Waiting Out The Doldrums

Still mired in the midst of the summer slowdown, gold catches a bit of a breeze...and the mining shares are surprisingly responsive.

With summer in full swing, I must confess to some lack of attention regarding the markets recently. I haven’t been the only one: With only a few notable exceptions, the precious metals have been content to trade sideways, while resource stock prices have generally sagged.

The exceptions included a couple of one-day sell offs in late June and early July. Many gold bugs were quick to blame these drops on manipulation by the anti-gold cabal. And I would be tempted to do the same...but it’s just as likely that, instead of pulling the levers on the market, the puppet masters were relaxing on the beach just as I and countless others were doing.

In short, this is the slow season -- the lazy, hazy days of summer when much of the market is absent, and those few who are paying attention can find juicy bargains in the temporarily neglected resource sector.

You see, it takes increased buying pressure to lift a stock price. Conversely, it only takes a reduction in buying pressure for a stock price to fall. And as a result of this seasonal inattention, some nice buying opportunities have developed in the market.

Taking a step back, we should remember that the summer shopping season for gold and mining stocks usually bottoms in the last two weeks of July or the first week of August. So, judging from the calendar alone, it would seem that time is running out for the bargain hunters.

But there are other indications that the bottom may already be behind us.

Physical demand for gold, which usually wanes during the summer, has been surprisingly buoyant. Premiums in India are a sign of unexpectedly strong demand there, and flows into the gold ETFs have begun to increase significantly.

In addition to physical demand, the structure of the futures and options market improved considerably as commercials have begun to roll back their short positions, and the number of speculative long positions has decreased dramatically.

Another bullish indicator: The gold shares have finally begun to wake up.

Mining equities have underperformed the metals for the last couple of years, but they have recently begun to leap ahead, and show the leadership that was once typical. This is a sign that smart investors are already positioning themselves for the next rally in gold, and seeking leverage through the associated equities.

If that’s the case, they are buying back into the market earlier than they have in past years. Even so, they may be too late: Gold has posted some impressive performances in recent days, and may have already put in its bottom.

Whether a new rally has begun, or we still have a few weeks of weakness ahead, remains to be seen. In either case, investors should take this brief opportunity to pick up some of the remaining bargains in the mining sector, and to top off their bullion holdings.

For great value and superb service in bullion, I can wholeheartedly and objectively recommend Kitco to investors. For the best buys in gold shares, I un-objectively recommend my publication, Gold Newsletter.

Whatever you do, and whomever you patronize, act now. The summer slow season is ending soon — if it hasn’t already — and it seems that a very profitable new run for gold is on the way.

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Brien Lundin is the editor and publisher of Gold Newsletter, a publication that has ranked among the world’s leading precious metals and resource stock advisories since 1971. To learn more about Gold Newsletter, visit www.goldnewsletter.com.

Mr. Lundin is also the host of the famed New Orleans Investment Conference, the world’s oldest and most respected gold investment event. To learn more, visit www.neworleansconference.com.