Have We Seen The Bottom In The Gold Market?

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 |  Includes: AGOL, DGL, DGLD, DGP, DGZ, DZZ, GLD, GLDI, GLL, IAU, PHYS, SGOL, TBAR, UBG, UGL, UGLD
by: James P. Montes

In a recent article published in Seeking Alpha on December 22, 2013, I made the following comment:

"The gold and silver markets are entering a very strong cyclical time when a multi-year cyclical low is possible. The gold and silver markets are on track from the overall decline of the late-Aug period into the late December time frame and for a 2 month decline from October 28, into the late December time frame. The next time frame comes into play on Dec 23/24 where we can expect that a major bottom is most likely."

After the high of 1434 was made on August 28, 2013, it appears the last leg of this corrective pattern has been accomplished in the gold market. After a bottom confirmation with the December 23 low of 1191.8, and a subsequent test of this low on December 31 of 1181, it confirms this pattern with high probabilities that the bottom in the gold and silver markets has been completed on schedule.

The low of 1181 made on December 31, 2013 fulfilled the published expectations made above. The VC Price momentum Indicator was able to instruct subscribers as to the exact price and we were prepared ahead of time. This information was posted in our Live Trading Room and posted in the Equity Management Academy home page for the benefit of our viewers gratis.

This is an unusual window of opportunity for traders/investors that have long and patiently waited for this anticipated test. The December 31 low triggered a signal for long-term traders to exit short positions. With the market closing above The VC Price Momentum Indicator, it is very strong confirmation that such expected bottom has taken place.

"Big Money" Entering Resources, Precious Metals:

Rick Rule, Chairman of Sprott Global Resource Investments Ltd., says some of the 'big money' that was circling the resource sector has finally found a home. Rick Rule recently commented on a couple of new investment mandates that he believes signal a positive development in the resource sector.

The first mandate is a deal for Sprott Asset Management to co-manage upwards of $110 million in funds along with Zijin Mining Group Company Limited, the largest publicly traded non-ferrous metals mining company in China. $100 million of those funds come from Zijin while $10 million is to come from Sprott Inc., Sprott Asset Management's parent company.

The Fund management company is a joint venture between Sprott and Zijin and will invest primarily in the publicly-listed equity and debt instruments of gold, other precious metals and copper mining companies. The Fund will be co-managed by affiliates of Sprott and Zijin. Under the joint venture agreement, Americas Now Resources Investment Management Corp. has agreed to provide technical and marketing services to the Fund.

In another development, Sprott Inc. announced in December, 2013, that it had been awarded a mandate to co-manage a $375 million private equity fund by South Korea's National Pension Service with a matching $375 million commitment from the state-owned Korean Electrical Power Company ("KEPCO"), the largest electric utility in Korea.

Will China's record imports continue?

In a recent interview, John Embry made the following comments:

"I believe it will come and go but I think China basically because of they're overhang of trillions of US dollars will use every opportunity to buy hard assets anywhere in the world be the gold mines, oil companies, physical gold, etc. I mean they are just going as fast as they can offloading US dollars to buy real things and they have always had a gold culture over there. I expect them to buy as much gold as it is available."

According to Eric Sprott, by annualizing the year-to-date figures he found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, "core" annualized demand is approximately 3,000 tonnes more than mine supply.

One of the most prominent factors in the gold market today is the fact that the banks, after publishing much lower prices for gold - and behind the bear market that bulls have experienced painfully for almost 3 years - have now turned bullish on the price for the yellow metal.

I asked Eric Sprott in a recent interview, what do you think the price should be just based on the fundamentals that you mentioned?

And he said, "The price can be anything based on the amount of outstanding debt, there's been many people that have done those kind of calculations, you come up with $5000 an ounce and many other numbers and I just know that it should be way beyond what it is today at around $1250 and I've expected it should double here in the next year just based on the data I see. All of a sudden we could get a shortage of delivery on Comex. The Comex dealer's inventory today which I think is 18 tons. It's all been spoken for in the delivery notices so essentially it could be 0 tons there. I mean there's going be a time when someone asks for the gold and they aren't going to get it then all hell is going to break loose when the world figures out we all thought we owned gold but it was just paper gold and when people go get the real thing, I mean things can happen quite dramatically in the gold and silver and gold markets."

Let's take a look at the PHYS Sprott's Physical Gold ETF Trust and the futures paper markets and see what we can anticipate for next week of trading.

PHYS

The PHYS contract closed at 10.43. The market closing above the 9 MA (10.22) 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 10.39, it confirms that the price momentum is bullish. A close below The VC Weekly Price Momentum Indicator, would negate the bullish signal to neutral.

Cover short on corrections at the 10.32 and 10.22 levels and go long on a weekly reversal stop. If long, use the 10.22 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 10.49 to 10.56 levels during the week.

GOLD

The February gold futures contract closed at 1254 . The market closing above the 50 MA (1242) is confirmation that the trend momentum is bullish. A close below the 50 MA would negate the weekly bullish short-term trend to neutral.

With the market closing above The VC Weekly Price Momentum Indicator of 1249, it confirms that the price momentum is bullish. A close below The VC Weekly Price Momentum Indicator, would negate the bullish signal to neutral.

Cover short on corrections at the 1242 to 1231 levels and go long on a weekly reversal stop. If long, use the 1231 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 1261 to 1267 levels during the week.

Disclaimer: 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 therein constitutes a solicitation of the purchase or sale of any futures or options contracts

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 AGOL, AGQ, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GLD, GLDI, GLL, IAU, PHYS, SGOL, SIVR, SLV, SLVO, TBAR, UBG, UGL, UGLD, USLV, USV, ZSL 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.