It’s amazing! Every day I learn something new. I have just come across a very powerful tool that identifies market tops and bottoms in both the gold price and the gold mining industry valuation. Let me share it with you. Words: 352; Charts: 4
So writes Katchum (http://katchum.blogspot.ca) in edited excerpts from his original post* entitled The Ultimate Tool to Predict Gold and Gold Miners Price Swings.
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Alternative #1[According to] the Bernstein Daily Sentiment Index [below] for gold….when the index goes below 30, we have a bull alert on gold [and] when the index goes above 70, we have a bear alert on gold. The problem, [however, is that] it isn’t free.
Luckily, Bloomberg has something similar which is free and can be accessed here. Their chart below shows that sentiment is at rock bottom for the gold price…[which] means we will see a surge in gold in the next few months.
|Chart 2: Bloomberg Commodity Sentiment Gold Bullish Readings|
To confirm that the gold price is nearing a bottom, we can [also] look at the daily sentiment index for gold miners on the site Stockcharts.com. The ticker is $BPGDM. As you can see in chart 3 below, the gold mining sentiment is approaching a bottom under 30 and this should be a positive indicator for the gold mining industry.
|Chart 3: BPGDM (Stockcharts.com)|
To…[ensure] that the correlation works I compared Chart 3 with the gold miners ETF (GDX) chart 4 below and have confirmed that each time the index goes below 30 on BPGDM, we have a short term bottom in the GDX and every time the BPGDM index goes above 70, we have a top in the GDX.
|Chart 4: Gold Miners ETF (GDX)|
The conclusion is that we have a very powerful tool here to mark tops and bottoms in both the gold price and the gold mining industry valuation. I would use these tools to execute short term trading. For example, every time the index goes below 30, you buy the respective security (gold or gold miners) and every time the index goes above 70, you sell the respective security. It’s as simple as that!
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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