After spending the last four months sliding lower, precious metals are
attracting investors interest once more. Thats a big deal since between
November and January gold prices formed a triple-top pattern after repeatedly
being pushed back from resistance near $1,430 an ounce. That, says the
chartists, pointed to certain doom for the yellow metal. But with political
unrest spewing forth in Egypt and Tunisia, inflationary pressures on the rise,
and with renewed concerns about the viability of the U.S. governments tenable
fiscal positions and the economic penalty well all pay to solve it, precious
metals and the stocks of the companies that pull them out of the earth are
pushing higher. Over the last two weeks, gold futures are up more than 3.5%,
silver futures are up nearly 9.7%, the Market Vectors Gold Miners ETF (NYSE: GDX
) is up 7.7%, and the Global X Silver Miners ETF (NYSE: SIL ) is up a whopping
15.8%. Can the gains continue? The first thing you need to know is that while
precious metals have demand fundamentals driven by jewelry and industrial uses,
the big swing factor is investment demand especially via easy to trade ETFs
like the Gold SPDR (NYSE: GLD ) and the iShares Silver Trust (NYSE: SLV ). These
flows started to abate last October. You can see this in the chart above, which
compares the amount of investor cash in the GLD vs. the ETFs trading price.
Early last year as the eurozone debt crisis went nuclear and economists started
to worry about a double-dip recession, investors moved into the GLD and other
precious metals investments for safety. Over the last few months, these flows
have reversed as investors sought out riskier assets including industrial
commodities like copper and energy stocks on signs the economy was
improving again. But now, with small cap stocks moving lower, emerging market
equities on the slide, and the CBOE Volatility Index (VIX) moving higher as Wall
Street insiders fret over potential stock market losses, gold prices are
rebounding. I expect this to be reflected in a rebound in GLD assets in the
weeks to come as the data is released. All of this is happening right on
schedule according to the cycle work of Tom McClellan of the McClellan Market
Report. Were nearing an important 13-1/2 month cycle low for gold. Although
these cycles arent exact, they seem to be able to call the big turns in precious
metals. The last 12-1/2 month low arrived a month late in February 2010 just
before the Greek debt crisis caused safe haven assets like gold and the U.S.
dollar to surge. With investor sentiment so high, the subject of my column last
week, I think were poised for another surge in gold as the market gods restore a
sense of fear into the hearts of complacent and overconfident investors. I dont
know what the catalyst will be maybe Portugal will be forced into the arms of
an EU-IMF bailout as its borrowing costs continue to flirt with crisis level
highs. But for now, Im recommending my newsletter clients increase their
exposure to gold and gold stocks like Allied Nevada Gold Corp. (AMEX: ANV )
which gained nearly 4% today. Disclosure: Anthony has recommended ANV and SIL to
his newsletter subscribers. Be sure to check out Anthonys new investment
advisory service, The Edge . A special free trial has been extended to
Investorplace readers. The author can be contacted at
anthony.mirhaydari@live.com . Feel free to comment below.
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