Have Gold And Silver Mining Shares Bottomed?

 | Feb 24, 2014 12:20AM ET

The Market Vectors Gold Miners ETF (GDX) has climbed 26% year to date, including nearly 14% this month to date. That compares to the gold-backed SPDR Gold Trust’s (GLD) gain of around 10% year to date, including 6.3% this month.

The current price action seems to have discounted all the bad news regarding reserve losses, write-downs and margin compression commented Brien Lundin, Editor of Gold Newsletter.

When you take a look at the gold miners, they have recouped a third of what they lost last year, squeezing the shorts right out of the market. The fact of the matter is that gold and silver miners have actually outperformed the metals is a strong indicator of a potential capitulation in the sector.

In my last interview, I asked Sprott’s Rick Rule if the mining shares sector has bottomed and he said:

“I think it is, but I can’t say. Certainly what you described with regard to the juniors and the seniors is very hopeful. And it is hopeful for a couple of reasons. Bull markets, as we have discussed before, are born of bear markets and the extraordinary bear market pricing let some tepid buyers into the market. If we observe the year 2013 we see the following broad attributes the beginning of the first third of the year was catastrophic we had forced selling in the face of buyer exhaustion so the stock charts looked like the topographic maps of ski hills, just catastrophic falls from the upper left to the lower right. In the middle part of the year what we saw was buyer exhaustion still but seller exhaustion as well. So the stock charts went horizontal. We joked that they looked like the electrocardiogram of a corpse. At the end of the year what we saw was complete seller exhaustion, no sellers left with the better majors and the better juniors starting to get a bid. So we saw share price rises sometimes very dramatically. But on very low volumes. There wasn’t really conviction buying, but there was no selling. This is absolutely consistent with the bear market bottoms that I have observed in the last four cycles that I have observed in my life.”

h2 Gold and Silver/h2

The gold and silver markets have given a very powerful confirmation of the 1 to 3 month outlook for an initial bottom confirmed  late December into late February. Major resistance shows up in the 1336 to 1347 area for the April futures contract. The silver major resistance shows up in the 22.10 to 22.37 levels based on the March contract.