I wrote nearly a month ago that "The Worse Things Were For The Mining Sector, The Better They Will Get". This was after the first downward plunge in gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) in April due to the Goldman short.
Now four weeks later, gold, silver and the miners (NYSEARCA:GDX) tested that April low and even fell below it only to reverse higher than the previous day's selling. Across the precious metals board, we witnessed bullish engulfing patterns. We witnessed a similar reversal back in October of 2011 in the S&P500 (NYSEARCA:SPY) when we called for a bullish upturn in equities. See the video update from back then.
We saw today (Monday) gold, silver and both the large and junior miners (NYSEARCA:GDXJ) dip lower at the open and close above Friday's high on more than triple average volume. This is a significant technical development as it means the gold bulls have regained control at a key technical low.
Silver hit a five year trailing average in the low 20′s and gold hit a three year trailing average below $1350. Multi-year support should hold after this downturn for close to two years.
This is one of the first major bullish engulfing's since the decline and may suggest that a low is in place and the end of the decline may be near.
This technical occurrence happened at the same time as Moody's threatens a credit downgrade for the United States. According to them not enough is being done in the U.S. to bring down soaring deficits. Don't forget the downgrade from the S&P in August of 2011 sent gold soaring to $1900.
Do not be surprised to see a reemergence of sovereign debt issues in the United States. The U.S. dollar (NYSEARCA:UUP) and long-term Treasury bonds (NYSEARCA:TLT) have been direct beneficiaries of the recent Japanese yen (NYSEARCA:FXY) devaluation and may soon see topping action. This could spark a rally into the commodities (NYSEARCA:DBC), energy (NYSEARCA:XLE), precious metals and the miners which historically has a negative correlation with bonds and dollar strength.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.