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Fighting Low Inflation Gold Bottoms!

|Includes: Goldcorp Inc. (GG), SIL

The author was perusing news whilst devouring his breakfast steak (well, maybe not breakfast, but real thick beef loin, as I had been surviving on only coffee for 5 hours this morning), and came across this: 

The Federal Reserve's total asset base has risen to $2.5 trillion dollars in their treasury purchases as the second round of its quantitative easing program.  The objective was to spur economic growth and prevent "inflation from falling too low" (emphasis author's). 

This got me thinking and wondering how Gold was doing in this weird combat of low inflation; I stumbled across this startling chart for my bellweather Gold stock, Goldcorp (GG, TSX: G), displayed following:  (click to enlarge)

G.TO (Daily)

The large white candle for this prime Prima Donna Gold stock yesterday stands in stark contrast to the declining red candles since December.  Though today, there was red, the fact remains, that quite possibly sentiment has changed for the Gold and precious metals sector.  Okay, not so fast, maybe not changed, and just one stock, but indicating some early thinkers have initiated change, and the correction may have bottomed.  Looking above the price chart, the PPO (Percentage Price Oscillator) is showing the faster average (black line) poised to cross over the slower average (red line).  The PPO is similar to the MACD (Moving Average Convergence Divergence) but uses percentages rather than absolute prices).  The PPO black indicator is poised to cross the slower red line supporting the idea of bottoming of prices and the change of sentiment.  At the bottom of the chart, the CMF(Chaikin Money Flow) has gone less negative, again indicating less money leaving this stock than previous.  (Eh, Marco, grasping at straws here --less negative, rather than turning positive, tut..tut!). 

Goldcorp is a high quality recognized Gold stock, and if smart money is moving in, then this bears paying attention to, I thought to myself.  In addition to fighting low inflation, the earnings report and fiscal year for all these large cap producer stocks is just around the corner.  The precious metals miners that are not hedged should be enjoying rather high prices for their commodities sold this past fall and winter, with the burgeoning Gold prices.  Is this stock positioning for the good news expected?

Okay, the bellweather Gold stock is moving, but what about the Silver sector?  Perhaps the author's call for Silver bottom last week was a little bit early.  The chart for SIL, the ETF of the top Silver miners in the world follows:  (click to enlarge)

SIL (Daily)

The chart for SIL above is also displaying a long white candle yesterday, and red for today.  The SIL stock price has declined almost 30% since the beginning of the year. 

I wonder, is not Silver expected to move more than Gold?  Are not the Silver mining equities expected to leverage upon the Silver price moves?  (Yes, the equities also leverage the Silver price moves downwards)  The early smart money seems to be investing now in the Silver equities.  The author posted  a previous listing of possible suspects a few postings back, here.  Yes Silver can be used to fight "Low Inflation" also.

Finally, just to ensure, that we are not just out in left field all alone, let us examine the health of the Canadian Venture Exchange, the home of the majority of Junior mining stocks.  Note that Seeking Alpha contributor J. S. Kim has just posted an exemplary article about investing in mining juniors here.  The chart of the Venture Composite Index follows:  (click to enlarge)

$CDNX (Daily)

The chart for the Venture appears to have idled since the 2011 year started, but is showing a low 3 days ago and a white candle for yesterday.  The chart looks healthy, though some detractors may say the chart appears to be topping. 

Perhaps, this may be a wise time to position oneself in selected Precious Metals Junior mining stocks to aid in this fight against "Low Inflation"?


Disclosure: The author is long Junior mining stocks.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am long Junior mining equities