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Is Santa Coming Early for Gold & Gold Mining Stocks?

ilene's picture




 

Is Santa Coming Early for Gold & Gold Mining Stocks?

Courtesy of Chris Vermeulen 

If you own physical gold, gold mining stocks or plan on buying anything related to precious metals before year end, you might like my analysis and outlook.

Since gold topped abruptly a year ago (Sept 2011) with a massive wave of selling which sent the price of gold from $1920 down to $1535, technical analysts suspected that type of damage which had be done to the chart pattern could take a year or more to stabilize before gold would be able to continue higher.

Fast forwarding twelve months to today (Oct 2012). Gold looks to have stabilized and is building a basing pattern (launch pad) for another major rally. The charts illustrated below show my big picture analysis, thoughts and investment idea.

Weekly Spot Gold Chart:

The weekly chart can be a powerful tool for understanding the overall trend. This chart clearly shows the last major correction and basing pattern in gold back in 2008 – 2009. Right now gold looks to be forming a very similar pattern.

Keep in mind this is a weekly chart and if you compare the 2009 basing pattern to where we are today I still feel it could take 3 – 6 months before gold truly breaks out to the upside and kicks into high gear. The point of this chart is to provide a rough guide for what to expect in the coming weeks and months.

 

Gold Stock Investing

 

Weekly Chart of Junior Gold Miner Stocks:

If you follow gold closely then you likely already know junior gold mining stocks can lead the price of gold up to two weeks. Meaning gold mining stocks which you can track by looking at GDX and GDXJ exchange traded funds will form strong bullish chart patterns and generally start moving up in price before physical gold.

The chart below shows the junior gold miner ETF with a VERY BULLISH chart and volume pattern. Remember that gold stocks are a leveraged play on gold in most cases. For example, if gold moves up 1% we typically see GDX and GDXJ move 2-4%. Because they act as a leveraged play on physical gold smart money and big institutions start accumulating these investments in anticipation of gold rising.

GDXJ has formed a tight bull flag and the volume levels confirm there is big money moving into these investments. The first price target on GDXJ using technical analysis for a measured move points to the $32 area. Looking forward twelve months with gold trading above $2000 we could see this fund more than double in value.

While most traders focus on GDX gold miner fund, I prefer the GDXJ fund because its almost identical in price performance BUT it pays you a 5% dividend…

 

Junior Gold Mining Stocks

 

Gold’s Seasonality:

It’s that time of year again where gold tends to move higher. Below you can see where we are and what the price of gold typically does in November.

 

Gold Seasonality Trading

 

Gold Investing & Trading Conclusion:

Looking forward one month (November) and factoring in the recent pullback in gold to known support levels along with strong buying of junior gold mining stocks, I feel gold will take another run at the $1800 level and for GDXJ to test its previous high of $25.50 at minimum. If both those levels get taken out then a massive bull market for precious metals could be triggered. 

 

Get my Daily Trading Analysis & Trade Setups at: www.TheGoldAndOilGuy.com.

Chris Vermeulen

 

Disclaimer:
This material should not be considered investment advice. Technical Traders Ltd. and its staff are not a registered investment advisors. Under no circumstances should any content from this website, articles, videos, seminars or emails from Technical Traders Ltd. or its affiliates be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. Our advice is not tailored to the needs of any subscriber so go talk with your investment advisor before making trading decisions This information is for educational purposes only.

 

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Fri, 11/02/2012 - 12:47 | 2941605 noses
noses's picture

If Gold at 1680 was Santa's doing, somebody should find him *fast* and tear his balls off to thank the bastard.

Thu, 11/01/2012 - 09:19 | 2937229 orangegeek
orangegeek's picture

Gold Bugs Index (gold stocks) have been taking off.

 

Gold?  Well it's up five bucks this morning.

 

When you overlay the two - Gold Bugs and Spot Gold - things are converging.  Higher Gold priced in US Dollars?  I guess that means the US Dollar will be falling - which means the Euro, Yen and Pound are rising.  Not so sure about that.

 

http://bullandbearmash.com/index/gold/

 

Lots of "gotta get in" articles about gold's upside this morning.

