Bullish Relative Price Action In Gold & Silver Mining Shares

In mid-January I became concerned that the explosive early 2015 rally in gold and silver mining shares was overdone and therefore subject to a meaningful correction. Please see my January 20th post entitled "Is Gold Still The Most Hated Asset Class?". I personally liquidated all my precious metals position in favor of cash at that time.

Gold and Silver prices have broken sharply since their mid-January highs and have now retraced almost all the strong advance that had unfolded between early November and mid-January.

The most popular Gold ETF (symbol GLD) had rallied 14.5% from its early November 2014 low, but now it's up only 3.3% from that low.

The most popular Silver ETF (symbol SLV) had rallied 20.8% from its early November 2014 low, but now it's up only 3.8%.

Friday was a fairly significant down day for Gold and Silver prices as investors reacted to a stronger than expected February U.S. non-farm payrolls report, which will supposedly push the U.S. Federal Reserve to raise short term interest rates as soon as June 2015. While I have my doubts about the veracity of the latest employment data from the Bureau of Labor Statistics (BLS - where are the 40,000 confirmed job losses from the energy sector in the two monthly employment reports so far this year?), that's a story for another day. 

In recent columns here, I have offered the suggestion that the recent correction in Gold and Silver prices has about run it course (and that a new advance was ready to get underway). In fact, as of Thursday's close, March 5th, I had accumulated a 10% allocation in gold mining shares (mostly in GDX and GDXJ), with the intent to increase this stake to near 20%. Of course, I didn't anticipate the "slam" in precious metals mining shares that unfolded yesterday, Friday, March 6th. Most Gold and Silver mining shares were down between 5% and 10% yesterday in reaction to about a 2.5% drop in the underlying precious metal prices.

So where do we stand now? I added significantly to my gold mining shares yesterday afternoon and I also bought meaningful positions in two silver stocks yesterday (AG and CDE). My allocation to this sector is now 30% of assets under management. 

Despite the fact that Gold and Silver prices have given back almost all of their gains as posted in the November 2014 to January 2015 advance, most precious metals mining shares are still up sharply, on balance, from their late 2014 intra-day lows. Here is a representative sample of key stocks in this sector and their respective gains relative to intra-day lows posted late last year::

Goldcorp (GG)             +12.0%

Barrick Gold (ABX)      +13.1%

Newmont Mining          +32.4%

Major Gold Mining Shares ETF (GDX)       +12.9%

Junior Gold Mining Shares ETF (GDXJ)      +9.4%

First Majestic Silver (AG)    +46.7%

Coeur D Alene (CDE)         +49.3%

Gold ETF (GLD)        +3.3%

Silver ETF (SLV)        +3.8%

Bottom Line: I see the recent relative strength in the gold and silver mining stocks, as compared to the underlying precious metals prices, as VERY positive and bullish for the entire sector immediately ahead!

P.S. Weekly chart sell signals were triggered at Friday's close, March 6th, in several major U.S. stock indexes as well as several sector indices. In the interest of full disclosure, I missed the entire decline in U.S. stock prices this past Friday and I do not have any short positions right now. Weekly chart buy and sell signals are the most reliable signals from my computer-based trading system. Here is the complete list of weekly chart computer-based sell signals in major indexes and sector indices at Friday's close, March 6th:

Dow Jones Industrial Average (DJIA)
Dow Jones Industrial Average ETF (DIA)
Nasdaq Composite Index (OTC)
Nasdaq-100 Index (QQQ & NDX))
Russell 2000 Index (RUT)
Russell 2000 Index ETF (IWM)
Russell 2000 Value Index ETF (IWN)
Morgan Stanley High Tech Index (MSH)
Philadelphia Semiconductor Index (SOX)
Semiconductor ETF (SMH)

Dow Jones Industrial Average Weekly Chart with Computer-generated Buy & Sell Signals

Nasdaq Composite Index Weekly Chart with Computer-generated Buy & Sell Signals

Russell 2000 Index Weekly Chart with Computer-generated Buy & Sell Signals

Golden Apple

Apple, Inc. has a market capitalization of about $750 billion, which makes Apple the largest publicly traded company in the world. And there really isn't a "second place" when it comes to market capitalization. Other great companies, like Exxon, Microsoft, Google, and Berkshire Hathaway have market capitalizations of approximately 50% of Apple.

Why do we care? 

Am I recommending Apple for purchase? NO

Am I recommending Apple for short sale? NO

So why is Apple the most interesting company on the planet to me right now?

Apple is about to introduce its long awaited Apple Watch. Just another time piece? Probably not! At least not when it comes to the Gold market. Yes, the GOLD MARKET !!

The Apple Watch featured on the far right of the above picture is called the "Edition" collection. Early reports indicate it may contain as much as two ounces of gold, with models ranging in price from $5,000 to $7,500 each. There is actually a research report out on the Street right now that forecasts monthly sales of the Gold Edition in the neighborhood of one million units a month!

Is this even possible? Let's go with this incredible forecast, just for a moment. If Apple sells one million gold edition units per month, Apple would need to buy two million ounces of gold per month, or 24 million ounces over the next year. That's 750 tons of gold that would be needed for just one year's "Edition" collection of Apple watches. This kind of demand could easily make Apple the largest buyer of gold in the world, even ahead of China and India (the current largest buyers of gold in the world). In fact, Apple's demand for gold, at 750 tons, would represent approximately 25% of the entire annual mined gold production in all of 2014.

Let's back up a minute. Can Apple really sell one million luxury watches per year? Maybe we can take a closer look at this market and make a reasonable assessment of this outrageous forecast. Rolex, the world's largest luxury watch maker, currently sells slightly less than one million units per year. Since Rolex watches are in the same price range of the new Apple luxury "Edition", I doubt that Apple will sell one million units per month. However, I have personally underestimated Apple's capabilities over the last decade, at least!

So here's the key question then.....Will Apple's entry into the luxury watch market have any impact on gold prices? The answer is definitely YES !!

How soon? The answer is NOW !!

In the interest of full disclosure, I am long both of the most popular Gold Miners ETF's (GDX and GDXJ) with 10% of my assets under management. My objective is to increase this position to as much as 20% over the very near term. 

Gold ETF (symbol GLD) Weekly Bar Chart with Computer-generated Buy & Sell Signals

Gold ETF (GLD) Monthly Chart with Computer-generated Buy & Sell Signals