6 Reasons why Gold Stocks will Begin a Big Rally

1. Huge rallies begin from these conditions

Below is the NYSE Gold Miners Index which is tracked by the GDX ETF. Look at the RSI. Not only did it reach a multi-decade low but it has remained oversold far longer than during the comparable periods. In the four previous periods, the market rebounded suddenly and strongly in percentage terms. Meanwhile, the bullish percent index, a breath indicator is more oversold than in 2008. We plot the indicator with a 10-week moving average that shows it as far more oversold than in 2008. While this indicator does not go back that far, odds are it is likely at a 13-year low.

2. Springtime is usually a turning point for gold stocks.

According to seasonal analysis, precious metals usually peak in the late spring. However, a study of the past 12 years shows that its more apt to say that spring is a turning point. In the above chart we mark the tops or bottoms that occurred in April or May. Assuming we are presently at a bottom then spring will have marked a turning point in gold stocks during 11 of the past 13 years.

3. A selling climax already occurred and the recent low is a false breakdown.

The selling climax occurred in April when GDX declined 24% in only six days. The 20-day volume average peaked days later at 30 million shares. The previous high was 21.5 million shares in June 2012. GDX has also formed a bullish RSI divergence and Monday reversed on record up volume. Prior to Monday, recent weakness was on average volume which was substantially less than during the selling climax. This is a subjective thought but this potential bear trap and false breakdown could be the retest. When you get a failed retest that is a trap or false move it can result in a V bottom. Look for a potential head and shoulders bottom or a V bottom. Finally, if the RSI pushes above 50 then that is a good sign.

4. History suggests the cyclical bear is just about over

Each secular bull market in gold shares has endured two major cyclical bear markets. The chart below, which uses weekly data shows the four corrections. It is possible this correction could last a bit longer and move a bit deeper but in the big picture, the next big move is higher, not lower.

5. There is potential for a huge short squeeze.

Gross short positions are at all-time highs. Some short positions were covered as Gold rebounded from its crash low at $1320. After the rebound fizzled short positions reached an all time high. Gold has formed a short-term double bottom. Without a doubt, short covering contributed to Monday’s huge reversal. If Monday’s rebound is sustained, look for a torrent of short covering to follow.

6. Cyclical rebounds usually are huge in percentage terms

The chart below shows the first five months of performance of the cyclical bull markets within secular bull markets. The advances that began from the least oversold conditions were the least powerful. If the next rebound is similar to 2000 or 2008 then it will achieve more than 50% in the first five months.

There you have it. It’s been a tough road for precious metals but the path ahead has strong potential of being significantly profitable compared to these levels.

Good Luck!

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

Monday, May 13, 2013

Bishop Process Facilities Plan Accepted

Vancouver, B.C.:  CMC Metals Ltd. (the “Company”) is pleased to announce that the Bureau of Land Management (BLM) has provided preliminary approval to the Plan of Operation for the Companies Bishop Processing Facilities located in Bishop California, subject to a 30 day objection period. The Plan approval will allow the Company to proceed to construct the Class A tailings impoundment, implement the facility upgrades, plus commission and operate the facilities. During the next 30 days, the Company will conduct pre-construction preparation of the site, have the contractor quotes updated, and start the electrical testing of the existing equipment. Once the contractor’s quotes have been obtained, the Company will provide an update as to the scheduled commissioning and production dates. Current mill capacity is 50 tons per day. As part of the upgrades, the plan is to increase the capacity to 100 tons per day.

Don Wedman, CEO and President of the Company stated “The Bishop Mill facilities are an exceptional asset that will expand the Companies capabilities in Inyo County, provide growth to the Company and much needed employment to the Bishop area. The Company is excited about finally being able to go forward and demonstrate that the facilities are capable of exceeding the financial, environmental and social goals for this asset.”

In compliance with NI 43-101, Don Wedman, P. Eng., President and Chief Executive Officer of the Company, is the Qualified Person who prepared or supervised the preparation of the technical information presented in this news release.

This news release was prepared on behalf of the Board of Directors, which accepts full responsibility for its contents.

On behalf of the Board:

“Donald W. Wedman”

Donald W. Wedman, P.Eng.
CMC METALS LTD.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

Gold and Silver: Sentiment Reversal is Inevitable

The usefulness of sentiment’s stealth crystal ball is about to be revealed to the litany of unsuspecting precious metal bears and skeptics who have convinced themselves that gold’s bull market is either over or, at the minimum, in need of lengthy ongoing retesting, restructuring and consolidation.

