The primary message I have for you has not changed, which is holding your current positions and accumulate weakness - the weaker the better. Bull markets can be frustrating sometimes, for those trying to accumulate or trade the dips, and as a general rule, one must assume the direction of the trend is up, so often the dips are more shallow than desired. This may be exactly what is happening in the precious metals (PM's) complex right now, as much of the discounting of a more substantial bounce in the US Dollar Index (USD) later on may already be almost entirely discounted into the equation in terms of magnitude in the current correction, especially concerning PM stocks (See Figure 1)
Figure 1
As you can see in the above link, PM stocks, as represented by the Amex Gold Bugs Index (HUI) could do anything in the short-term, and may need to do some more backing and filling later on if we get a bounce here back up to the higher reaches (~ 250) of the current range. If this were to occur, a corrective flat could possibly unfold, where the new advance will be entirely retraced back down to ~ 200. And although this would be an excellent outcome in the intermediate-term, as it will ultimately lead to much higher prices the longer the consolidation continues, it will be a source of frustration for the 'buy and hold' investor, so you should be aware of this possibility.
Conversely, there is always the possibility annotations above denoting a potentially bullish pennant, and possibility a triple-top breakout could ensue sooner than later, taking the bears / traders by surprise, but as always, one might be better off keeping expectations on the more conservative side. Aside from this short-term consideration, gold certainly looks like it has some unfinished business in the current advance, with the ~ $ 450 area a definite possibility from a Fibonacci based resonance perspective. (See Figure 2)
Figure 2
Based on the observations in the chart above, accumulation in the $385 to $400 range seems to be reasonable strategy, with a spike down to the $375 area always possible, representing what appears to be excellent value given the convergence of support metrics (i.e. channel, significant Fibonacci, and 200 DMA support), but unlikely to be reached if the current impulse maintains a more bullish posture.
What is the best strategy for accumulation of both the metals and their related equities at this time? There is always the average cost approach, pointed out by our astute Elliott waver Dave Petch last month in one of his commentaries, which takes all the guessing out of the formula. This approach makes a lot of sense under current conditions, as the volatility in the sector will ensure one receives good averaged pricing on the full body of your purchases.
The USD can't seem to make it's mind up whether it will remain confined to the channel / trend indicated on the chart below, or breakout and make a run for the 200 DMA. (See Figure 3)
Figure 3
While it appears the above question was probably answered in Friday's trade, in the longer-term, and something you should be aware of, as it will mark the next 'significant phase' of the PM's bull, the US Dollar will in all likelihood eventually have increasingly less influence on price direction in gold and silver, as their relationships against other factors and perceptual underpinnings morph in the nexus, causing a decoupling of sorts. (i.e. The PM's will increase exponentially against the USD based on other factors, such as relationships with other commodities and other paper assets.) (See Figure 4)
Figure 4
While the jury is still out on which way things will break on the above relationship in the short-term, one would think as the paper world continues to feel the supply pressures characteristic of late cycle periods, which we are most certainly resident presently, the lure of tangible, real, and hard assets will unlikely diminish, providing a continued catalyst for PM's as we move into the future.
And if it seems unlikely there is potentially more upside than down to consider in PM's near-term, take a peek at where gold currently stands against other metals prices, both precious and not. Here is copper first. (See Figure 5)
Figure 5
Here is how gold looks against industrial metals as a whole, which is attractive presently, in my opinion. (See Figure 6)
Figure 6
And against the precious variety, somebody should inform traders / investors gold is in a bull market, because you would never know it looking at it's relationship against platinum, not to mention the metals as a group, evidenced above. (See Figure 7)
Figure 7
If you are in doubt the metals as a group are in a bull market, primarily supply driven at this point, take a gander at the technicals on palladium, where it has just broken out of a corrective sinusoidal sequence. (See Figure 8)
Figure 8
Last summer, I mentioned that North American Palladium (PAL: AMEX & PDL: TSE) looked attractive in the $4.00 to $5.00 Canadian dollar range, which if bought at the lower end of the scale, would have yielded an ~ 300 % return just a week ago now, with profit taking very understandable at this point considering the magnitude of the run. (See Figure 9)
Figure 9
But as you can see in the above, there is good reason to believe the party is just getting started here, with longer-term implications painting bullish pictures for not only palladium itself, but also the metals group(s) as a whole, not that we may see some short-term weakness develop now as gains are digested.
There is no doubt in my mind gold should be trading far higher than it is today because of it's historical relationships with others metals, both precious and industrial, which will undoubtedly be a primary definer of the advent when increasingly exponential gains against paper assets are experienced, as the PM bull market matures. And although we have yet to see such circumstances unfold in a larger sense, and irrespective of this condition, evident in the above charts, gold's relationships against other closely related commodity groups should be very support to pricing going forward, as both it and silver remain grossly undervalued in these terms. Speaking of silver, and bouncing balls, if it keeps putting in buoyant performances like it has of late, considering we may still be in a corrective sequence, the possibilities down the road look very promising, especially since the market(s) already seem to be waking up to it's full potential. (See Figure 10)
Figure 10
If you are wondering why silver has been performing so well against just about everything, including gold, the above chart goes a long way in explaining the primary reasoning. Now if we could just get gold to breakout of it's current restricting / bullish dominant structure (i.e. a 'Teacup With Handle') against the commodities complex, we could be looking at a $500 handle on it sooner than later. (See Figure 11)
Figure 11
I don't know how long this will take, as we could continue to consolidate within the above structure a while longer, but it's coming. And as mentioned above, this will be the next 'significant phase' in gold's advance, where gold's relationship(s) against other equity groups (i.e. both hard asset and not) play an increasing important role in it's price behavior, so you want to be long when this advent takes hold with force. Again then, the strategy of the day is to hold your long positions, which have been carefully selected over the past couple of months via our currency related 'ratio box' strategy, and add on dips when the opportunities arise.
A good example of this strategy put to work has been found recurrently in a micro-cap we have been working with since September, that being ECU Silver (ECU:CDNX), where one could have added / opened a position to this newly producing ( i.e. Mexico based) company several times on significant weakness. (See Figure 12)
Figure 12
And while the 50-cent mark may contain it's more near-term prospects, both silver and ECU remain explosive, which makes it a recommended accumulation candidate on the dips. ECU has the potential to be one of the hand-full of companies we see in every bull that comes out of oblivion (i.e. we were originally accumulating under 10 cents), and goes to the moon.
At the same time, it is a small company presently, with limited resources, so it is only appropriate for the speculative components of ones portfolio. The beauty of the situation, assuming the outcome is favorable, is a relatively small investment can yield large and profound relative returns on a portfolio-weighted basis over time, with little capital at risk. If you like what you read at the following link, one might consider it under the circumstances described above, if you have not already.
Someone asked me the other day, whether I take positions in the stocks mentioned in my commentaries? While I cover a fairly broad range of stocks, chances are if it is being covered as a good accumulation candidate, I will be following my own advice. A good example of this, as well as being attractive from a developmental / integrated (i.e. copper, gold, and silver) play perspective, is Cardero Resources Corp. (CDU: CDNX), where although it was originally recommended at far lower prices, recent accumulation may make a whole lot of sense once the next leg up gets underway in earnest, which may be presently. (See Figure 13)
Figure 13
As always, I heavily recommend one do his / her own due diligence on a particular company, as you should be aware of the fundamental underpinnings behind the name before taking a position, whether it is considered technically attractive by someone like myself or not. Markets can go against you in the short / intermediate term, leaving one stranded in ill-liquid stocks subject to large price swings, despite favorable and positively developing factors. So, it always helps to provide one with comfort in corrections if you have done a little homework on a company before you invest, as there is always the possibility a stock can go sideways, or down, for a considerable period of time. And please do not get me wrong, as I believe both Cardero, and the PM complex have at least one more significant wave up before a more substantial test of the long-term trend ensues, but as with all investing considerations, one should not acquire positions in stocks, or markets, before carefully considering your objectives, financial circumstances, and suitability.
To wrap things up, and as I see the PM complex had a rather impressive showing today, which is always nice to see on Fridays, as a strong finish doesn't hurt the appearance of the weekly charts, there are numerous and growing good reasons to be invested in PM's of all varieties, both from a short and long-term perspective, of which we have only scratched at the surface here today. Often, even in what will appear to have been obvious bull markets years down the line, its difficult to maintain one's convictions through the hard times. As mentioned above, possessing an effective and poignant strategy(s) remove some of the burden when encountering such times, much like the one we may still be within (i.e. a larger degree consolidation), or one we may enter later on, taking us by surprise.
I sincerely hope the totality of the above helps you participate in the developing bull market precious metals are currently experiencing in a manner which is comfortable, and can live with, even if things don't go smooth in the short-term. (i.e. value based and at least intermediate term in nature.) As mentioned, the next leg up in the complex will likely be the last one before we get a more significant test of the long-term trend, one that may be intermediate term in nature, which could involve quite a nasty correction. The good news in this regard, is that it may be from significantly higher levels, with current lows providing a good support zone for the trip back down. Something to consider in your overall strategy, as over-trading this kind of environment can be costly, in more ways than one. But, never the less, we will be there to let you know where things look to be heading in the big picture, so you can make those important decisions along the way.
Until our next meeting, good investing all.
