A gold blowout is brewing. Where it blows is the talk racing around the Internet this week.
In the 20-odd years I have followed commodities as a writer and investor, I have never heard this much ballyhoo from the gold bulls. Thus, we turn to a chartist whose emotional fervor is the temperature of a frosted tankard of lager.
“Nothing magic here ... just a cold-eyed look at the nature of trends,” gold and stocks analyst Ian McAvity says.
The question put to the veteran technician: Are gold/majors/juniors setting up for a robust advance? This is what gold fans are saying this week as they stir and serve up their blog posts and commentary.
Mr. McAvity’s Canadian eyes scan trends over three days, weeks, months, years, decades. I’ve been following him since year 2000 or so. HisDeliberations On World Markets is almost pure technical analysis.
“I've long described the GDXJ ETF (NYSE: GDXJ, Stock Forum) as an index of the juniors the larger GDX Index (NYSE: GDX, Stock Forum) members will be taking over to replace the reserves they mine out over the next few years,” he says.
Ian’s take on the three-month chart here (through midweek) puts the globally traded junior miners at the top in terms of stock performance, followed by silver, then the senior producers and finally gold as measured by the GLD exchange-traded fund (NYSE: GLD, Stock Forum).
“While the majors have only marginally broken out, GDXJ broke out with some conviction,” he says. GDXJ, formally called Market Vectors Junior Gold Miners, listed in New York just 11 months ago. Ian McAvity assembled the prior history from the index’s members, which include New Gold (AMEX: NGD, Stock Forum), Allied Nevada Gold (AMEX: ANV, Stock Forum) and Coeur D’Alene Mines (NYSE:CDE, Stock Forum), and suspects what he calls “a success bias.”
Still, over three months, our chart above shows GDXJ was up about 35 percent, the commodity silver as measured by the SLV ETF (NYSE: SLV, Stock Forum) was up about 28 percent, 18 percent higher for GDX and 12 percent higher for the commodity gold via the Spdr Gold Trust GLD.
As for pet peeves with all of the noise about a possible surge in gold stocks and gold’s price itself, Mr. McAvity says, “I can't believe how quickly so many people who missed the whole thing are calling a top on some intraday volatility (today). Market Vane Bulls on Gold only got to 82 percent on Tuesday. There's no question that recent firming of silver and the miners, both big & small, does suggest this particular run is starting to mature, but I don't think it's anywhere near done yet.”
Mr. McAvity says he reiterated upside targets for gold of $1,450/$1,580 per ounce. Take a look at the second chart, 1997-present. “This in my view is still the fourth breakout leg up that dates from the post crash breakout above the pre-crash top,” he says.
Specifically, at (this past week’s) high of $1,366 an ounce for December’s Comex contract, this fourth leg has gained 51 percent in 65 weeks. That is less a percentage gain than either the B or C time frames in the second chart here, “but taking longer to do it,” Ian McAvity says. The first breakout run (above the $300/328 area) ran for 87 weeks to log a 45 percent gain.
Our take: My critics say there is not one gold/silver/copper junior that I dislike. I would put it that I just prefer not to discuss the several hundred prospects out there I already have dismissed. Right now, we’re telling our Ticker Trax service’s subscribers that very little in this frenzied commodities market appears “cheap.” The time for buying most mining stocks is mostly done for now.
There is a chance we might see this wintergold shortages, copper shortages, silver, steel, iron ore, molybdenum shortages and so on. These would occur at mills and plants, in open pits and underground, in production and via shipping lanes. Such shortages also would occur on paper and root from governmental legislation, labor strife, power outages, influenza, weather and … (please pick one).
Demand is of course a variable as well. If any of that “squeeze” happens, and that is a big IF, I expect we’ll see a blowout – a further rally – in mining and prospecting stocks. Oh, and were that to happen, everyone in the room should be selling.
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THOM CALANDRA of Ticker Trax helps his audience find value in a quagmire of investment choices. Thom was founding editor of CBS MarketWatch. He was the voice of Thom Calandra's StockWatch and The Calandra Report. Thom has been covering life-sciences and natural resources since 1988.
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