This article will bring us up to date as to the degree of current bearish sentiment regarding both gold and silver using no fewer than 5 sentiment indicators (with 9 illustrative charts), as well as provide the reader with an opportunity to observe the price outcome of previous bearish extremes using these sentiment indicators.

When we begin the sentiment indicator discussion we will look at charts of the put/call volume ratio (options) of SPDR’s Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV), then examine Hulbert’s Gold Sentiment Index, followed by the Blees Rating, then gold’s Commercial and Non-Reportable (futures) traders positioning detailed in the most recent Commitment of Traders Report (COT) from the CFTC, and conclude with a daily gold futures price chart that includes the corresponding readings of the Ulcer Index indicator.

But first, let’s briefly consider the concept of investor sentiment.

My observation is that sentiment’s crystal ball, particularly when observed at an extreme, works reliably despite conflicting and clever arguments of either a technical or fundamental nature, and plays theultimate trump card in foretelling a market’s reversal of price direction.

Sometimes the occurrence of a high volume “capitulation selling” event provides the most obvious observation of sentiment exhaustion. But there are numerous other means to assess this phenomenon and we will get to these shortly.

Sentiment extremes, simply put, tell us that there are too many traders at one end of the boat and therefore the boat is about to tip over. Sentiment can strongly suggest that the trade, as some say, has become “crowded”. When someone finally yells “fire” in the “crowded” room there are so many of the market’s participants motivated to get out the same door and in the same direction that most get trampled – unable to reverse their trade fast enough.

Another way of characterizing a sentiment extreme is to say that the trade simply runs out of buyers or sellers, as the case may be. The extreme price momentum in one direction “exhausts” itself of all available ammunition to continue the trend and is sometimes signaled when someone yells “fire” in the “crowded” room, but often comes to a conclusion unrecognized by most traders as price reverses direction in an unassuming manner.

Yet another saying is “when everyone is thinking the same thing, then no one is thinking”. The sentiment indicators we will look at today will give us a clear sense as to whether this saying is potentially a significant and foretelling factor in future precious metal price movement.

And yes, there are indeed two players for each trade – the buyer and the seller. In our present precious metals situation, this leads us to consider the concept of shares moving from “weak” hands to “strong” hands.

The Claude Resources (CGR) shares I have been accumulating and holding with a considerable draw down are in “strong hands”. Barring some unanticipated but significant company news, I have resolved to not sell any of my position even if price should continue to fall from the current $0.30 per share to $0.10.

However, as Claude Resources share price has fallen from about $1.00 last September to around $0.60 last January and just a couple months ago $0.50, obviously there have been too many shares of CGR still held by “weak hands”. This will change because when the last “weak hand” is willing to sell their last share at this incredibly exaggerated market price, that obviously, will be the bottom.

You may have heard comments when a particular market bottoms and then begins to trade higher and then continues to trade even higher yet, despite “bad” news, the assertion that the bullish price movement seems to make no sense – that it cannot possibly be sustained. At this time it appears to nearly everyone the common sense question to ask is how “bad” news that used to cause a market to go into free fall now seems to have absolutely no negative effect? And to observe that as this market continues higher, it always leaves behind those traders stuck in pessimism to declare that the market is “climbing a wall of worry”. That is, the “bad” news continues in the media, yet this particular market’s price reversal continues upwards.

These thoughts are precisely what make this article’s argument dead on target, in my opinion. That is, sentiment at extremes can and often does trump both technical and fundamental analysis. We are about to examine a number of these sentiment indicators which will leave little doubt that the precious metals market is presently at a sentiment extreme of historical proportion.

As markets usually swing from one price extreme to another, and markets usually swing from one emotionalextreme to another (such as fear to greed), I believe the following sentiment indicators and their readings literally guarantee the continued reversal of gold and silver price to the upside.

So let’s now take a look at the 5 sentiment indicators I have prepared for detailing the current gold and silver market sentiment and see what they are telling us.

We will begin with the put / call volume ratio of the options trade of the SPDR Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV).  Charts courtesy of Schaeffer’s Investment Research.

