It was a beautiful, sunny day today where I live in Los Angeles, but there appeared to be a dark cloud over New York-- especially in the commodity mining sector.
The good news is that the gold mining sector, while down more than 3% on the day, held well above its recent bottom. The senior gold mining fund, GDX, held 7% higher than its 52-week low and the junior gold mining fund, GDXJ held 9.3% above its ultimate low of less than one month ago. These are very healthy indicators following the 15% and 20% rallies for these two funds respectively from their recent lows.
Any major trend reversal has its leading and lagging sectors. In 2008, the gold mining sector bottomed in October and began setting a bullish pattern of higher lows. By November 20th, the overall markets got hammered again and the coal mining sector hit its eventual bottom.
It wasn't until March of 2009 that the S&P 500 index finally reached its ultimate bear market low, demonstrating how major trend reversals are a sequence of events with leading and lagging players.
The gold mining sector is pointing the way higher for commodities of all varieties over the upcoming months. By the first quarter of 2014, inflation is likely to be the concern of the day as the U.S. dollar, which has finally begun faltering lately, will again be getting no respect.
Last month, I added to losing gold mining positions not because it felt good--it felt terrible--but because all evidence was indicating that the end of the carnage was near and the ultimate rewards would be great. My article, "Gold: The Recent Collapse And Approaching All-Time High" gives the historical precedent for the gold market to not just rebound from its current oversold condition, but can be expected to soon rally to a new all-time high.
Buying into a leading sector (such as gold mining) as it is bottoming is an unnerving experience as one doesn't know in advance how long the decline will continue or how low it will go. Waiting for an obvious trend reversal and then buying into higher lows is a more comfortable experience and a winning strategy too. Buying into lagging sectors like coal mining as they are bottoming is somewhere in between on the comfort scale and also a proven strategy for investment success.
If I were underinvested in the gold mining sector, I'd be favoring it right now for purchase since its upside potential is greater than any other industry I'm aware of. Instead, I bought KOL as it appears to be near its bottom and could easily increase 50% over the next 12 months.
Like it or not, coal continues to be a major source of energy and while I hope we stop polluting our planet by burning coal, that's unlikely to happen over the next few months.