The smart money has been moving into precious metals during dips in recent months as many view the sector as one of the last places to find real value given that stocks, bonds, real estate, and nearly every other asset class, has been inflated to lofty levels by the FED’s easy money policies since 2009. I believe we are witnessing one of the last great buying opportunities in precious metals. When prices start moving higher again, there will be little time to jump aboard the train. The downside risk at this juncture pales in comparison to the upside potential.
The above introductory comments are edited excerpts from an article* by Jason Hamlin (goldstockbull.com) entitled Time to Buy the Dip in Gold?.
Hamlin goes on to say in further edited excerpts:
Gold Is Oversold
Gold is oversold according to technical momentum indicators and is due for a rally. Gold has strong support in the $1,180 to $1,200 range, but has been consolidating around $1,220 in recent days.
Gold Production Is Down
Furthermore, the gold price is now near the tipping point for mine cuts and closures. Most miners simply can’t turn a profit at current price levels. In some cases, it is costing miners more to pull an ounce out of the ground than it costs to buy the finished product in the open market.
Simply put, the market is out of whack and these conditions can not persist for long. In the first five months of 2014, U.S. mine production was 85,400 kilograms, down 4% from the 89,200 kg of gold bullion produced in the first five months of 2013.
Gold Demand Is Up
Bullion sales started picking up in the past month. Data for August shows gold sales stronger at 36,369 ozs compared to 25,103 ozs in July, with silver sales also up strongly at 818,856 ozs compared to 577,988 ozs in July. Month-to-date for September, gold Eagle sales across all coin sizes have already reached 43,200 oz compared to total gold eagle sales of 25,000 oz in August. This is also well ahead of September 2013, when total gold eagle sales for the month only touched 13,000 oz.
But of course the real demand is coming from central banks around the globe that remain net buyers. China and Russia in particular have been buying gold aggressively over the past few years. This is continuing, despite sharp declines being reported in Hong Kong. This is due to a shift in transactions to the new gold exchange in Shanghai. Total demand from China in 2014 is likely to be near the record levels from 2013, not down double-digits as some with an anti-gold bias have been inaccurately reporting.
There simply will not be enough supply to keep up with the continuing robust demand. Anyone that has taken Economics 101 understands the ramifications of lower supply with steady or increasing demand.
The U.S. Dollar Index is Overbought
The USD index is the most overbought it has been in years. The dollar has followed a very predictable pattern during every previous move to such extreme overbought levels (RSI 70+). It isn’t hard to guess what happens next.
- Gold Price Dependent on Extent of Money Supply NOT Direction of US Dollar Index – Here’s Why
- The USD & U.S. Dollar Index – What Affect Are They Having On the Price of Gold?
- The U.S. Dollar Index: A Deceptive Indicator of USD Strength
Dominance of Gold Shifting From West to East
It is only a matter of time before price discovery moves from banker-controlled Western markets to the East.
China and Russia continue to purchase gold aggressively.
Once China announces updated reserves, the true extent of their buying will be known to the public. This could be the spark that lights the fuse for gold!
Mining Stocks Undervalued
Even more exciting is the profit potential from select, best-in-breed mining stocks. Relative to the metals, mining stocks are currently the most undervalued they have been since the start of the bull market. I expect leverage of 2 to 4 times the advance in the underlying metals once a new uptrend begins.
- Gold Shares Have Bottomed & Will Now Outperform Physical Gold Over Next 5.5 Years
- Plenty of Additional Upside Potential Directly Ahead for PM Miners
- Get on Board – NOW! We’re On the Verge of a Major Bull Market Advance Across the PM Sector.
For example, if silver doubles back to its 2012 high of $35, we are likely to see quality silver stocks advance by 200% to 400%. These numbers may sound extreme, but this type of leverage has been commonplace throughout the current gold bull market. Of course, it cuts in both directions, which fuels the high levels of volatility in this sector, but if you have the stomach for it, volatility is your friend and can greatly increase your returns.
- Silver: The Price Could Easily Double or Triple – Here’s Why
- Silver’s Neon “Sale!” Sign Is Flashing Like A Disco Ball! Here Are 7 Reasons Why
I like holding physical bullion in my possession first and foremost. I will be adding to my silver bullion holdings this week. Additional funds will be going into a few hand-picked junior mining stocks with new discoveries, strong growth profiles and short-term catalysts that I believe could send their share price soaring. I also remain bullish on royalty and streaming companies that are able to mitigate downside risk, while keeping upside potential wide open.
I am still waiting for our technical models to give the green light that a bottom is in place, but it appears we are getting close. Buying opportunities like this do not come along very often and we are now heading into the high seasonal period for gold and Indian festival season.
I believe we are witnessing one of the last great buying opportunities in precious metals. When prices start moving higher again, there will be little time to jump aboard the train. The downside risk at this juncture pales in comparison to the upside potential.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.goldstockbull.com/articles/time-buy-dip-gold/ (Copyright © 2014 Gold Stock Bull, All rights reserved. If you would like to receive our timing alerts, consider becoming a Gold Stock Bull Premium Member. You will be able to view the 10 stocks we currently hold in the Gold Stock Bull Portfolio and the 20+ stocks in the Gold Stock Bull Watch List. The premium membership also includes our top-rated monthly newsletter and detailed email alerts whenever we are buying or selling. Our trial offer gives you a 3-month quarterly membership at just $95 and, best of all, you can try out the service for 30 days risk free! If you do not find our research and analysis valuable, you can simply cancel at any time within the first 30 days for a full refund. Go here for instant access!)
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