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Friday, July 27, 2012

Try number 2, Time to start buying gold miners

Back on September 1st, I posted know when to hold em, when to walk away.  It was a hard post to make, I have been soo bullish on the gold miners, its hard to make the call to get out.  I haven't been looking for a re-entry until recently.  The post Moving into Natural Resources on June 30th, was too early. I made that statement partly because Gary of SMT was bullish.  I am not blaming Gary, just when your getting close to a bottom your looking for others to confirm your own disposition. And bottoms are very hard to spot, it is pretty depressing to watch a ETF degrade for a year, trying to figure out when it will stop!

Below is a long term trend for GDX, Gold miner ETF.  You can clearly see that we may have formed a bottom after 1 year of losses.   buying here with a stop loss of 39 should keep risk low, with high potential profit.  A bounce up 48 bucks, hit only a few weeks ago, is definitely possible.  Getting in early helps psychologically later to add more if GDX breaks above 49.

The second chart shows GDX in the last few months how fast it has depreciated.  Also shows the recent down trend has been broken, while the longer down trend in the first chart has not.

So once again, I am mildly bullish and addition positions.  I'll be giddy when GDX closes ABOVE the longer term trend line in the first chart, with a pop to 49 seems very likely.  The next question will be can GDX close above 49.

Other plays are GDXJ (Junior miners), GLD (gold), and SLV (Silver).  Other resources are Oil companies (OIH), and food (DBA, RJA).  However precious metals does tend to operate on its own drum beat at times.  It is possible, although not highly likely, that gold miners rally in face of other resources falling.  I posted on 27th Commodity markets - is the bull back,  why overall I like commodities

The macro picture is still pretty grim as I posted in Economics Degrading, whats up with Oil?
This is another facter that dampens my excitement for gold miners.  But bottoms are formed when everything looks bad, not when everything looks perfect.  So that grim post, on July 22nd, aligns very well with GDX bottom on the second chart.  A good indicator that a bottom is there. (Economy looks grim, miners bottom).

So there ya have it, its up to you to see how giddy you get.  Stop loss of 39 should give enough room to not get accidentally pushed out for a "1 hour" dive of the ETF below 40.  Such games have been known to happen in the markets.

The question I have is if the USD resumes a rally above 84, can the miners hold their value or can they rise with it?  Also, can the USD rise for more than 1 year without a falling lower?  For the USD has been on an impressive March.

Back on July 22nd, 2011, I posted US Dollar headed for disaster.  The issues I called then still exist today.  The only thing that changed is the other countries are being beat up for their own issues.  Kinda like best house on a bad block.  I also quoted many times that USD crisis (not same as currency collapse) I expect in 2013-2017 range.  USD being THE global currency makes it impossible for anyone to guess if or when a crisis occurs.  That post was timed near the bottom for the USD for an entire year ahead, calling for USD to rise, not fall right then, right now or be prepared for worse conditions.  A gift of a good year was given to the USD.  Point is, how far can USD appreciate simply based on the rest of the world is also looking not great?  A USD top with elections ahead may be finally here for the next year or more. 

Thanks to John for the shout out email, and subsequently thanks to Gary for his insights on his blog.  I have been working long hours, and its been hard to keep the eye on this ball.

To the charts!

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