Sunday, November 01, 2009

Gold Tsunami VII: This Is It

1 November 2009

The gold tsunami is now rolling in.

This is the big wave.

Let me clarify. I am not a short-term market timer, nor a prognosticator. However, I watch a number of indicators. While gold and gold stocks are presently in a period of weakness, here's what I'm noticing....

On Friday, October 30, 2009, there was a solid recovery in the gold price - while much else was falling.

There was also a recovery in the Toronto Gold Stock Index, despite weakness in general equities.

Notice that the S&P 500 didn't recover on Friday, October 30.

I also follow proprietary indicators published by investment advisories. I recommend that you subscribe to the Aden Forecast. Their leading indicator for gold shows that gold's almost $400 climb from its October 2008 low takes us only a little more than "halfway" to where gold is going on its current bull run (be advised that the positive 8-year trend produces both higher highs and higher lows - that is, the leading indicator produces bigger numbers on the up side than on the down side).

I also advise that you subscribe to Adam Hamilton's Zeal Intelligence Service. Mr. Hamilton's relativity analysis (based on comparing current prices to 50 and 200-day moving averages) shows that the current prices of gold and gold mining stocks remain moderate. Note that relative gold can run much higher from here. Why? Gold is outperforming just about every other class of investment in the current market - thus it is not particularly high relative to its 50 and 200-day moving averages.

There is also room for the HUI (Gold Bugs Index of unhedged gold mining stocks) to run another 50% or so from here. That is, the HUI has no technical impediments to moving to the 600 level, and with a stretch, it could move somewhat higher. Interestingly, the recent sharp pullback has bought the HUI much more "relative" upside room. That is the positive function of "corrections of sentiment." Lower levels now give us more room to run in future without taking us to overbought levels. Consider that a tsunami works on the same principle. That is, the advancing wave draws energy from the receding sea before it.

The long-term HUI-to-gold ratio (which recently bottomed at .361 on Friday, October 30, 2009) can also run up another 50% from here without stretching beyond levels attained in 2003-04 and 2006-07. And as you'll read below, there are good fundamental reasons to expect a return to such levels to occur.

Returning to gold, here is an indicator I haven't watched previously, but it is very interesting. This chart indicates that gold's more recent 50-day moving average can run much higher against gold's longer-term 200-day moving average.

I also highly recommend P. Radomski's Sunshine Profits to my readers. This fellow is producing some of the most insightful technical analysis out there. What are Mr. Radomski's charts telling us? In brief, that this is the best gold stock buying opportunity since October 2008....

The Gold Miners Bullish Percent Index reinforces this message.

In sum, what is the picture? Every indicator I follow is presently bullish both for the price of gold and for gold stocks. This is a combination of circumstances that occurs only rarely. Why are we seeing every technical indicator lining up in favour of gold and gold stocks right now?

The gold tsunami is here.

Gold is now exploring new highs with no ceiling in sight.

Gold mining stocks are increasing (and restoring) their leverage to gold. With higher gold prices and lower production costs than in 2006-2008, increments in the gold price strongly boost the profit margins of the gold miners. This equips them with hoards of cash that can be used to develop and expand existing operations, to acquire other miners, and, longer term, to pay increasing dividends to their shareholders.

Have you ever wanted to own a gold mine? If so, now may be just the right time to purchase your share in more than one of them!

My gold tsunami posts are as follows:

There Is a Tsunami Coming in Gold

Gold Tsunami II: Anthropomorphizing Gold

Gold: Safe Haven in the Approaching Perfect Storm

Gold Tsunami III: James Kunstler's Use of the Analogy

Bond Prices: The Seismic Shift That Triggers the Gold Tsunami (IV)

Gold Tsunami V: The $23 Trillion Bailout... and Counting

Gold Tsunami VI: Looking for Patterns in Gold Price Advances

Gold Tsunami VII: This Is It

Gold Tsunami VIII: Gold Mining Stocks Now Participating


  1. You can save wealth in recession if you have gold bullion.

    Thanks for the great reading, we buy gold bullion in a recession. I will pass this on to our ira clients to read.

  2. Will silver keep pace with gold ?