Until recently our technical interpretations of the Precious Metals charts were pointing us to a long cycle bottom at around 1050 for Gold. But, at this point, at year-end 2017, we now believe that the PM Bull cycle will coincide with the broad equity market cycle, not counter-cyclical to it, which in our opinion will continue to defy the critics on the upside for at least another year.
But, rather than pick a price peak target for Gold or for the equity market, which is a mug’s game, we are going to say only that we are presently re-weighting our natural resource portfolio more in favor of the precious metal miners, which requires a lower weighting in the Oilers. To a degree.
We still are bullish on the Oilers but unlike Gold, which bottomed in December 2016 and has had a recent short-term Bear cycle, Oil bottomed in June 2017 and still has not had a subsequent short-term Bear cycle. In other words, Oil needs to take a small break and Gold needs to get going.
So, we have been expecting a short-term burst of buying in the Gold/Silver Miners and some profit-taking in the Oilers.
As we know, investor buying and selling comes in waves, each going higher and then lower than most of us had anticipated, particularly in the extra volatile commodity-related industry stocks. A week ago, Wed-Fri (Dec. 13-15), our proprietary algo signaled a Buy for almost every one of the 51 Gold/Silver Miners that I monitor. That widespread buying told me that investors were flooding back into the Gold market.
In the few days since then, prices are substantially higher. Just not as high as the extra pop in the Oil and Copper stocks through Thursday this week. Bottom line: In more than half of the Oilers and Copper miners, we took 50% to 75% profits, which were substantial and will provide the ammo we need to buy good quality assets at lower prices in the weeks ahead.
So, it could be said that we’ll be buying the dips in the Oilers (top chart) and Copper miners (lower chart) in the future, but holding the Gold/Silver miners, which is another way of saying to buy the Gold-related dips now.
Of course, it’s a tad early to get overly enthused about the prospects for a Gold Bull that many of the usual suspects are once again promoting. As analysts, we want to see USD weakness, especially against the Japanese Yen. There has been a developing technical Head & shoulders pattern; but as yet is incomplete. Counter to the hopes of Gold Bugs, there has been a honeymoon in Congress this week with the passing of tax legislation and 30-day budget legislation to keep the government operational, and the USD a tad stronger over the holidays. On the other side of the Gold coin, with what is going on politically in the EU (Germany- France vs Italy-Spain) and the military tensions in the Korean peninsula, the Gold picture is becoming a more interesting, and possibly more bullish, one.
Should the charts be showing us higher highs and higher lows, then obviously buying the dips will be a financial success. But, for now at least, go slow.
For the technically inclined, Gold at 1272 needs a further move above say 1290 to confirm sustainable bullishness.
The USD/JPY at 113.38 needs to drop below about 112.50 to further confirm the recent bullishness in Gold is sustainable.
The USD Index at 93.36 needs to fall below 92.50 to confirm a head and shoulders pattern break-out to the downside.
Nevertheless, we believe that the natural resource industry peer groups are headed higher in 2018, pushed up by profit-taking and value-seeking equity market rotation as well as very solid global economic growth. For timing, one can also look at the winter period as a seasonal bullish play.
Seasons Greetings!
As capital markets are wrapping up the year and investors are looking forward to a successful 2018, Owen and Bill want to wish you all a healthy, joyous holiday season and a happy new year.