Why I have little concern that over this near term correction,.http://www.lemetropolecafe.com/james_joyce_table.cfm?pid=8807
Why I have little concern that over this near term correction,..
Following yesterday’s price reversal and given the extra-ordinary run up in prices across the precious metal sector in the last 2 months, there will be many now sitting with large profits on the table concerned that the top may be in and that we are due a lengthy period of consolidation/correction.
I am not in this camp.
I truly believe we are in the early stages of a massive uplift across the sector, In fact I’ve speculated further and suggested that we may be in the opening frame of the Mania Stage.
Here is my reasoning:
For almost a year I have pontificated both in correspondence to yourself and among my collegues that for the Mania Stage to begin 3 things need to happen.
1) The 30 month ascending trendline in the Gold/Silver Ratio has to break down, signaling that the out performance of gold (more defensive) since the tops of early 08 was to be superseded by it’s silver cousin.
2) Silver had to break out to new highs.
3) The Hui mining index had to make new highs.
All of which have since occurred in the last few weeks.
The primary argument from analysis that I have read over the last 2 years, from the bear camp, was that the move higher in Gold from it’s 2008 peak was not genuine because it had not been confirmed by either Silver or the Hui Index, As such the whole sector was still subject to a massive correction that might in all likelihood see prices for both the metals and the stocks below their 2008 lows!
Of course the action over the last few weeks has wiped this primary argument off the table as both Silver and the Hui have gone on to hit new highs, I’m guessing this must have left much of the Elliot Wave Theorists and Technical Chartists, who have been top picking all the way up from $14 and 400, in quite a pickle.
What I see across the spectrum is the early stages of a massive breakout, The clues are in the charts:
The first chart is the Gold/Silver Ratio.
As is plainly obvious September signaled the breakdown in the 30 month ascending trendline and should anyone have any doubt as to the relevance of this, then I request they consider how the price of silver has faired ever since, If one looks at the weekly chart (below) one can see that the break out occurred in the first week in September.
Silver has moved upwards almost in a straight line since then from less than $19 to yesterday’s high of circa $23.50!
September was a pivotable month and, to me, the monthly chart analysis to coincide with this points to mounting evidence that we are in all likelihood in the very early stages of a massive breakout across the precious metals spectrum, Whilst there were still weekly/daily/intra-day highs to be beaten, the end of September showed a massive breakout in the monthlies.
As we are all well aware gold has already been, for many months , well on it’s way, so the more relevant sectors to watch in my book have been silver and the miners (Hui), Well September proved to be a massive breakout in the silver game:
But not just in US Dollar terms but across a broad spectrum of the major currencies:
September and silver also notched up a new monthly high in Australian Dollar terms and was very close on a Swiss Franc basis as well.
There seems little doubt to me that silver is in the very early stages of a massive breakout across the whole currency spectrum, Whilst there will be bumps along the way, I fully expect the breakout levels on the monthly charts to hold going forward which limits the downside of silver in US dollar terms to circa $20 on a monthly basis.
Turning to the mining stocks (Hui) which could be argued to have been a little more sluggish on the record front compared to their underlying metals, September also turned out to be pivotal with a strong breakout move on the monthly chart from some 30 months of consolidation:
Again while there may be a test of this breakout leveI on any near term correction, I think it increasingly unlikely that we will see much action below this level (circa 480-490) on a monthly basis, as the interest from new buyers wanting in at these levels is likely to be very strong.
In conclusion the last few weeks have, to me, shown that the die is cast, Whilst I recognise of course that there will be corrections along the way, any fear of a major collapse in the price of the metals or the stocks like that experienced in 2008 has almost certainly evaporated, I’m expecting that the wider investment community is beginning to realize this too.
The primary argument of non confirmation from the bears and deflationists has, to the most part, been torn up with both the Hui index and the price of Silver hitting new highs.
I’m speculating that the strong breakout moves across the whole precious metal sector have started to ring alarm bells through a significant proportion of a previously skeptical financial community who now want in on this Super Bull and whilst always reluctant to jump at such short term overbought levels, will prove to be part of a much larger basket of new purchasing power that will buy up any near term price weakness aggressively. Competition is likely to be intense as the shorts, I’m guessing, will be increasingly keen to close out much of their position at the same time and of course there will still be members of the already enthusiastic gold community who know the story only too well but who have still to position themselves fully for the magnanimous upside ahead.
One final important thing to consider, is that if I’m right and that now the buy signal has been given to the wider financial community, then trying to out trade this market or hope for stink bid fills may prove expensive in the long run, The Bull always rises with as few players on his back as possible, I therefore expect any correction to end faster and shallower than the majority expect, leaving only a minority with a position on our snorting friend’s back, as he strides ever upwards.
My thoughts for what they are worth.
Rich (live from ‘The Scarborough Bullion desk’)