Tuesday, June 4, 2013

Precious Metals - bull still intact

Most recently the prevailing opinion is the bull market in gold and silver is finished.
In that post I don't want to present the fundamental reasons that this is not the case. Instead of that let's look at the charts:

                                                                        source: www.stockcharts.com

Above is the chart of the price action of Central Fund of Canada (the  pool of physical gold and silver). As you can see, the latest selling pressure in precious metals brought the price of that Fund to its long term rising trendline. This is nothing special - just the usual correction in the long term trend. The interesting thing is that the relative strength of that Fund against gold is at historical point where each essential rally started (the red circles).

Now let's look at GLD (SPDR Gold Shares) - the pool of physical gold.

                                                                 left scale - ounces outstanding
                                                                 right scale - price of GLD

                                                     source: Proste Dywagacje

The black line shows the price action of GLD and the green area shows how many ounces of gold the pool consists of. As you can spot, the fund was accumulating gold through many years of the secular bull market in precious metals. And lately something different happened - see the chart below:

                                                           left scale - market value of GLD (usd billion)
                                                           right scale - price of gold (ounce / usd)

                                                                      source: Proste Dywagacje

After breaking the support line above $1500, the capitulation phase started. Investors, anticipating the end of bull market in gold, started liquidating their long positions in gold in panic.

Precious metals are again at their long term rising trendline (CEF chart above). The last phase of that correction occured in the form of panic. And panics are in most cases the last phases of price drops.

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