Two Encouraging Mining Stock Charts

By: Przemyslaw Radomski, CFA | Fri, Jan 25, 2013
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Based on the January 25th, 2013 Premium Update. Visit our archives for more gold & silver articles.


 

In our updates we regularly reply to questions regarding gold and silver investments that we receive from our subscribers. The question that we received this week along with our reply provides a good introduction to more detailed analysis of the precious metals mining stock charts.

Q: Back in early November of last year, with gold at 1685 and the Dow at 13,100, GDX was at 50. Compared to today, GDX has to gain $5 just to return to that status, where miners were already beaten down.

With long-term investments, I am now just about where I was in late 2009. If gold returns to the lower 1600's, miners could take years to recover, assuming the bull market is not over. Worse, stocks are pushing historic highs. A correction now, and any decline in gold will decimate miners. And that could come any day. Please comment.

A: Generally, if you look at miners' performance in another timeframe, they don't look that bad, they look average. A lot happened in 2009, especially in terms of mining stocks and depending on which month you take into account, your portfolio might be up, down or unchanged from 2009 given that you focused on mining stocks.

In general, we're with you regarding how it feels. We think that there are very few people who are happy with their performance - maybe JP Morgan and others shorting the metals. We'll see. The corrections are supposed to make people discouraged. If they have managed to do that, they might just be over. About 30 years ago gold had to correct much more than it has so far before it really rallied. Perhaps this time the time factor was enough to cool everything down. And the fact that we haven't seen a decline similar to the pre-79-80 spike is because the fundamentals (especially the money supply) are much better this time. This would imply that the real high of 1980 will very likely be exceeded. Generally, the more we think about how big the correction is (combined with positive fundamental situation), the more confident we become that the precious metals market is the place to be.

There are over 20 detailed charts in the Update on which this article is based on and in this essay we would like to feature 2 of them - as the title of this essay suggested, they are indeed encouraging (charts courtesy of http://stockcharts.com.)

GDX:GLD MArket Vectors Gold Miners/SPDR Gold Trust Shares NYSE/NYSE

The first one features the miners to gold ratio chart. On this chart we see that the ratio hit the support line after declining significantly (actually, it moved to the lower, declining support line on Friday). The RSI level was close to 30 on Thursday and moved decisively below this level on Friday - thus flashing a buy signal.

The mining stocks have been underperforming recently on a daily and weekly basis but for the past half year or so not so badly. They performed strongly last fall and all-in-all, the situation is not as bad as at first sight. It's not good, but it's not extremely bad either.

BDX:SPY Market Vectors Gold Miners/S&P 500 SPDRs NYSE/NYSE

The above chart features the miners to other stocks ratio. The volume seen is not the volume of the ratio - there is no such thing - but it's ratio of volumes (GDX ETF : SPY ETF). Here, the RSI level also flashed a buy signal based on Thursday's decline. In other words, miners underperformed other equities so badly that the situation has become extreme.

We saw a significant decline in the ratio and a high ratio of volumes between the miners and other stocks. It's possible that a local bottom has been reached on Friday.

Summing up, the situation in the gold and silver stocks sector is truly not as bad as it appears at first glance especially when combined with the bullish outlook for stocks and the bearish situation in the USD Index.

Use the following link to sign up for a free, no-obligation trial of our Premium Service and read the complete version of this study that is over 10 times bigger. You'll also receive Market Alerts when things "get hot" on the precious metals market and when the trial expires, you'll start receiving our free newsletter. Additionally, you will also receive 12 gold best practice emails.

Thank you for reading. Have a great and profitable week!

 


 

Przemyslaw Radomski, CFA

Author: Przemyslaw Radomski, CFA

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/