with bearish views on gold have been quoted extensively over the last few days, with most now calling for a complete collapse below the "key" $1,000/oz level. The bearish narrative for gold includes talk of a stronger dollar, potentially higher U.S. interest rates, weakness in China's economy, less than forecast PBOC gold purchases, apparent stabilization in the Greek debt crisis, ongoing deflationary threats globally, and negative investor sentiment towards gold generally after 5 years of falling prices. This narrative is compelling and makes for interesting press, but it's worthless now from an investor's point of view. The perfect storm that conspired against precious metals prices recently has now run its course and a major turning point is upon us.

In fact, I now believe that Friday's selling climax in the precious metals mining stocks represented the greatest single buying opportunity in this hated group since October 2008! Daily chart buy signals were triggered by my computer trading system at Friday's close in the following gold and silver mining shares and related ETFs: ABX, AEM, AG, AU, EXK, GDX, GDXJ, GG, GLD, MVG, PAAS, SIL, SILJ, SLV, SLW, SSRI, and XAU. Several of these stocks rebounded between 10% and 15% from their intra-day climax lows on Friday to close sharply higher on the day. 

Of course, for me to be right about such a "golden" buying opportunity, the narrative on precious metals prices will have to change. Here are just a few changes in the financial landscape that I see immediately ahead that will support gold and silver prices:

1. The U.S. Dollar will begin a steady retreat following the realization the the Federal Reserve won't raise interest rates by more than 1/4-point over the next 12 to 18 months (and maybe not at all). 

2. The Greek debt crisis is far from over, and all the PIGS (Portugal, Italy, Greece, and Spain) will soon be a major part of the inevitable collapse of the Euro$ as the common currency for Europe. The European Union is actually in jeopardy now of completely disintegrating over the next 18 to 24 months.

3. China's central bank (PBOC) is aggressively supporting China's economy, its stock market, and its fragile financial system right now. And just like the Federal Reserve in early 2009, the PBOC will succeed, but not before it prints a massive amount of Yuan to end deflationary forces and reflate its economy.

4. As of last week, hedge funds are now short gold futures contracts, on balance, for the first time since records began being kept on this trading group in 2006. Some may view this fact as negative for gold prices ahead, but I see this development as a monumental contrary indicator (and extremely bullish for gold ahead).

5. The U.S. Mint reported last week that sales of gold coins have totaled 143,000 ounces so far in July, the most since April 2013. Physical demand for gold and silver is off-the-charts right now despite a 5-year low in actual prices. I see this extraordinary demand for the physical gold and silver as "strong hands" not likely to be liquidated anytime soon.

In the interest of full disclosure, I am long a basket of gold and silver mining shares against an equal dollar amount of short sales in the Russell 2000 Index.

P.S. A weekly chart sell signal was triggered by my computer trading system in the S&P 500 Index at Friday's close, July 24th (see attached chart). The last weekly chart sell signal by my computer system was in the week ended April 6th, 2012. Over the next 10 weeks the S&P 500 Index declined 11% (top to bottom). A buy signal was then triggered by my computer system during the week ended June 8th, 2012. There have been no signals since then until this past Friday's sell signal.

S&P 500 Index Weekly Chart with Computer-generated Buy & Sell Signals

Special Update: Selling Climax In Gold Now Complete!

Earlier this evening, at around 8:30 PM central time on July 23rd, gold futures suffered another sudden break similar to the one sustained last Sunday night around the same time. The front month futures contract plunged to a low at $1,072.30 oz before finding support. Last Sunday's crash low was $1,080.00/oz, so we now have a new contract low with this latest selling frenzy.

Chna's manufacturing PMI plummeted to a new 15-month low as just reported  at the start of Asian trading this evening (Chicago time). The financial press continues to blame the general collapse of commodity prices recently, including Gold, on the apparent implosion in China's economy (and its stock market). There may be some truth in this narrative, but most of this information has already been discounted in current prices. In fact. it is my strong belief that commodity prices are generally deeply oversold on a technical basis, and that a strong rebound in most commodity prices is imminent. With respect to Gold, I think this latest smash to $1,072.30 marks the end of a vicious selling climax that will soon be followed by an equally ferocious rally and related short-squeeze.

Precious metals mining shares have been pounded relentlessly over the last 7 trading days, with some stocks down 35% or more to lows not seen since 2008. The price of Silver seems to be showing some relative strength when compared to Gold these last few days, but the expected rebound in precious metals (PM) stocks will probably be across-the-board over the next few days, weeks, and months. And going long PM mining shares right here may very well represent the trade of the year!

