We’ve had to wait 18 months for an opportunity as big as the one we saw late in 2015 to appear again in the Precious Metals sector. ‘Wait a minute’, I hear you say, ‘prices were generally lower back then at that low than they are now, so how can it be as big an opportunity, as leverage is reduced?’. Here are the reasons, one technical, the other fundamental. When prices rose out of the late 2015 low, which was the Head of the Head-and-Shoulders bottom shown to advantage on the 10-year chart for GDX below, they were destined to retrace to mark out the Right Shoulder of the pattern, which is what now has most investors very negative towards the sector again. This time they don’t have to – they can now rise out of this trough and proceed to break out upside from the entire pattern to embark on a mighty bullmarket. The fundamental reason is this – most investors have been taken in by the specious Central Bank talk about ‘normalizing interest rates’ and scaling back their bloated balance sheets – but they haven’t got a cat in hell’s chance of doing this – why? – because debt (and associated derivatives) has expanded to such gargantuan levels, that any attempt to bring it under control will send interest rates skyrocketing. Because of this stark reality, they are left with only one option – to inflate the debt away by monetizing it, which means inflation. Once investors grasp the inevitability of this – and that this process will soon get underway with a vengeance, gold and silver will soar. That is what the charts that we are going to look at today are telling us, and it means that we may never see the bargains in the Precious Metals sector that are now available ever again – or at least not for a very long time.
The latest COTs are telling us that gold and silver have hit bottom, or are very close to having done so, and that the time to buy the sector is now. Before proceeding to look at them we will start by looking at the latest 10-year chart for GDX, a reliable PM stocks proxy, to see where we are on the market clock, where we are in the PM stock price cycle.
This post was published at Clive Maund on Saturday, July 15, 2017.