Click on any chart to ENLARGE

The red line in the charts are the ETF’s price movement over the recent 2 years (GLD above, SLV below). Theblue line is the put / call volume ratio. This considers the trading day’s volume of puts traded and is divided by the volume of calls traded. Generally, the higher the put / call ratio, the more bearish traders are about the ETF’s likely price movement, while the lower the put / call ratio, the more traders believe the ETF is bullishand going to rally higher.

Undoubtedly you have noticed that both charts reveal that the put / call ratio is at the highs of the past two years; meanwhile price is at the lows of the past two years. I will leave it to you to observe the repetitively flip flop relationship between this sentiment indicator and price movement. For me, anyway, this indicator leaves little doubt as to the upcoming direction of GLD and SLV.

Next up is the Hulbert Gold Sentiment Index. This chart courtesy of Mark Hulbert’s Newsletters. The chart that follows this first chart is courtesy of Short Side of Long.

The second chart offers a sweeping view of gold’s price movement over the past 17 years, as well as the locations of noteworthy extremes of bearish sentiment. And incredibly (and once again) our current bearish sentiment breaks all previous records with a reading of -31%.

Now we will turn to the Blees Rating with another pair of charts. The Blees Rating is simply a calculation that uses the COT report data on the positioning of commercial traders in comparison to their positioning 18 months previously.

The first chart is one that I made. It looks at the price movement of gold since September 2008 in the upper portion of the graphic, and displays the corresponding Blees rating in the lower portion of the graphic. The Blees rating this week, for the second week in a row, is 100. The green bars I added to the chart are intended to draw your attention to price action once a Blees rating of 100 is triggered.

The red bar I added connects a Blees rating of 99 with price just before our infamous episode of a two day price crash in gold. Though I neglected to add another red bar in September 2008, you will notice that nearly the same thing happened at that time. That is, the commercial traders bellied up to the bar with a reading of 94 then apparently and correctly smelled a rat. They backed off and price indeed made one final swoon. Then in early November 2008 they bellied back up to the bar and held a 100 Blees rating for 2 consecutive weeks followed by another week at 99. They nailed the true bottom. I have no doubt they have done it in 2013, as well.

The following chart of $GOLD courtesy of SmartMoneyTrackerPremium details the locations of the maximum Blees rating since 2003.

Our next pair of charts looks at the positioning of gold futures traders as reported in the most recent Commitment of Traders (COT) report. Both charts are courtesy of GotGoldReport by Mr. Gene Arensberg.

First up is the commercials (dark blue line) and their net positioning of gold futures contracts since 2008. The price of gold is shown in magenta.

This group of traders is considered the smartest of the players and are hedgers by nature. It is indeed rare to find their net positioning anywhere near to just slightly short, as they are now positioned. Incidentally, they are now positioned exactly as when they correctly called the 2008 bottom.

In Mr. Arensberg’s accompanying dialog with these charts he noted that the commercial traders method of operation is to add shorts as price rises and add longs (or sell shorts) as price falls.

But interestingly, as gold has been raising $150 over the past two weeks, the commercials have been doing just the opposite of their norm. Instead of adding to their shorts as price has gravitated higher, they have reduced their shorts and added to their longs.

Yowzer! My take is that the commercials are essentially saying to the market, “bring it on”.

Now for the chart of the little guys trading gold futures, otherwise known as the non-reportables.

You can see that for the first time since 2008 this group (sometimes also known as the ‘dumb money’) has a net position that is just barely short (below ZERO). In effect, this group does not have any skin in the game and that has not been seen before. They have been suckered into losing their net long position and will have to buy, buy, buy when they figure out the trend is up.

And finally we conclude our pondering of 9 charts with this daily chart of gold futures (/GC) from 2007 and forward.

I created this chart and have added in the lower panel the Ulcer Index indicator. This is a volatility indicator that measures downside risk. The higher the indicator reads the higher the risk is considered to be if one continues to hold ‘Old Turkey’.

From a sentiment point of view, the higher the indicator reads the scarier the ride for the long investor. I looked at this indicator on the daily gold futures chart back 20 years and I can tell you what we just experienced was the first place roller coaster drop of the past 20 years. If you still have your lunch (like me) you are likely qualified as a “strong hands” investor.

