TheGoldAndOilGuy Sunday Dec 7th Newsletter
Broad Market Outlook:
Friday the NASDAQ 100, SP500 and Dow all closed higher at the top of their trading ranges. This sets a neutral to bullish tone as we could see more consolidation or higher prices for equities in the near term.
Volatility remains extremely high for equities and holding cash is the best position at this time. Many traders are trying to pick the bottom and I recommend not playing that game. Know one knows when and were a bottom will take place and with current volatility levels you can lose 10% in one day. It is best to hold on to your savings for now and wait until the market becomes better before investing. Let’s not worry about missing the first rally witch will most likely be a sharp couple days straight up, but instead wait for a safe opportunity to put our hard earned money to work and continue to add to positions as we get corrections.
Gold & Silver Outlook: Gold and silver closed lower on Friday. Gold had a long lower wick which generally indicates a small one or 2 day bounce could occur early next week.
Gold & Silver’s Long Term View
The 13 year gold miner’s index chart shows a very large cup and handle pattern which is a long term bullish pattern. Prices have eroded sharply this year pulling the index back down to a major support level in October and November bouncing sharply higher off this support level. We will keep our eye on this chart as the gold market unfolds.
Gold Miner’s Index
Gold Bugs Index is a great indicator and generally I find it leads the price of gold for up to 4 days on the daily chart and up to 2 months on the monthly chart in some situations. The monthly chart of the HUI shoes a very clear picture as to where we stand for gold and gold equities. Again we have had a solid bounce off support, but what we really want to see here is the HUI to continue climbing faster than the price of gold which will help confirm the bottom for gold prices. It is important to note that bear markets tend to pull all stocks down with it, which is why the ratio between the price of gold and gold stocks is to extreme. As sellers force stocks down in fear of losing more money, investors are slowly buying gold and silver as it is generally a safe haven during times like these.
Gold Bugs Index – Monthly Chart of HUI
Gold & Silver’s Short Term View
The daily HUI chart is something I pay close attention simply because gold stocks generally out perform the price of gold in rallies. As you can see in the chart below the gold bugs index has made a higher low and a higher high. This is generally the first sign of a trend change. If the HUI doe not break below our support trend line and we get a bounce, then we will be looking to buy gold equities and gold with low risk setups (risk under 3%).
Gold Bugs Index – Daily Chart
Short Term Gold Prices
The GLD exchange traded fund continues to struggle and hold its ground. Although the price action of gold does not look very strong, it is a good sign to see gold equities showing strength as they generally lead gold prices. If things work out in the next 1-3 weeks we could be getting a buy signal for gold and gold stocks but waiting for the market to prove it is worthy of our money is crucial during such high volatility times. The chart below shows the price of gold with our support level and also shows equities strength compared to the price of gold.
Gold Prices – GLD Gold Exchange Traded Fund – Daily Chart
Gold Equities ETF – GDX Market Vectors Gold Miners
When trading gold stocks I prefer to trade GDX exchange trade fund because it is excellent liquidity and performs very well with my trading model and also holds high quality PM stocks. As you can see from the chart below it looks very similar to the gold bugs index (HUI). Price action for this fund look strong and if we get a low risk setup within in the next 1-3 weeks we will put money to work with fund.
GDX Exchange Traded Fund – Daily Chart
Silver – The Unpopular & Undervalued Metal
I have had my eye on silver for a few years watching it go from $5 to over $20 within 5 years. That’s an average of 60% per year. Silver is metal which only a small group of investors actually own compared to its popular sister (Gold). That being said, most investors only jump on the band wagon after things become popular like gold. Silver in my opinion could be the next really big winner. I do think Gold and Oil in the long term will by much higher but not nearly the type of return silver could yield us. So this is why I am pointing out silver at these prices and looking for a low risk entry point. Silver is down over 50% from its highs and at long term and short term support levels.
Silver’s Long Term View
Silver’s Short Term View
As mentioned above silver is an investment which I think could be the next popular metal and generate massive returns. Below is the daily chart of the silver (SLV) exchange traded fund showing that we are near a buy point if things continue to hold up.
SLV Exchange Traded Fund – Daily Chart
Gold and Silver Summary:
Gold and Silver metals and equities are showing signs of a bottom and possible entry points for our money to be put to work for a counter trend trade. Most commodities and equities are at levels which are very important to hold, and if these current prices do not hold up we may see another substantial drop is almost every investment from commodities, equities, real estate and possibly the US dollar. I would expect gold to hold its value the most if the broad markets crack and continue their death spiral lower. My main concern is that people will start to sell all their investments like gold and silver because they will need money to cover living and credit problems. If this starts to happen gold may not hold its value either. That being said the markets are looking fairly strong as of Friday and a bottom may have been put in already. If we get these setups you SHOULD invest in BOTH gold and Silver as a powerful diversification strategy. There certainly have been times when gold prices have held up better than silver and vice-versa. Hold both precious metals and you iron out some of the fluctuations inherent in the market while maximizing your returns.
The Oil Outlook
Crude Oil closed lower on Friday breaking down below its channel posting a new low for the year which is not a good sign for higher prices. That being said, lower oil prices generally help boost the markets and allow everyone to pay a lot less at the pumps.
You will notice on the chart below of Oil that Oil equities have been holding their value compared to crude Oil. I believe that’s because stock valuations at levels most of us have never seen before and may not ever see again. Most of these energy companies pay dividends and people are accumulating positions with such high yield rates. Stocks typically anticipate economic recoveries and turn 6-9 months in advance and this could be what we are seeing here.
Oil prices move with daily/weekly demand levels and thus are a real-time indicator of supply vs. demand for the commodity. Oil price could continue to slide to the $25 level which was mentioned by several forecasters this week as demand continues to deteriorate.
I currently do not see any near term setups in Oil or Oil equity funds and the chart below shows Oil now how momentum and Oil equities are trending up while Oil continues lower. I’m thinking we are getting close to a bottom but generally 75% of the move comes during the last 25% of the time. Trading low risk setups is important when trading in high volatility markets like this.
Crude Oil Fund – USO Exchange Trade Fund
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