In our missive last week we noted that:
While good things are happening under the surface for Gold, its lack
of a strong rebound in recent months argues that such a rebound is in the
future but not imminent. Gold's steady downtrend could resume in the next
week or two.
As we know, the precious metals complex enjoyed another very strong week.
Gains in the metals were somewhat muted in comparison to the gains in the miners.
GDX and GDXJ surged nearly 16% and 11% respectively. Last week we said nothing
has changed. This week figures to be the week something did change and definitely
so for the miners.
The strong gains in the miners since their January 19 low (31% in GDX and
23% in GDXJ) typify what could be the start of a new bull market. The current
rebound can be compared to the rebounds from the major bottoms in late 2000
and late 2008. We use the HUI gold bugs index for comparison as the ETFs do
not go back far enough. The HUI has gained roughly 40% since the January 19
low. That fits well with the analog chart below which puts the three rebounds
on the same scale. If the gold stocks are in a new bull market then they should
continue to make new highs over the next few months.
Next, rather than chart one of the mainstream indices, we will take a look
at our Top 15 index which includes most of our favorite companies. Tuesday
the index pulled back from a confluence of major resistance to close at 123.
Instead of starting the next leg lower the index exploded through that resistance.
Friday's activity is not updated but as you can see, the Top 15 index is on
the cusp of a major breakout.
Turning to Gold, I see less evidence that Gold has established a major bottom.
To be blunt, Gold needs a monthly close above $1180/oz, which has been a major
pivot point since late 2009. First things first, Gold needs to close this month
above $1150-$1160/oz. The bear scenario would have Gold making a bearish reversal
sometime this month and closing below initial resistance at $1140/oz. The bull
scenario would likely have Gold closing above $1160 and testing $1180 fairly
soon.
We should also note that while the US Dollar index failed to breakout, it
remains well above major long-term support at 92 and 94 with sentiment indicators
at constructive levels for bulls. As the US Dollar continues to consolidate,
we want to see Gold hold recent gains and push towards $1180-$1200/oz. It would
be a bad sign if Gold fizzles below $1160/oz with the US Dollar in correction
mode.
This past week was likely a major turning point for the gold miners and perhaps
Gold itself. The strength of recent gains (in the miners) coming off a false
breakdown to new bear market lows suggests that the bear market ended on January
19. We should also note that four of the five largest miners (in GDX) are trading
above their 400-day moving averages and at multi month highs. Meanwhile, as
shown by our Top 15 index, the strongest companies in the sector are on the
cusp of a major breakout. While we have some concerns on the metals we should
note that the miners lead at major turning points. The miners are telling us
something has changed.
