Every Precious Metals investor knows about the typical summer doldrums that usually afflicts the Gold & Silver sector as summers are typically poor performance months. However, this summer we were hit with a steep downfall earlier than in most years in April and early May, so there is a distinct possibility that despite gold and silver mining stocks normally waiting until late August to put in a bottom, that the bottom may already be in. I expect the second half of 2011 to produce a very significant rally in PM stocks, given the ongoing disaster that is the EU, the ongoing US debt problems, and the development of new PM futures markets in Hong Kong and Shanghai. If you look at the chart below, you will see that just a couple of weeks ago, on June 16th, the HUI Gold Bugs Index fell to a level comparable to the levels that existed on October 20, 2010 and January 25, 2011. On those respective days, gold was trading at about USD $1,324 a troy oz and USD $1,339 a troy oz. On June 16, 2011, gold was trading about 15% higher than its price level as of October 20th, yet the HUI Gold Bugs mining stocks were trading at a price level that was no higher.
Given the history of gold mining stocks’ performance being leveraged to the upside, many a commercial industry analyst declared mining stocks dead at this point, although at SmartKnowledgeU, we declared them severely undervalued, specifically because we believed Western banking interests were manipulating the PM stocks downward at this point and because fundamentally the best gold and silver mining stocks were still very sound. See our article here called The Surprising Truth About the Volatility of Gold & Silver Mining Stocks for some further analysis about the volatility of gold and silver stocks. In the below chart, you can see that we guided our CIO investment newsletter members to use this volatility for profitability as we instructed them to sell out of the gold mining stocks near a short-term high in early April and then guided them to buy back more shares of the same mining stocks at a lesser price in mid-May.
I’ve written many times in the past about the low utility of technical analysis when analyzing gold and silver assets if one does not also take into consideration Western banker manipulation of these assets. To understand this truth further, please refer to this article I wrote earlier this year called “Technical and Fundamental Analysis Fall Woefully Short When Assessing Manipulated Markets”.
