At first glance you might be a little discouraged by reading major bank after major bank release a lower forecast on the price of gold for 2014 and beyond. But knowing their track record of forecasting the gold price you might feel a lot better, and even see the possibility of a contrarian trade forming.
The market has had an impressive run since the start of the year, but one sector that has lagged is the commodities sector. Unlike general stocks, commodities are still quite a ways away from their 2011 highs. But a number of factors are starting to show the tide potentially turning for the commodities sector.
Now that we are at a pullback point in the market, the dollar clearly has a couple choices: 1) either go on to make new highs and most likely drive a deeper correction in stocks and commodities, or 2) fail to make new highs, and stoke a continued rally.
It appears as if the gold sector is gradually coming to the end of the recent bear market, given the technical evidence and severely bearish sentiment. A top in paper assets (the dollar and bonds) would probably be the final nail in the coffin for this gold correction.
Things are finally looking up for gold stocks. In fact it’s likely a new major rally has begun. The reason is that major corrections in secular bull markets produce the best buying opportunities. They are the biggest dips for those looking to “buy the dip”.
Last week Friday was a big day for the precious metals sector as both gold and silver moved higher on above average volume. The GDX gold stock ETF is now threatening to breakout from a five-month base that is supported by strong volume.
Even if the bears can panic the bulls into selling their positions further into support levels, the bulls still have a positive divergence in momentum that has formed over multiple months and demonstrated long term support at lower levels.
Gold stocks are about as contrarian a sector that exists in the market right now. Even though gold hasn’t had a down year in 12 years, gold stocks have now recorded 2 straight down years, the first time that has happened during this gold bull market.