If you look at the same simplified, clean chart of the HUI Gold Bugs index again below, you can see that a technical “death cross” sell signal originated around June 24th last month. In response to the “death cross” sell technical signal, this is a portion of a detailed commentary I sent to my Platinum members on June 24, 2011. The death cross, “in many the mind of a chartist, is supposed to trigger an immediate steep decline in said stock or index. I've written many times before that understanding the fraudulent activity in mining stocks is much more important to predicting the immediate price behavior of mining stocks than technical analysis.” Thus, I told my Platinum members to disregard the death cross event because it was of little significance. Then on June 27th, when the fear was palpable of a larger sell-off in the mining stocks because of the one-day plummet in the HUI that accompanied the death-cross event (indicated in the above chart), I told my Platinum Members that instead of panic-selling, to get ready for a significant rebound. I told them “I believe that since we re-tested the most recent lows, and that level held, that the short-term bottom for mining stocks should be in.”
Back then my view was the contrarian view among technical analysts and not the consensus. Back then, many analysts spoke off impending doom in gold, silver and PM stocks, with some even stating that gold and silver were ready to "fall off a cliff". Despite the fact that serious gold and silver investors knew the "fall off the cliff" prediction was very unlikely, the average investor that has never invested in gold/silver assets was likely to be fooled by this mainstream commentary. Even with the recent very strong recent performance of gold and silver mining stocks, we believe that this is just the beginning of what will be very significant returns in PM stocks over the next 6-9 months. We also believe that the many Commercial Investment industry analysts that declared the upside leverage of PM stocks as dead as of mid-June to be 100% wrong. We believe that the upside leverage of PM stocks to the underlying commodities of gold and silver will manifest itself very strongly again in the near future.
If you refer to the first chart above, even with the very strong recent move higher this week in PM stocks, you can see that the HUI Gold Bugs Index closed at 565.11 yesterday, a level comparable to where it stood on December 10th, 2010. On December 10th, gold traded at $1375.25 a troy oz. Yesterday, gold closed at $1583.60 a troy oz, a 15%+ premium to its price on December 10th, when the HUI Gold Bugs Index was trading at the same level. Thus, even with the strong recent move higher, one can still make a strong argument that that gold (and silver) mining stocks are still greatly undervalued even as of today. We’re not saying that the PM stocks may not take a breather shortly with its recent strong move higher, but we are confident that the upside for the rest of the year for the best in class gold and silver mining stocks is still very significant. For more expert insight into gold and silver markets and specific gold and silver stocks, please come visit us at SmartKnowledgeU .
About the author: JS Kim is the Managing Director of SmartKnowledgeU Research, a fiercely independent investment research & consulting company that offers a subscription Crisis Investment Opportunities newsletter that is now available for the first time on a monthly as well as an annual membership basis. To learn how to download a couple sample Crisis Investment Opportunities newsletters for free, please click on the above link. Just click these links to follow SmartKnowledgeU on Twitter and to "Like" us on Facebook.