So there you have it. Sentiment on GLD and SLV options is crazy extreme, Hulbert’s Gold Sentiment Index reveals sentiment is not only more bearish than the 2008 bottom – it’s more bearish than anytime in the past 17 years (at least). The Blees Rating has been at the max of 100 for two consecutive weeks. The smart money commercials of the Comex gold futures market, despite the $150 rally we have had off the capitulation low a couple of weeks ago are not being shy. Price has been going up and they have just added to their long positions and reduced their short positions. Meanwhile the non-reportables have played themselves right off the field and will have to become buyers to get back in the game. And finally, the Ulcer Index confirms that gold has taken a hit that should have left EVERYONE running for the door.

You know, I don’t make this stuff up. And after putting about 10 hours non-stop into making this article what it is, I have nothing more to say other than encourage you, another time, to consider the evidence that sentiment plays a powerful role in the trading markets and that if there was a better precious metal setup than the one we presently have – I simply do not believe it.

Best always,

John
tsiTrader@gmail.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

Saturday, May 11, 2013

I was hoping to put this post up a bit earlier, however the allure of NBA play off finals has kept me at bay. The current type of powerful rally is very healthy when seen post major market lows, like in 2003 and 2009. Market tends to rally hard out of extremely oversold and overly pessimistic conditions as it mean reverts to equilibrium (if there is ever such a thing with human emotions involved).

However, the market has entered a blow off terminal phase of the bull market. The Federal Reserve is now fully aware that they have created yet another bubble. There have been only a handful of rallies with similar vertical gradient over the last two decades, mainly during the tech bubble euphoria of the late 1990s. During periods like these, sentiment becomes almost irrelevant. It doesn’t matter really what indicator says what… until one day it does.On the other side of the spectrum, precious metals bearish sentiment is on a record breaking run. Week after week, we see either lower sentiment surveys or lower positioning via the COT report (especially link to the small speculator space).

Equities

• This weeks AAII survey levels came in at 41% bulls and 27% bears. Bullish readings rose rapidly by almost 10%, while bearish readings fell by 8.5%. With the market rising vertically in recent months, AAII sentiment levels of retail investors have remained decently subdued. While bulls believe this is a sign of even higher prices to come, majority of the other sentiment surveys discussed below do not confirm AAII’s message.

Chart 1: Bears are non existent in the advisor community

Source: Short Side of Long

• Investor Intelligence survey levels came in at 52% bulls and 20% bears. Bullish readings rose by 4%, while bearish readings rose by 1%. Raw bullish readings are not yet at extreme levels, however the survey continues to display a non existence in bearish sentiment. While not always perfect, perviously low levels (especially when prolonged) have been signs of intermediate market peaks. Finally, survey’s bull ratio, displayed in the chart above, remains in complacency zone (sell signal). Last weeks chart can be seen by clicking here.

• NAAIM survey levels came in at 79% net long exposure, while the intensity came in at 40%. As already reported last week, net long exposure has averaged at the highest level since the surveys inception. Last weeks chart can be seen by clicking here.

Chart 2: Hulbert’s Nasdaq sentiment is reflecting euphoria

Source: Short Side of Long

• Similar to last weeks update, majority of other sentiment surveys I follow are still signalling overbought market conditions. Consensus Inc survey remains at extremely elevated level associated with previous market tops. Market Vane survey also remains at extremely elevated level of 69%. Intermediate equity market peaks in February 2011, March 2012 and September 2012 were at the same level. Hulbert Newsletter Stock surveys have once again jumped to near record high exposure territory. In particular, Hulbert Newsletter Nasdaq Stock Index is once again back to 94%, as can be seen in the chart above. Previous readings of this magnitude have been associated with “irrational exuberance” peak in the technology, media and telecommunication bubble during the year 2000.

Chart 3: Retail investors flock into stocks at the end of a rally

Source: Short Side of Long

• Earlier in the week ICI did its latest fund flows report. According to the company equity funds had estimated outflows of $4.37 billion for the week, compared to estimated inflows of $1.33 billion in the previous week. Retail investors continue to flock into the equity markets at the fastest quarterly pace since early 2007. It is usually not surprising to see retail community join the buying frenzy at the end of a bull market and after missing all of the last 100% gain out of March 2009 lows. Confirming this data is the Rydex fund flows tracked via Nova Ursa funds, which also continues to show large amount of bullish bets and extremely small amount of bearish bets.

• Latest commitment of traders report showed that hedge funds and other speculators continue to hold an extremely high net long position on technology stocks. This weeks contract position came in at over 130 thousand net longs yet again, which is close to record highs. Last weeks chart can be seen by clicking here.

