Silver and Gold - Happy Days are Here Again!

It will never cease to amaze me how many people who call themselves ‘gold bugs’, still don’t believe that the current gold move is for real. They worry about the central bankers, the plunge protection team, the COT’s and goodness knows who else.

It’s time to step away from the ‘daily noise’ and look at the fundamentals, and then see if the ‘technicals’ line up alongside, to provide confirmation.

The fundamentals are incredibly bullish!

• The money supply worldwide is increasing about seven times faster than the supply of newly mined gold.
  
  
• Much of the gold listed as inventory by central banks, has been leased out, yet still shows up as physical gold.
  
  
• The gold at Fort Knox has not been audited since 1953!
  
  
• New gold discoveries are few and far between.
  
  
• Every gold mine is a ‘depleting asset’. Once it’s gone, it’s gone.
  
  
• Due to rising energy prices, the cost of exploring and mining is making some projects uneconomic, even at 740.00/oz. In addition a lot of mining equipment is on ‘back order’ – tires, trucks etc.
  
  
• There is a shortage of qualified mining experts. The good ones are all employed, and due to the fact that the industry went through a bear market from 1981 – 2001, not enough people graduated with mining degrees, to replace those who are now retiring.
  
  
• Even if a new supply of gold were found tomorrow, it would take many years, dozens of permits, and possible court challenges from ‘tree huggers’ before this new supply could come to market.
  
  
• There are several billion more potential buyers (think jewelry), on the planet who were not part of the consuming public in 1980, when gold rose to 850.00
  
  
• Two of the fastest growing economies are China and India. It just happens that both of these groups of people have a love for gold. The middle class in both of these countries is growing by leaps and bounds.
  
  
• Adjusted for inflation, today’s gold price of 740.00 compares to just over 300.00 in 1980 dollars.  GOLD IS CHEAP!

Now for some exciting charts:

Featured is the GDX, gold ETF. The green arrow points to an upside breakout, from a pennant formation (blue lines). Very bullish!  The RSI is rising again after having eliminated some excess bullishness (blue arrow). The MACD is preparing to turn up again (black arrow). The 50DMA has just completed a ‘golden crossover’ with the 200DMA (blue and red lines). Both moving averages are rising (green oval).

Featured is the HUI index of unhedged gold and silver mining stocks. The green arrow points to an upside breakout from a flag formation. This is usually a very reliable bullish signal, and sets up a target at 490! (That’s 490!)

The blue arrow points to the RSI turning back up in support of the move. The black arrow points to the MACD which is about to turn positive again. The 50DMA and 200DMA (red and blue lines in the middle of the chart), are in positive alignment and both are rising. IT DOES NOT GET MUCH BETTER!

Featured is the XAU mining stock index for those of you who prefer this index instead of the HUI. The picture is just as bullish as for the HUI. An upside breakout from a bullish flag (green arrow), the RSI and MACD rising in support (blue and black arrows), and the 50DMA and 200DMA (green oval), in positive alignment and rising. The target here is 215!

Featured is the chart that compares the XAU mining index to the gold price. When this chart pattern is rising, it indicates that gold and the gold shares are in ‘rising mode’. We are looking here at another bullish pattern called: “Cup with handle”. The blue arrow points to the handle. We can see it not only in the index itself, but also in the supporting indicators, RSI and MACD. This is very unusual, and the upside breakout pointed to by the green arrow, is a very bullish signal.

This last chart compares HUI gold stocks to XOI oil stocks. The trend from March till July favored oil stocks. Then in July, the trend turned in favor of gold stocks again. This trend is now well established, having moved back above the 200DMA (solid red line). The two supporting indicators are positive (blue dashed lines). This tells us that, while oil is rising, pulling oil stocks up along with it, gold stocks can be expected to rise even faster.

Summary:  The signs are pointing to much higher gold and silver prices, this is most likely the start of our annual “Christmas rally”. Now, if gold should drop five or ten dollars, caused by an attempt on the part of traders who are short, (to force the market down so they can cover their short positions), don’t send me your Emails, telling me I was wrong, instead get in there and buy!  Don’t miss this train!

Trust the fundamentals, and trust the technical analysis that backs it up.

Peter Degraaf

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Disclaimer: Please do your own diligence.  I am not responsible for your trading decisions.
Happy trading!

Peter Degraaf is an on-line stock trader.  He has over 50 years of investing experience.  He issues a weekly Email alert for his subscribers.  For a 60 day free trial, please Email   him: ITISWELL@COGECO.CA, or visit his website www.pdegraaf.com