Gold/Silver Mining Stocks: Greatest Buying Opportunity Since October 2008

On Friday morning, July 24th, a massive selling climax unfolded in the precious metals mining shares. Most popular names were down between 5% and 10% intra-day before finding support. This incredible sector-wide liquidation followed a month of relentless selling that clipped 40% or more from each individual gold/silver mining stock.The underlying gold and silver prices fell 10% and 12% respectively over the same 30-day period. 

The financial press is having a field day with daily reports of the carnage in precious metals and commodity prices in general. All the usual Wall Street suspects (I mean analysts and economists) with bearish views on gold have been quoted extensively over the last few days, with most now calling for a complete collapse below the "key" $1,000/oz level. The bearish narrative for gold includes talk of a stronger dollar, potentially higher U.S. interest rates, weakness in China's economy, less than forecast PBOC gold purchases, apparent stabilization in the Greek debt crisis, ongoing deflationary threats globally, and negative investor sentiment towards gold generally after 5 years of falling prices. This narrative is compelling and makes for interesting press, but it's worthless now from an investor's point of view. The perfect storm that conspired against precious metals prices recently has now run its course and a major turning point is upon us.

In fact, I now believe that Friday's selling climax in the precious metals mining stocks represented the greatest single buying opportunity in this hated group since October 2008! Daily chart buy signals were triggered by my computer trading system at Friday's close in the following gold and silver mining shares and related ETFs: ABX, AEM, AG, AU, EXK, GDX, GDXJ, GG, GLD, MVG, PAAS, SIL, SILJ, SLV, SLW, SSRI, and XAU. Several of these stocks rebounded between 10% and 15% from their intra-day climax lows on Friday to close sharply higher on the day. 

Of course, for me to be right about such a "golden" buying opportunity, the narrative on precious metals prices will have to change. Here are just a few changes in the financial landscape that I see immediately ahead that will support gold and silver prices:

1. The U.S. Dollar will begin a steady retreat following the realization the the Federal Reserve won't raise interest rates by more than 1/4-point over the next 12 to 18 months (and maybe not at all). 

2. The Greek debt crisis is far from over, and all the PIGS (Portugal, Italy, Greece, and Spain) will soon be a major part of the inevitable collapse of the Euro$ as the common currency for Europe. The European Union is actually in jeopardy now of completely disintegrating over the next 18 to 24 months.

3. China's central bank (PBOC) is aggressively supporting China's economy, its stock market, and its fragile financial system right now. And just like the Federal Reserve in early 2009, the PBOC will succeed, but not before it prints a massive amount of Yuan to end deflationary forces and reflate its economy.

4. As of last week, hedge funds are now short gold futures contracts, on balance, for the first time since records began being kept on this trading group in 2006. Some may view this fact as negative for gold prices ahead, but I see this development as a monumental contrary indicator (and extremely bullish for gold ahead).

5. The U.S. Mint reported last week that sales of gold coins have totaled 143,000 ounces so far in July, the most since April 2013. Physical demand for gold and silver is off-the-charts right now despite a 5-year low in actual prices. I see this extraordinary demand for the physical gold and silver as "strong hands" not likely to be liquidated anytime soon.

In the interest of full disclosure, I am long a basket of gold and silver mining shares against an equal dollar amount of short sales in the Russell 2000 Index.

P.S. A weekly chart sell signal was triggered by my computer trading system in the S&P 500 Index at Friday's close, July 24th (see attached chart). The last weekly chart sell signal by my computer system was in the week ended April 6th, 2012. Over the next 10 weeks the S&P 500 Index declined 11% (top to bottom). A buy signal was then triggered by my computer system during the week ended June 8th, 2012. There have been no signals since then until this past Friday's sell signal.

S&P 500 Index Weekly Chart with Computer-generated Buy & Sell Signals

Special Update: Selling Climax In Gold Now Complete!

Earlier this evening, at around 8:30 PM central time on July 23rd, gold futures suffered another sudden break similar to the one sustained last Sunday night around the same time. The front month futures contract plunged to a low at $1,072.30 oz before finding support. Last Sunday's crash low was $1,080.00/oz, so we now have a new contract low with this latest selling frenzy.

Chna's manufacturing PMI plummeted to a new 15-month low as just reported  at the start of Asian trading this evening (Chicago time). The financial press continues to blame the general collapse of commodity prices recently, including Gold, on the apparent implosion in China's economy (and its stock market). There may be some truth in this narrative, but most of this information has already been discounted in current prices. In fact. it is my strong belief that commodity prices are generally deeply oversold on a technical basis, and that a strong rebound in most commodity prices is imminent. With respect to Gold, I think this latest smash to $1,072.30 marks the end of a vicious selling climax that will soon be followed by an equally ferocious rally and related short-squeeze.

Precious metals mining shares have been pounded relentlessly over the last 7 trading days, with some stocks down 35% or more to lows not seen since 2008. The price of Silver seems to be showing some relative strength when compared to Gold these last few days, but the expected rebound in precious metals (PM) stocks will probably be across-the-board over the next few days, weeks, and months. And going long PM mining shares right here may very well represent the trade of the year!

In the interest of full disclosure, in all my managed accounts I am long Gold & Silver stocks and short an equal dollar amount of the Russell 2000 Index ETF.