Chart 4: Total option positioning remains at neutral levels

Source: Index Indicators

• Option positioning, shown in the chart above, sits dead smack in the middle of range for the last three years or more. From a contrarian point of view, a sell off in price and a potential bottom is usually accompanied with large put buying as seen in May 2010, August 2011 and June 2012. However, investor positioning is not always at the other extreme end, when it comes to market peaks. Historical data shows many occurrences where large put buying was present near market peaks, including during February to July 2011 seen in the chart above.

Bonds

Chart 5: Newsletter advisors are very bullish on Treasuries

Source: SentimenTrader

• Bond sentiment surveys are continuing to recover from their recent troughs. Consensus Inc survey has rebounded from extremely pessimistic levels few weeks ago, towards more neutral levels. Market Vane survey is still in the neutral territory. Hulbert Newsletter Bond survey is approaching extremely high optimistic levels, as can be seen in the chart above. All in all, sentiment on Treasuries isn’t overly extreme, but the asset class remains extremely overvalued after a 31 year bull market.

Chart 6: Speculators remain quite neutral on Treasuries

Source: Short Side of Long

• Commitment of traders report showed that after several months of holding some of the largest net short positions on Treasuries, small speculators are now positioned more towards the neutral side. If we look at the basic technical analysis of the chart above, we should be able to notice that we are currently posting a first lower high. Has the bond market rally finally peaked? In the recent newsletter posted on last week, I advised those holding bonds not to chase the prices any higher from current levels, as the 31 year secular bull in bonds remains extremely overvalued (I am repeating this important point once again).

Commodities

Chart 7: Hedge funds exposure remains near 2009 lows

Source: Short Side of Long

• Latest commodity commitment of traders report showed that hedge funds and other speculators hold extremely low exposure towards commodities. Investors held over 1.3 million net long contracts in January 2011, with prices peaking in late April 2011. The twenty four month bear market has reduced those positions to some of the lowest levels since Match 2009, currently at 347,000 net long contracts.Note: My own personal Commodity COT Indicator takes into account various commodity positioning from Energy, Agriculture and Metals sector. It only focuses on COT reports which correlate closely to the price and excludes other which do not.

Chart 8: Investors are particularly bearish on Agriculture

Source: Short Side of Long

• Agricultural commitment of traders report continues to show extremely low positioning of 235 thousand contracts. Current level of bullish positioning is usually connected with intermediate and long term bottoms, last seen in October 2008, June 2010 and December 2012. Hedge funds are extremely negative on soft commodities like Sugar and Coffee in particular.

Chart 9: Funds hold exceptionally bearish bets on Copper

Source: Short Side of Long

• Commodity Public Opinion surveys have rebounded from extremes in recent weeks. Neutral sentiment readings can be seen in most energy and agricultural commodities. However, sentiment on Copper remains very depressed. Copper COT positioning, seen in the chart above, definitely confirms depressed Public Opinion sentiment.

Currencies

Chart 10: Hedge funds still hold elevated bets on the greenback

Source: Short Side of Long

• Latest currency commitment of traders figures continue to resemble previous weeks readings. Cumulative Dollar positioning stands at $24 billion, with largest bets on the Dollar against currencies such as Japanese Yen, British Pound and Canadian Dollar. Investors also remain short the European Euro and the Swiss Franc too.

Chart 11: Speculator positioning on the Pound is extremely low

• Currency Public Opinion survey readings on the US Dollar have been extremely optimistic. As explained last week, this has mainly been a result of ongoing pessimism towards the European Euro and the Japanese Yen. Sentiment levels on the Loonie have risen sharply in recent weeks.

Chart 12: Small speculators are extremely negative on Silver

Source: Short Side of Long

• Alternative currency commitment of traders report showed hedge funds and other speculators continue to cut their net long contracts even further then last week. In Gold, non commercial positions have fallen below 90 thousand for the first time since late 2008, while small speculators remain net short for the first time since 2001. Last week I discussed the ever so low small speculator positioning in Silver (chart above). Well, this week it turns out small specs have turned even more bearish, setting a new record low positioning!

• Public opinion on alternative currencies like Gold and Silver continues to remain near extreme pessimism, despite a rebound in price.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

Dow vs. Gold in 3 Gold Bull Markets

There are striking similarities between the three bull markets…

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

When Will Gold Bull Resume?

