When could the next buying opportunity for precious metals occur?
''Precious Metals: Buying Opportunity Coming
We went long a few value plays lately which we feel will pay handsome dividends over the long term. The great thing about value plays is that they can have a mind of their own in that they do not necessarily follow the stock market. Remember, the stock market is essentially a market of stocks; meaning, at any time (once the market wakes up to an undervalued opportunity), a cheap stock can completely buck a bear trend, for example, in the overall general market.
This is one way we achieve diversification in our portfolio. Another way we achieve diversification is to invest in commodities namely precious metals. Crude oil, for example, has been trading in a highly correlated fashion to stocks as of late, so there has been no clear diversification there. Precious metals, however, have been marching to their own drum which is why we feel there is a very attractive opportunity currently brewing in this sector at present.
The start we had on Monday the 1st reiterated our belief that price is most likely dropping into an intermediate cycle low. Remember, we now are on week 33; meaning, we are definitely due an intermediate cycle low at any time now.
The week 29 low which actually dropped to the 38% retracement level would have most likely caught some bulls on the wrong end of this trade. Although that low would have been in its timing band for an intermediate low, the weekly technicals simply did not drop to anything near oversold levels which usually happens at intermediate lows. However, now is the time to remain prudent. Price once again is closing in on the 38% retracement level and the RSI and stochastics, for example, are getting more oversold by the day. Our best guess for an intermediate low considering the duration of this cycle is around the 50% Fibonacci retracement at about $1,259 per ounce. We will be on the lookout for a swing low when it comes.
Apart from yearly cycle lows, intermediate lows are the best buying opportunities in cycle analysis. Why? Well, look at the last intermediate cycle in gold, for example. Gold bottomed in mid-August last year and rallied all the way to an intermediate high in mid-February of this year (6 months later). That trade if timed perfectly returned over 26% over 6 months which equates to 52% over a 12-month average.
We continue to hold a small GLD position in this sector but will add aggressively over the next few weeks most likely in a different vehicle. It will be interesting to see whether an intermediate rally in gold will take place alongside a pending intermediate decline in stocks. Will update in due course.''