Major Long-Term Bottoms Forming in Gold and Commodities
It's possible that we are at or very close to what is likely to be a once or twice a decade opportunity in the metals sector.
The implications are that once the CRB has completed this major cycle bottom we should see generally higher prices over the next year and a half to two years, presumably topping during a major currency crisis as the US dollar drops into its next three-year cycle low in the fall of 2014.
I think the 30-point rally in gold yesterday is signaling that gold has put in its yearly cycle bottom. Since gold did not break below the December low of $1,523, I think we can assume that this is a B-wave bottom and should be followed by the consolidation phase of a new C-wave that should break out to new highs either later in the fall or next spring. The next two years should generate an even more impressive advance than the 2009-2011, rally possibly even generating the bubble phase of the bull market in late 2014 or early 2015 as the dollar crisis reaches a crescendo.
As gold usually leads the stock market by a few days, we should see the stock market put in its yearly cycle low sometime in the next several days. However the outlook for stocks is not as bright as the commodity sector. While I do think continued currency debasement will probably drive the stock market to at least marginal new highs I also think an increasing inflationary environment is going to compress profit margins and constrict consumer spending. After a long topping process the stock market and economy will probably roll over and follow the dollar down into that 2014 bottom.
While I'm not ruling out one more quick dip below $1523 to wash out stops below that technical level, I think gold is in the initial stages of the next leg of the secular bull market. This last C-wave from 2009 - 2011 generated the C-wave of silver with a 400%+ gain at the parabola top in May of last year.
This next C-wave will be the C-wave of the mining stocks. During the irrational selling over the last eight months mining stocks have reached levels of undervaluation that have only been seen one other time in history (2008). That drove a 300% rally over the next two years.
I suspect we will see something similar or even larger as the market gets busy correcting this irrational undervaluation.
I think we are at or very close to what is likely to be a once or twice a decade opportunity in the metals sector, especially the mining stocks.
Editor's Note: Toby Connor is the author of Gold Scents, a financial blog with a special emphasis on the gold secular bull market.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter