Gold’s accelerated move to $1,900 per ounce in the summer of 2011, moving past overhead resistance, indicated the market was waiting for an inflationary QE3. The market got a surprise as Bernanke waited until 2012. Precious metals declined further in the second half, depicting a surprise move with gaps lower.
Luckily we were able to call the top in silver in April 2011 and gold in September 2011 as they reached overbought conditions, locking in partial profits. On April 28, 2011, I wrote, “Remember that I am recommending partial profits if your winnings enable you to play with the house’s money and you are still holding silver from our August 2010 Buy Signal at $18. Other readers who have not been able to build a position can wait for the inevitable pullback for additional buying opportunities.” A few days later in May, we saw a volatile decline in silver of close to 40%.
Likewise in August of 2011, I became concerned about a possible correction in gold as it reached overbought territory. On August 5, 2011, I wrote, “Although the technical picture for precious metals is improving, there will be periods of volatility as the global markets shake. A consolidation in gold would be normal and healthy.” A few weeks later gold topped and corrected for the rest of 2011.
Mining equities and precious metals sold off in the third and fourth quarters of 2011. When such unexpected short-term pullbacks occur, we must monitor the rebound. Negative news that causes a temporary decline with a powerful recovery indicates strength and resilience.
One should never get caught up with a selling panic like the end of 2011, especially in gold and silver bullion, which has had significant up moves over the past 18 months and past 10 decades. Recently gold’s accelerated move to $1,900 and silver’s to $50 was overdue for a restorative pullback.
It must be emphasized that acting in a knee-jerk fashion, following the herd, and panicing by selling at discounted levels for pennies on the dollar, must be avoided. Some analysts were caught up with the decline, irrationally calling the end to a 10-year bull trend. How foolish!
Gold and silver are finding support, and the end of 2011 was not a time to call the end of a trend, but to realize that gold and silver were providing a discounted buying opportunity. The mining shares have never been so oversold in this entire decade long run as it was in the end of 2011.
The recent volatile selloff created an extreme oversold condition where reversals occur. Although the recent rise has been on volume, a break above the 200-day on increased volume for the miners, and for silver, could indicate that the downside gaps made in 2011 may be closed sooner rather than later and potentially very quickly.
Gold Stock Trades has weathered several corrections in miners, gold and silver over the past 10 years, and each time we have maintained a strong hand.
It is normal and necessary to have corrections. Quality mining equities and precious metals begin new bases and reach compelling valuations that long-term, contrarian investors can use to their benefit by adding to positions or initiating purchases in favorite stocks or sectors in which one has not participated yet.
We must stay focused on the long-term trends and realize that the mining stocks have been beaten down in 2011 to dramatically oversold levels. It is time to pick up resource stocks, especially in uranium, rare earths, and gold/silver explorers that are selling at great discounts.
Despite recent carnage, silver and the industrial metals are exhibiting relative strength relative to gold in 2012. The long-term trend for silver is intact and it appears to have found support at its trend around $30 per ounce. The momentum indicators have bounced off oversold levels. Silver has all the right criteria for a fast move to test all time highs.
It is no surprise why the uptrend in commodities is intact. The West is monetizing debt and printing dollars at a record pace to alleviate the debt crisis. Risk-on has been the name of the game in so far 2012.
One company we are closely following is Miranda Gold (MAD.V or MRDDF). Learn more about this prospect generator by clicking here…
They are engaged in nine joint ventures, some of which are with the large players such as Agnico Eagle at Ester Dome near Fairbanks, Alaska, which has just announced encouraging drilling indications. Some of these are right next to the big boys in the world famous Cortez Trend in Nevada, where Barrick is continuing to announce world-class bonanza discoveries.
We seek safe harbor. Disclosure: Long MRDDF