Thu, 11/01/2012 - 09:17 | 2937219 MrBoompi
MrBoompi's picture

Although gold and silver are good investments, reading the discalimer is always a good idea.  A 3rd grader can draw an arrow on a chart and be as accurate as these folks.

Thu, 11/01/2012 - 08:50 | 2937145 rsnoble
rsnoble's picture

It is a basing pattern. Look at GSS, it's in a bull flag that started in the beginning of Sept.

We'll see if this plays out. I'd be cautious for now I think it will tank with the rest of the market and I am not sure what will happen with the election bs.

Thu, 11/01/2012 - 08:30 | 2937095 apberusdisvet
apberusdisvet's picture

Rising labor water and diesel costs have already shelved marginal gold projects on a global basis.  The true breakeven for gold miners (including a reasonable return on capital) is already $1500/oz.  Critical costs, especially labor, are expected to rise at least 10% per year going forward.  Leaving aside all other macro financial issues, including war, hard not to see gold over $2000/oz within the next few years.

Thu, 11/01/2012 - 01:31 | 2936802 JOYFUL
JOYFUL's picture

Rather than coming early, or indeed at all, it's more than likely that his whole show will be cancelled due to some typically convincing circumstances dreamed up by the usual suspects[power down due to 'transformer explosion' at Elf Factory ...huge CAT 4 tropical storm at North Pole, etc. etc]and instead of Santa, the extremely bad man with the mixed parentage and the troubling birth certificate will be sending DHS\FEMA goons down chiminies all over Merika in search of the remaining pockets of domestic terrorist cells* which still obstruct the dawning new age of progressive satanism.

The good news is that regardless of Santa's status, gold and silver are indeed ready for Rudolph, and in short order are going to be picked up by he and his crew of four-legged friends for a one way trip to da Moon!**

*aka those who put out milk n cookies for the red suited  Machivallean Manipulators' attempt to seduce today's youth away from their DOJ-approved luciferian pastimes...a crime which clearly comes under the punishable offense of providing material aid and assistance to foreign terrorists.

**no 'technical analysis' was used in production of this claim...only the forensically fortuitous feature of a nose for knowin which way the wind be blowin!

Wed, 10/31/2012 - 23:01 | 2936580 devo
devo's picture

GDXJ doesn't pay a 5% dividend. 

Thu, 11/01/2012 - 01:01 | 2936773 Zero Hero
Zero Hero's picture

Yes, GDXJ pays 5% dividend: Current share price is $24.14 and for the last annual dividend (23 Dec 2011) it paid $1.21. The year before (23 Dec 2010) it paid more than double that: $2.93.

Thu, 11/01/2012 - 01:10 | 2936783 devo
devo's picture

Weird, I do not see that on google finance. I see the $2.93 payment in 2010, but it says they paid 3 cents, or .1%, in Dec 2011. I guess Google's data is incorrect.

Thu, 11/01/2012 - 00:34 | 2936726 HardlyZero
HardlyZero's picture

Check out the streaming companies.  Silver Wheaton, Franco-Nevada, Royal Gold are place to start...and I think the major miners pay dividends...check them out (Barrick, etc.)

Haven't the miners and HUI come up since August anyway ?   They were going up a few weeks ago.

Thu, 11/01/2012 - 00:52 | 2936763 devo
devo's picture

I know, but the author says the fund yields 5%, and I don't see that listed anywhere.

Wed, 10/31/2012 - 22:53 | 2936561 ebworthen
ebworthen's picture

Let's hope so; the miners have been hammered and undervalued since November/December of 2010.

Wed, 10/31/2012 - 22:59 | 2936575 markettime
markettime's picture

Shhhhhh you don't want Bernanke and JP Morgan to hear us having hope that gold will go higher. We need to be pessimistic, Long live the dollar! ;) 

Thu, 11/01/2012 - 08:24 | 2937078 northerngirl
northerngirl's picture

LOL!  Great post.

