For weeks I have been predicting that precious metals and the junior gold miners would bottom and outperform in January. Now gold (NYSEARCA:GLD) is breathtakingly breaking above the key 200 day moving average and breaking four month highs as the World looks to gold as a safe haven. The intermediate to long term trend may be turning positive for gold and silver (NYSEARCA:SLV) and unfortunately the amateur investor has already panicked out or may be covering their shorts.
This breakout in gold could end the lower high pattern or downtrend. Sentiment is changing from negative to positive. Already for weeks, I highlighted the positive momentum in the junior gold miners (NYSEARCA:GDXJ) despite the new low in December. This divergence usually signals an interim bottom and turning point. A few weeks ago precious metals and the shares were hitting new lows. The amateur investor panicked out. I told my subscribers to hang on and buy more at the bottom. Now the Junior Gold Miners are up over 14% since the beginning of the year outperforming the S&P500 (NYSEARCA:SPY) and US dollar (NYSEARCA:UUP).
Despite oil and copper (JJC) collapsing along with equities, precious metals and mining stocks (NYSEARCA:GDX) appear to be bottoming and showing great relative strength. Right now, gold as a safe haven may be where the action is greatest. The US dollar may peak as investors realize that the US economy is still far from recovered. The oil and copper collapse is giving a loud shout to investors that the global economy is nowhere near recovery and looks more like the 2008 Financial Armageddon. One of the few things that can maintain its purchasing power in this sort of market is gold. Believe it or not another yellow metal which has held up well despite the 50% correction in oil is uranium.
I told my subscribers at the end of 2014 that smart investors should be defensive against the overbought equities with inverse S&P500 ETFs such as Proshares Short S&P 500 (NYSEARCA:SH) or a short financial fund (NYSEARCA:SEF-OLD) and go long gold and junior gold miners in this sort of chaotic environment. The banks are sitting on major energy losses, while the S&P500 is made up largely of energy stocks and companies who profit off of emerging economies. It is way overbought and we could witness a powerful crash in equities that mirror the oil crash.
I believe mining assets with real potential could come back into favor. I am accumulating hoping that within the next decade we could see a major run higher in this sector. Eventually, the trillions of debt will be paid back with devalued US dollars. Rising interest rates and inflation could pick up in 2015 especially in the US benefiting our beaten down wealth in the earth sector.
Real gold mining assets in stable jurisdictions will go up in value. It is only a matter of time and patience. I like the junior gold miners especially the explorers now in Nevada and Quebec. Governments can print another trillion dollars by pressing a button at the printing press. This can't be done in the gold exploration business. It takes years and a lot of divine blessing to find a million ounces of gold. Investors may now be able to believe this as gold breaks above the 200 day moving average.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.