In a recent interview, Rick Rule, founder and chairman of Sprott Global Resource Investment Ltd., said the gold and silver markets are in a retrenchment that offers a "sale" opportunity to buy gold on the cheap. His fundamental analysis supports the research provided at the Equity Management Academy.
"I think what you have now," Mr. Rule said of the gold and silver markets, "if you were walking through a shopping center, you would call a sale."
"Well, you know I love bear markets. It has been my experience that what a bear market really is a sale! It's funny that when we go to buy consumer products we love markets that are on sale. For some reason when we go to buy financial products, maybe because of our existing inventories, we don't like goods on sales. I would remind your listeners that it is bear markets that are the authors of bull markets. These extremely oversold situations that kick off the market rallies that reinforce the confidence that become bull markets, and the idea that you want to buy financial assets that have been marked up because the act of marking them up reinforces your prejudice is pretty silly. The time when you would want to buy goods is when they are on sale and you by definition can't buy goods on sale in a bull market. You have to buy them in bear markets."
In a bizarre twist, Mr. Rule argued that people prefer retail goods on sale, but they prefer financial goods when they are overpriced. Why not buy your stocks, bonds, gold and silver at a sale price?
The current turbulence in the gold and silver markets has many investors worried as the precious metals fall in price. Whether based on technical or fundamental analysis, turbulence must be considered in the context of history.
Technically, EMA concluded that the current retracement is part of a longer cycle that should take gold and silver much, much higher in the next few months. Relying on lessons from history, Mr. Rule said that the current bull market in gold, which began in 2000, has experienced seven or eight 10% retrenchments as gold rose from $250 to more than $1,500 an ounce. After every retrenchment, he said gold has come back and recovered the retrenchment in fairly short order, and gone on to make higher highs. Mr. Rule is convinced that the same thing will happen again.
"It is important to use these retrenchments to shop for goods on sale," Mr. Rule said.
Mr. Rule mentioned that in the 1970s gold ran up from $35 to $800 an ounce, yet in the middle of that run gold in 1975 experienced a decline from $200 to $100 an ounce. Those who were shaken out of the market in 1975 then missed a move from $100 an ounce to $850 an ounce in six short years.
Fundamental analysis also points to a big move in gold and silver. Mr. Rule said, echoing John Walden, "I wanna own stuff they can't print," which is gold, silver and other precious metals. As I have argued several times in Seeking Alpha articles, as governments around the world devalue their currencies by printing more money, the nominal value of gold and silver increases against those currencies.
Mr. Rule said that the Federal deficit is half the US budget, but half the debt is not borrowed, it is "simply counterfeited." This printing of fiat money just puts greater and greater upward pressure on the gold market, which, one day, will break out and shoot up.
EMA has technically predicted a big move in about June, but Mr. Rule argues that the timing of the move is unpredictable; he just knows it will happen. Mr. Rule also recommends spreading your investments by buying all kinds of precious metals, since gold is usually bought for fear and silver for greed. Covering both emotions at this point should be a good deal, especially with both precious metals in a retrenchment.
Turning to mining shares, Mr. Rule echoed the advice of Bullfrog Gold Corp. CEO Dave Beling, David Morgan of The Morgan Report, and my emphasis on finding promising companies among an overwhelming majority of juniors which are valueless.
When gold and silver return to another upturn, promising small mining companies with reserves in the ground, in-place infrastructure and a management team with expertise in their specific area of operation (geographic, type of metal and mine), are going to take off.
Contrary opinion, technical analysts and experts who focus on the fundamentals are in agreement: it is an excellent time to get into the gold and silver markets. For mining stocks, do your homework, find the good companies and they should provide a healthy return when the precious metals start moving.
Let's take a look at the gold and silver markets and see if we can identify some live trading opportunities for next week.
The April gold futures contract closed at 1591. The market closing above the 9 day MA (1583) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bullish short-term trend to neutral. With the market closing above the VC Weekly Price Momentum Indicator of 1588, it confirms that the price momentum is bullish. Look to take some profits, if long, as we reach the 1600 and 1608 levels during the week. Buy corrections at the 1581 to 1568 levels to cover shorts and go long on a weekly reversal stop. If long, use the 1568 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
The May silver futures contract closed at 28.78. The market closing above the 9 MA (28.74) is confirmation that the trend momentum is bullish. A close above the 9 MA would negate the weekly bullish short-term trend to neutral. With the market closing below the VC Weekly Price Momentum Indicator of 28.89, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 29.22 and 29.61 levels during the week. Buy corrections at the 28.49 to 28.17 levels to cover shorts and go long on a weekly reversal stop. If long, use the 28.17 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGQ, AG, PSLV, SLV, GLD, PHYS, GDX, USLV over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.