Gold Miners Find Support
Tiho Brkan | Dec 04, 2014 07:15AM ET
Gold miners have made a lower low in recent months, as discussed and anticipated many times. Sentiment is now becoming increasingly negative once again. On an intra day basis, the sector did trade below the 2008 panic levels, shaking out a lot of stops – but on closing basis, we are still holding that all-important support seen in the chart above. This line or so called buyers memory goes all the way back to 2004.
Now, the obvious question is: Will this support hold and should I buy some gold miners? I do not know. Whether this support line will hold is anyone's guess right now, however I would hesitate to bet against the PMs sector. With sentiment incredibly low, this is probably one of the worst times to short the sector. Furthermore, recent developments in Gold and Silver this week (outside reversal price action ) suggest that we could see more upside in the coming days and weeks ahead.
Furthermore, if we observe Chart 2, we should notice that not only are Gold Miners deeply oversold, but they also trade at an incredibly low discount to Gold itself. The discount is as low as 2001, when the last bull market began. So finally, let me be crystal clear here without mincing my words: whether you buy this sector right now or at a lower price (if it goes there), you are buying only from the most undervalued and unloved asset classes. Returns could be spectacular going forward!
h3 Chart 2: Gold Miners are trading at the biggest discount to Gold since 2001/h3
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