Now's the Time to Buy Precious Metals
The precious metals complex is extremely oversold and nearing strong support. This coincides with extremely negative sentiment, which is bullish from a contrary perspective.
Let's throw in the S&P 500 (INDEXSP:.INX) for a little intermarket analysis. We have the gold stocks extremely oversold and gold and silver at major support while conventional equities are nearing major resistance. Which side seems to be a better buy right now? Moreover, note how each subsequent advance is getting weaker as well as shorter. Mainstream pundits like to laud this as a great bull market. The S&P rebounded 105% in the first two plus, but in the 22 months since, it is up only 8.8%. This is hardly a resemblance of a new secular bull market. Go look at 1942 to 1946 and 1982 to 1986 to see how secular bull markets actually begin. The S&P 500 has a cyclical bear market in between now and the start of the next secular bull.
Jason Goepfert, the brilliant creator of sentimentrader.com, notes that gold's public opinion is at its second lowest reading in a decade. Gold has declined in price since this data was updated. Perhaps it could reach the lowest in 10 years?
Meanwhile, in other sentiment news, Dan Norcini notes that hedge fund short positions in gold are at a 5-year high, and Bloomberg noted that bets on higher gold prices fell to the lowest since 2008.
I stumbled upon this chart which I believe is from Option Strategist. It shows the weighted put-call ratio for GDX. It's at a 27-month high.
Another from sentimentrader.com is data from the Rydex Precious Metals Fund. This is a fund focused on mining stocks. Assets in the fund have declined 50% in just the past four months! From Q1 2011 to Q2 2012, assets gradually declined. Recent action shows panic and capitulation. Relative to all sectors, this fund's assets are inches away from reaching a minimum of a 6-year low.
The technicals show the precious metals complex as extremely oversold and nearing strong support. This coincides with extremely negative sentiment, which is bullish from a contrary perspective. Anecdotally speaking, I am amazed at the explosion of negative press in just the past few days. I can't remember anything like it since I began following this market in 2002. Some stocks may have already bottomed while the HUI/GDX could have one nasty day left. My firm has begun to layer into a few positions and will continue to next week. If you have cash, I believe now is the time to use it on both the metals and the stocks.
Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
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