In the interest of full disclosure, in all my managed accounts I am long Gold & Silver stocks and short an equal dollar amount of the Russell 2000 Index ETF.

Is It Time To Buy Pet Rocks?

Among the most famous examples of a contrary indicator in the financial media is the 1979 cover of Business Week entitled "The Death of Equities". Just after this article, US Stock prices would chop around for another couple of years before entering a massive bull market that began in mid-August 1982 and continues to this day. The Nasdaq Composite Index posted a record high this past Friday, July 17th. 

While Jason Zweig's Wall Street Journal article entitled "Let's Be Honest About Gold: It's A Pet Rock" may not be in the same class as the 1979 Business Week article when it comes to potential contrary indicators, I think it's close! Here is the opening paragraph from Mr. Zweig's article:

"Gold is supposed to be a haven amid hard times and soft money. So why, even as Greece has defaulted, the euro has sunk against the dollar, and the Chinese stock market has stumbled, has gold been sitting there like a pet rock? Trading this week below $1,150 an ounce, the yellow metal has fallen more than 39% since it peaked at nearly $1,900 in August 2011." 

Yes, the price of gold has fallen 39% over the last 5 years, but without admitting gold might be a worthwhile addition to any one's investment portfolio, Mr. Zweig just happened to also mention that gold advanced 18.7% annually between the year 2002 and 2011. The price of gold actually bottomed out near $250/ounce in January of 2001, then rallied for 9 1/2 straight years to near $1,900/oz in August 2011. This is actually a 21.3% annualized rate of return, which translates to a 660% actual rate or return for the decade!

The 35% increase in the value of the U.S. Dollar relative to a basket of the world's major currencies since early 2011 might just have a little to do with the correction in the price of gold during this latest 5-year period. Will the U.S. Dollar continue its meteoric rise over the days, months, quarters, and years to come? In almost every speech these days, Federal Reserve Chairman Janet Yellen threatens to raise interest rates. Maybe she will, but maybe she won't. Market participants seem to think that higher U.S. interest rates will be bullish for the Dollar and bearish for gold prices. Maybe so, but maybe not!

While no one can be sure how the U.S. Dollar or gold prices will behave if the Federal Reserve raises interest rates, I think we can safely conclude with relative certainty that the world's central banks will print at least $1.3 trillion worth of paper money this year (and probably more next year) in its efforts to support financial asset prices and supposedly fight perceived deflationary forces on a global basis.

While I think Greece is a "pimple on an elephant's ass" in terms of its impact on the financial markets, China is the actual elephant! And the PBOC's money printing machines are running 24/7 at maximum right now in a desperate battle to support its own financial markets against complete collapse. And unlike most global central bankers right now, PBOC central bankers actually LIKE gold. And I feel confident in forecasting that they are NOT done buying gold (under the radar, of course) at current depressed prices!

I've included three charts below for your review, but first a few tidbits which may be of interest here:

1. The major Gold ETF (symbol GLD) bottomed out in October 2008 at 66.00 (i.e.about $660/oz in gold price terms). It then rallied to a high at 185.85 in September 2011 (about $1,858/oz in golf price terms). This past Friday's close was 108.65, which is still 65% higher than the October 2008 low.

2. The benchmark Philadelphia Gold/Silver Stock Index (symbol XAU) bottomed out in October 2008 at 63.52. It then rallied to a high of $232.72 in December 2010. It then fell steadily over the next 5 years to a closing reaction low of 54.20 this past Friday, July 17th. 

Does anyone think its odd that the XAU is down 15% from its 2008 low while gold prices are actually UP 65% from that same October 2008 low?

With energy prices down almost 50% over the last year, it's not hard to conclude that this major variable in the cost of production for mining companies might actually represent a significant NET PLUS to the earnings bottom line for this out-of-favor group.

At the time of this posting (Sunday evening, 10:00 PM CT), gold prices are down about $30/oz in overseas trade to near $1,100/oz. With this kind of price action, it's not hard to predict that precious metals mining shares will be lower to begin the day tomorrow, but I believe that real bargains are close at hand here!

It's time to buy Pet Rocks !!

 

U.S. Dollar Index (DXY) Monthly Chart with Computer-generated Buy & Sell Signals

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

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