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« Gold - What Credit Suisse Needs to Turn Bullish | Main | Gold Demand Down 21% in Q3 - World Gold Council »

Gold, Silver And The Mining Sector Have Not Bottomed Yet


As a bull on both gold and silver I do expect that this sector will shine once again, hopefully in the not too distant future. However we are still of the opinion that this gold bull market remains in a bear phase for now. The timing of market directional changes is critical to the success of any investment. We all know that it is impossible to pick the very top or the very bottom of the market and so enter and exit the market with absolute perfection. That just does not happen, but it is incumbent on us to try and get as close as possible to these turning points in order to maximise our profits.

The June low for gold prices is widely believed to the bottom for gold and hence it is considered to be the very turning point that we need in order to trade with a high level of confidence.

Gold is trading around $100/oz above those lows, silver is about $2.00/oz above its low point and the mining sector as evidenced by the Gold Bugs Index, the HUI, is sitting about 40 points higher than it was back then.

So why the trepidation and unease about the current situation – well we will try and lay out some of the issues that concern us below and would ask that you add your opinion to this debate especially if you disagree with our premise.

If we can get a handle on the big picture then we will have set the stage for some profitable trading, if we get the big picture wrong then all the detailed analyses that flows from it will have been a complete waste of time, effort and capital.

Gold and Silver

Since the heady days when gold hit $1900/oz it has lost some of its luster, correcting by more than one third to trade at $1200/oz in June 2013. At this point a summer rally began; taking gold prices as high as $1420/oz in August 2013. Silver joined in the fun and followed gold to higher ground, as did the miners, although with a tad less enthusiasm. This was an unusual move in that the precious metals sector generally suffers from the summer doldrums and so it raised hopes for the fall which as seasons go, is one the best for gold prices. Since August gold has tried to rally but each time the rally has petered out. We are now well into the ‘fall’ season and it doesn’t look so good for gold prices.


The performance of the mining sector is predicated on the performance of the underlying asset and once all the costs of have been covered these stocks can move in leaps and bounds on the back of higher metals prices. The summer rally from 205 to 280 generated great excitement as it had the appearance of a new dawn. Alas, as gold and silver drifted lower so the miners followed with the HUI now down to 226. The chart below depicts just what a torrid time the miners have been through and the summer rally looks more like it is flat lining rather than making substantive progress. A re-test of the June lows looks to be on the cards and should support fail to hold then it’s a case of look out below.


There are many positive factors that we can look to as being supportive of precious metals such as; mints running out of product, China buying by the boat load, the printing and debasement of paper currency, the dwindling supply, the increase in premiums for physical gold, etc. As logical and sensible as these arguments are the fact remains that gold and silver are not setting the world on fire with their performance.

There could be a myriad of reasons for this lack of progress but the two that get our attention are capitulation and QE.

Gold’s progress was characterized by a steepening of the curve and a final blow off when the price had ran too far ahead of itself. A similar occurrence usually takes place during a sell off, however, this sell off looks more like a slow drift south than a total capitulation. Gold’s inability to gain traction suggests that it could re-visit and test its old lows. Should this support fail then we could experience a rather disorderly sell off.

The debasement of the US dollar via Quantitative Easing has been, in part, the oxygen for the precious metals sector. The recently anticipated move to introduce some form of tapering of the bond buying programme put downward pressure on gold. When the time came the Fed decided not to implement tapering and gold jumped immediately and then fell back just as quickly. This behavior suggests that without an increase in QE gold will be starved of its oxygen. QE is data dependent in terms of inflation and employment. The employment figures suggest that things could be better, but they are heading in the right direction so there is little chance of an increase in QE. Additionally, the possibility of tapering will not go away and will be accompanied by much in the way of speculation regarding if and when it is to be implemented.

This sector is to some extent in the hands of Janet Yellen and The Federal Reserve. If the economy takes a turn for the worse and she behaves as dovishly as she is portrayed then we could see an increase in QE. However, if the employment figures continue to show slow but steady progress, then there will be no increase in QE and then the outlook for these metals will look less attractive. Should tapering be introduced the US dollar will appreciate and gold, having an inverse relationship with the dollar will suffer.

Got a comment, fire it in, the more opinions that we have, the more we share, the more enlightened we become and hopefully our ‘well informed’ trades will generate some decent profits.

In September 2011 the Gold Bugs index, the HUI stood at 630 as gold prices peaked, since then both have trended lower with the HUI losing about 65% of its value. The bottom has been called a number of times and after such a dramatic decline its difficult not to think that we are there now. However, as we all know the timing of any investment is crucial to its success and that is exactly what we are trying to do here, trying to pick advantageous entry and exit points. If you would like to know which stocks we are buying and selling please join us atStock Trader our premium investment service.

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Reader Comments (11)

Your article ignores the huge move of physical gold from West to East.
It ignores the daily manipulation of the price by JPM and the other bullion banks.
If you do not know where to look for this ask me.
It ignores that regardless of manipulation the bullion banks control the paper price of gold which impacts the physical price
Your TA is good but unless the physical can breakaway from the paper price it will remain low as these banks work on behalf of the Fed who cannot let the price rise without killing the dollar

November 19, 2013 | Unregistered CommenterGold bug

Bob, Caught your message on kitco and hope you are correct but what do you see will be the resultd of an interest rate rise on the price of gold?
Maybe the frothy stock market will tank and have folks seeking an alternative safe haven?

November 19, 2013 | Unregistered CommenterJohn

I believe gold miners should continue mining their gold but not sell it. Holding on to their gold is like having the cash in the bank and it would put a lot more pressure on the gold market to correct to its true value.

