Wednesday, September 4, 2013

The Buying Opportunity in Gold

Gold ended down today, though off its earlier lows.  Junior miners (GDXJ) dropped even more. The big miners (GDX) actually gained on the day.

Still, we can't help but notice the big bearish engulfing candlestick on a chart of the GDX ...

Looking at the chart, you can see that the GDX ran into overhead price resistance. Then we saw that big bearish engulfing candle, and the move down triggered a short-term bearish momentum signal.

The GDX has found support at the 38.2% retracement of its rally. Maybe this is the bottom. But I think it's more likely that we'll see a test of the 50% retracement (~26.70) or the 61.8% retracement (~25.60).

In other words, we should see lower prices in the very short term.

Still, the bears shouldn't get too happy. Unless the larger trend is changing, those would be great buying opportunities.

But let me show you another chart ...

(Updated link)

You can see that since the gold rally started in June, it's the junior miners -- the GDXJ -- that really outperformed. If this rally is going to resume, my money would be on the juniors to outperform again.

Interestingly, on September 15th, I leave for a 7-day tour of gold country in Nevada, where I'll be visiting five of the best junior miners.

This could be a GREAT time to start investing in gold and miners.

I'll tell you why ...

Some extraordinary forces are converging in the gold market, forces that could send the yellow metal on a “face-ripper” rally to much higher prices. Let me tell you briefly about three of those forces right now …

Force #1: Indian Buyers Are Rushing to Order.

Now that Indian's customs department has clarified new rules, India's gold importers are rushing to add to depleted inventories, according to Reuters.

New import restrictions from the Reserve Bank of India were confusing. The lack of details caused buyers to hold off and instead use stocks that had piled up in April and May.

Now the rules are clear.  What's more, a better than expected monsoon is expected to increase disposable incomes of farmers in rural areas, who make up about 60% of Indian gold demand.

Bullish? Heck, yeah!

Force #2: South African Supply is Collapsing. 
South Africa was once the biggest gold producing nation on Earth. As recently as 1996 it produced 17 million ounces of the metal. However, declining ore grades and rising labor unrest are choking South African gold production mercilessly.

Last year, a crippling strike squeezed South African production to just 5.5 million ounces.   Now, there’s another vicious strike – one that could cut South Africa’s gold output in half again!

There is news that maybe a deal will be worked out.  That's already being priced into the market ... so what if things go wrong? Again?!

Force #3: Chinese Demand is Soaring.

China gold purchases surged 54% in the first half of 2013. Meanwhile, the People’s Bank of China is quietly accumulating bullion. 

This transfer of gold from West to East is one of the largest transfers of wealth in the history of the world. And it promises to push gold prices, much, much higher.

For more forces that are powering up to push gold higher, see my story from Friday. 

How High Can Gold Go?

Respected Citigroup strategist Tom Fitzpatrick said in a telephone interview from New York with Bloomberg that he expects gold to soar to $3,500  … another big bank, Societe Generale, recently put a $10,000 target on gold! 

My target isn’t that high. It doesn’t have to be, for my picks in precious metals to go much, much higher.


  1. Apparently there's pretty massive short interest in some of the major gold miners right now.

    Which explains why the miners were collapsing long before the breakdown at $1400.

  2. thanks for pointing that out. Good article.