Wed, 10/31/2012 - 22:42 | 2936535 FreedomGuy
FreedomGuy's picture

The problem for gold is that while governments everywhere are trying to build inflationary pressure to discount debt, they also have uncanny powers to wreck economies which is deflationary. Gold moves along the fault line between the two.

I personally believe that physical gold is an excellent bet either ways as governments will wreck economies whether through deflation or inflation. Gold hedges both.

However, buying gold stocks or similar paper instruments as an investment is much more tricky.

Thu, 11/01/2012 - 00:59 | 2936764 Marco
Marco's picture

I don't believe the US will have a deflationary period so don't take this as a knock against speculating on gold (because I think the increasing unwillingness of foreigners to buy US bonds will create inflationary pressure offsetting deflationary pressure).

How is gold a hedge against deflation though? Sure, it did fine in the great depression ... but that was because of convertibility (and after that because of the massive inflation caused by governments devaluing their currencies, but that's irrelevant). It obviously didn't do so hot in the 90s in Japan.

Thu, 11/01/2012 - 18:09 | 2939081 FreedomGuy
FreedomGuy's picture

Gold as a hedge against inflation is actually a hedge against currency manipulation, particularly inflationary. China may manipulate their currency fixing it a 6.3rmb to the dollar but they will never trade you two ounces of gold for one. It is not necessarily a hedge against rising prices that are due to supply and demand factors. It is a broader stroke to look at is as a safe reservoir in deflation. It will not necessarily be a great investment vehicle but gold will maintain value even in deflation. Given time ALL paper currencies inflate.  It is also tradeable internationally at better rates.   Stocks may tank very badly and some go to zero. High quality bonds may appreciate but as we see now it depends on who is issuing them. Greece gets lousy rates and if the USA stays in perpetual overspending it may suffer the same fate. In both extremes all countries and banks will screw with their currencies and various economic stimuli. They may even issue new currencies. There is white knuckle nerve racking pressure when you are investing in politically controlled centrally planned economies. Gold stays much calmer either way.  I am painting gold as a hedge against government itself, deflation or inflation. For example, if we found a Civil War shipwreck with gold and confederate currrency and U.S. currency what would still hold value today (not counting collector value, haha)? If government goes up in a puff of smoke like Arab Spring, which would you want, paper or gold to trade? If I dropped you in any country in the world, even where you had no idea where you were or what the language was, if you could pull out a one ounce gold coin...you could trade and survive. That is what I see as the absolute incomparable simple majestic beauty of gold. It transcends all language and national barriers. In terms of my post I am advocating it's stability in the face of all crisis.

 

Thu, 11/01/2012 - 01:45 | 2936814 jimmyjames
jimmyjames's picture

How is gold a hedge against deflation though? Sure, it did fine in the great depression ... but that was because of convertibility (and after that because of the massive inflation caused by governments devaluing their currencies, but that's irrelevant). It obviously didn't do so hot in the 90s in Japan.

********

It wasn't because of convertibility that gold did well in deflation-money does well in deflation and gold is money-gold was dollar locked during the 30's so movement was impossible-but-measured against CPI-gold rocked and so did the gold miners because common sense said owning a company that digs money out of the ground is "like owning a central bank minus all the idiots"

http://bit.ly/uHcvnt

http://bit.ly/uiylsn

Japan was in deflation while the rest of the world was in inflation so Japans economy was doing well during those 20 years and so the risk of default was subdued-

Gold has been rising on credit/default risk-not so much currency risk--just yet-

Thu, 11/01/2012 - 11:00 | 2937508 Marco
Marco's picture

Sure it's a hedge against default, but that's not quite the same thing ... there was no default risk in the 30s, America was in trade balance.

Thu, 11/01/2012 - 11:17 | 2937567 jimmyjames
jimmyjames's picture

there was no default risk in the 30s, America was in trade balance.

************

Beg your pardon,banks were insolvent from too much credit leverage-same as today-

The reason Roosevelt made gold illegal and confiscated it was because of the danger of a run on banks-

Wed, 10/31/2012 - 20:51 | 2936229 lunaticfringe
lunaticfringe's picture

There's always a bull market somewhere... eh Cramy?

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