November 19, 2013 | Unregistered CommenterHB

Dear Bob,

Your analysis appeared to me a little restricted in scope.

Anybody who follows the precious metals market will tell you that price manipulation by central banks in collaboration with the investment bankers is a much more decisive factor than the QE in determining the bullion price.
What has already been printed by the Fed and all the other central banks around the world is enough to catapult the price of gold way beyond $2,000/ounce.
And that is going to happen, and the question is only when, not if.


November 19, 2013 | Unregistered CommenterEric

Hi Bob,
I am by no means an expert, and not very successful at investing but I have been buying and selling silver on a small scale since 1965. I was 22 years in 1965, the first year of the clad half. I had been collecting coins since I was a kid, earning money from setting pins in a bowling alley in a small Colorado mining town. When clad coins came out, I had a deep sense of loss for the country that I have yet to recover from. The country of my youth was beginning to crumble.

My sense of the imminent collapse of the financial system has hounded me all my life. Many of the decisions I have made in the past were based on the assumption that this house of cards would collapse soon. Fifty years later, the anxiety of my youth has been replaced by resentment that the Fed has successfully deceived the public for so long. I had long assumed that the sooner the collapse came, the better off the country would be.

My first $20 St. Gaudens cost me $67.50, I bought it an Nelson's Northgate Coin Shop in Seattle in 1968. I only bought one, as a BU roll of 1886 Morgan Dollars was the same price. I have always preferred silver to gold, probably due to my limited budget and until 1964, you could always save the silver change, it was about as good as spot silver which rarely if ever got over $1.00 an ounce in those days.

I have been privileged to live during the period when the U.S. was the greatest country the world has ever known, and I fear will ever know.

I chuckled when I read your comments below.

If unemployment shows progress it will either be from cooking the books by the fed or employment that will be at survival wages if you are fortunate. Just an opinion, but I think the best growth we have actually had in the past 5 years was the hiring done during the census. I guess if we had a census every year instead of ten years our problems would be solved.

The dollar will appreciate and gold will suffer. Think about that for a minute.

As I see it, honest money makes for honest citizens. The weaker the coin, the weaker the public. We are all seeing the same thing, many of our public figures belong in jail and we know it yet we continue to ignore it. It is much easier for people to be courageous when dealing with an honest pubic with honest money. When the money becomes "shifty", the folks dealing with it become "shiftier", it is a matter of self preservation. It is hard for folks to keep dealing from the top of the deck when the leaders we have chosen deal from the bottom. Kind of like the bad apple in the barrel analogy.

Looking back over the years, it really pisses me off that the first few years I paid money into Social Security I had to pay in silver, and now when I get it back it is basically worthless. And to top it off, what little I do receive is considered by many to be an entitlement. Entitlement my aching butt.

My first job when I got out of the service was in a hard rock (molybdenum mine) in Climax, Colorado at $2.80 a hour. My first "union" contract called for .10 cents in the first year and 5 cents an hour for the following two years. I was actually a shop steward for the OCAW union after 6 months working there. No one else wanted the job. It took less than a month for me to realize unions were worthless.

Bob, thanks for letting me blow off a little steam. I am not one to feel sorry for myself, actually I am an eternal optomist. I just wish we could go ahead and get over this disaster while I am still alive. It might give me a chance to help my children and grandchildren with a new start. It is coming, just as sure as the sun's coming up tomorrow.

Kindest regards

p.s. I am not sure what my comments have to do with the price of silver and gold. Just a suggestion, play with markets if you must, but if you are making a living now, take physical possession and never sell unless required to survive. Your heirs will appreciate it.

" However, if the employment figures continue to show slow but steady progress, then there will be no increase in QE and then the outlook for these metals will look less attractive. Should tapering be introduced the US dollar will appreciate and gold, having an inverse relationship with the dollar will suffer."

November 19, 2013 | Unregistered CommenterGary

I agree with other posters that Fed/JPM manipulation drives this market, so that TA is looking at the ass-end of things. I still subscribe, though, as the Kirtleys keep me thinking...

We conspiratorialists keep pondering what conditions will finally force gold higher. A complete breakdown at LBMA? Comex default? Bob raised an interesting question in my mind by referencing gold at $1900: why did the PTB let the price rise then? It would be tactically valuable if we knew the answer to that.

November 19, 2013 | Unregistered CommenterDavid


Manipulation: Lots of writers cover this area and are doing a better job than we can, however, it still results in someone buying, like the Chinese and someone selling, maybe the central banks. Gold may get to $2000/oz but for now it is heading south and so we must trade accordingly.

November 19, 2013 | Registered CommenterGold Prices


Sadly I have to tell you that my experiences run along similar lines to your own, as we are of roughly the same age I guess it is to be expected. The social security appears (UK for me) to be a bottomless pit, I guess buying anything would have given better then the return we get at 65, but its a tad late for us, never mind we are we are, so game face on and hit it.

November 19, 2013 | Registered CommenterGold Prices


What if the COMEX ran out of gold - would it go through the roof?

No - they would settle in cash, just as the ABN AMBRO bank is doing.

November 19, 2013 | Registered CommenterGold Prices

OK, I'll bite. If the Comex settles in cash, why would anyone ever trade there again? Wouldn't that be the end of paper gold?

November 20, 2013 | Unregistered CommenterDavid

When the ABN Bank informed its customers that a request to take delivery of their gold would be met with a cash settlement; did the bank fold - no. It raised concerns with the gold bulls but the price of gold hardly moved, if my memory serves me well.

take care

November 20, 2013 | Registered CommenterGold Prices

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