Over the last several days volatility in
the gold market has collapsed forming what is known as a coil.
I think the Fed announcement tomorrow
will probably break gold out of this holding pattern. But contrary to popular
belief, about 70% of the time the initial move out of a coil ends up being a
false move that is reversed by a more powerful and durable move in the
opposite direction.
In this case if gold breaks lower out of
the coil it is late enough in the intermediate cycle that the move is
unlikely to last more than a few days before forming what would presumably be
an intermediate cycle and B-Wave bottom.
I suspect many gold bugs are going to
get knocked out of their position if this scenario plays out. However, if this
does turn out to be a B-Wave bottom, as I think it will, the next couple of
days are going to be the single best buying opportunity for the rest of this
secular bull market.
This doesn't mean that gold will reverse
and head straight up immediately. I expect we will probably see a volatile
consolidation with several tests of the all-time highs above $1900 but no
breakout for the rest of the summer.
Traders are going to be looking for the next
trend once the stock market bottoms. I doubt that tech stocks are going to
resume the leading role that they've enjoyed since last October. More likely
liquidity will find its way into a beaten up sector.
As I always say, liquidity will
eventually flow into the most undervalued assets. There is no sector as
undervalued and as unloved as the mining stocks right now.
Sentiment in this sector has reached
levels of pessimism capable of generating triple digit returns over the next
couple of years, and I wouldn't be surprised to see a 25 - 50% gain during
the next intermediate cycle alone.
I think the next momentum move is about
to begin in the sector most overlooked and least expected by investors, the
mining stocks.
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