The recent downturn is well in-line with the history of gold stocks and more importantly, is well in-line with downturns in secular bull markets. Yet, the mainstream is acting as if gold stocks are going to go to 0 and the industry will become extinct.
There is no need to beat around the bush. Junior mining stocks have bottomed. The bear market is over. Sure we could be wrong. We’ve been wrong before and will be again. However, the evidence is too compelling and is growing by the day.
Contrarian thinking is easy, but successful contrarian investing is difficult. Most amateur contrarians neglect that the crowd is right most of the time. It’s only at market turning points where the crowd is wrong and contrarians are right.
At the start of the year we asserted that the mining equities could lead the metals higher. Since then, the shares have roared higher while the metals have remained subdued. Gold has gained a bit but silver has really struggled. Why are the stocks performing so well if the metals are not confirming?
Looking at historical rallies from major bottoms we noticed that there tends to be a consolidation or correction around the 50-day moving average. The sector is two weeks into that correction. Don’t worry bulls, this is exactly what happens following the initial rebound.
All aboard and back up the truck. The recovery train is soon to leave the station for higher prices! Obviously, the ideal time for that would have been at the exact bottom. A number of factors have come together to make a near bulletproof case for a major bottom.
The good news for precious metals bulls is that this market remains in a bottoming process that should produce a turning point that is on par with those seen in 2000 and 2008. The bad news is we are already five months into this bottoming process.