While Gold has seen a decent rebound, Silver and the mining shares (the more speculative side of the complex) have failed to sustain any rebound despite tremendously supportive sentiment amid an extreme oversold condition. Is the failure to rebound bearish? Not really. This is a sector that is completely sold out but there are yet to be enough buyers to generate a sustained rebound. The combination of strength in conventional asset classes (stocks and bonds) and poor performance over the past two years is causing this sector to read like the heart rate monitor of a heart patient. The sellers are gone and the buyers are scant. We believe the bottom is in and a rebound should begin very soon. However, we are more concerned with what will be the driving force for a sustainable rebound which will evolve into a new cyclical bull market.

Clearly, precious metals won’t sustain a rebound until the S&P 500 completes its cyclical bull market. This is something we’ve pointed out since late last year. That being said, never did we expect the equity market to climb this high. Since summer 2011, the gold stocks are down more than 50% while the S&P is up 45%. Meanwhile, the Goldman Sachs Precious Metals Index is down 25%. When stocks and bonds rise, there is no reason for the majority to consider alternatives such as precious metals.

What we are seeing now is no different then what happened for a period during the 1970s bull market. The chart below shows the S&P 500 and the Barron’s Gold Mining Index (scaled 2x). From 1972 through 1977 the two markets traded inversely. Gold stocks surged during the 1973-1974 recession while the stock market declined. Once the economy and market recovered, gold stocks suffered. Gold stocks bottomed and rebounded in 1976-1977 as the stock market went sideways. As precious metals began their acceleration in early 1978, the stock market followed albeit slowly.

Moving along, the larger question at hand is will the final move in this bull market be driven by a catalyst of inflation or deflation? In the 1930s, the catalyst was deflation. In the 1970s, the catalyst for each cyclical bull was inflation. Within the current secular bull market, there have been three cyclical bulls which started in late 2000, the middle of 2005 and late 2008. The middle bull was driven by inflation while the two others, deflation. Note the chart below which plots commodities (CCI) and precious metals (GPX).

Precious metals bottomed first in 2001 while the CCI was still trending down. In early 2005, the CCI made a new high while precious metals continued to consolidate. The CCI continued higher and precious metals would eventually join in. In late 2008, precious metals bottomed first by a hair and then made new all-time highs well ahead of the CCI. Today we see that the CCI has not made a new low while GPX has. Does that mean the CCI (commodities) will lead precious metals during the next bull cycle?

That is what happened in the 1976-1981 cyclical bull which ended the previous secular bull market. In the chart below we note that commodities bottomed at the very start of 1975 while Gold didn’t bottom until the second half of 1976. Interestingly, Gold then dramatically outperformed commodities and peaked first.

To simplify, rising inflation could be the catalyst for the next cyclical bull market and eventual secular top. While precious metals could be signaling deflation, commodities and equities are not. (The CCI hasn’t made a new low!) Money has poured into US equities and junk bonds as a way to earn a return in a low growth and low inflation environment. Government bonds have performed well but not as well as US equities and junk bonds. During deflation there is a search for safety. At present, there is a mad scramble for yield.

While the US economy will likely remain stagnant, the sudden torrent of interest rate cuts in the rest of the world could stimulate global inflation in 2014 and beyond. Recently, Australia, India, Vietnam, Brazil, Russia, South Korea, Poland and Sri Lanka have cut rates. Thailand and China could be next. The ECB cut rates and hinted that QE could follow. Japan of course takes the cake. Global monetary policy is becoming increasingly inflationary and that will ultimately be best for emerging markets and commodities. It will be bad for the S&P 500 which has attracted money as an alternative to cash and government bonds. Rising inflation would force capital out of equities, junk bonds and government bonds (all of which are at all-time highs) and ultimately into precious metals and commodities.

As for precious metals, we maintain that a major bottom has been reached and the next move is likely higher. It could initially come on the back of these rate cuts and increasing speculation in the equity market. The mining equities are sold out and refuse to go any lower and its only a matter of time before a relief rally begins.

Good Luck!

Jordan Roy-Byrne, CMT

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

From:  www.MarketTrendForecast.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication

May 9th, 2013 at 1:15 pm

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Junior Gold Report Inc (JGR). The author has made every effort to ensure accuracy of information provided; however, neither JGR. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. JGR and the author of this article do not accept responsibility for losses and/ or damages arising from the use of this publication