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5 Things That Precede Major Bottoms in Gold

The recent weakness in Gold and gold mining stocks is not over. In fact, we are worried about another leg down getting underway.

If that comes to pass, we are positioned to profit from it. But I digress.

Long-term oriented investors and speculators should be aware of the near term trends but they should also be aware of the conditions that will lead to a shift from a bear market to a bull market.

Here, we focus on five factors that precede major bottoms in precious metals.

Gold Outperforms the Stock Market

Other than in 1985 through 1987 there has never been a real bull market in Gold without it outperforming the stock market. A weak stock market usually coincides with conditions that are favorable for precious metals. That’s either high inflation or economic weakness that induces policy that is usually bullish for precious metals. The 2016-2017 period failed to be a bull market because the equity market continued to outperform Gold. Note that the Gold to Stocks ratio bottomed prior to the 2001 and 2008 bottoms.

Gold & Gold vs. Stock Market

Gold Outperforms Foreign Currencies

Gold outperforming foreign currencies is important because this usually happens while the US Dollar remains in an uptrend. It signals relative strength in Gold and shows that Gold is not being held hostage by the strong dollar. It also can signal a coming peak in the dollar. Gold was outperforming foreign currencies prior to the 2001, 2008 and late 2015 bottoms. There are currently no positive divergences in place.

Gold & Gold vs. Foreign Currencies

Major Peak in the US Dollar

This does not precede bottoms in Gold as it typically is a lagging indicator. But a list of “4” things does not carry the same weight as five. Anyway, Gold is not going to embark on a major, long-lasting bull market without a corresponding peak in the US Dollar. Sure, they can rise at the same time and for months on end. However, it’s difficult to imagine a multi-year bull market in Gold without a corresponding peak in the dollar. Peaks in 1993 and 2016 led to brief runs in Gold but those were nothing like the 1985 and 2001 peaks.

Gold & US Dollar Index

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MARKET SUMMARY

INDICES

Name Last Change
DOW 23675.60 0.35%
S&P 500 2546.16 0.01%
NASDAQ 6783.91 0.44%
TSX 14416.89 0.38%
TSX-V 543.19 0.00%

Resource Commodities

Name Last Change
Gold 1251.31 0.18%
Silver 14.69 0.48%
Copper 2.67 0.090
Platinum 793.36 0.12%
Oil 46.24 7.87%
Natural Gas 3.84 8.08%
Uranium 28.63 0.00%
Zinc 1.17 0.00%

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