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Panic Volume: Gold & Silver Buy Signals

Morris Hubbartt
Weekly Market Update Excerpt
posted May 6, 2011

UUP (US Dollar Proxy) Chart

UUP Analysis

• You are seeing the beginning of a counter trend move in the US dollar. I advise no purchases of the dollar, except for dedicated gamblers. I expect the US dollar dam to break this fall. The confirmation that a waterfall decline is coming is the gold price reaching $1575.

• Technically, UUP has a “Fuel Cell” buy signal, and that could produce a rally to the $22 area I highlight on the chart.

Gold Head and Shoulders Chart

• Three weeks ago I stated, “Gold's Inverse H&S: Rocket Time” and issued a $1570 target for the move. My exact technical target was $1580, but I like to be conservative so traders can more likely have a solid opportunity to book profit. Price hit $1577 last Friday. Gold has now corrected from that high point.                  

• The downside target now for gold is the neckline of the breakout around $1450. The margin changes in the silver market have accelerated the rate of the decline in the gold price, and price traded near $1450 already! The Chinese may be prowling in this area. Keep the growing size of their buys in mind.

• I have issued repeated calls to buy towards my turn areas, not at them, and the lows yesterday near $1465 provided a magnificent entry point for you to buy some gold. I issued multiple buy signals yesterday for gold, silver, and gold stocks.

• We're at a historic moment when an overspending government is being accommodated by a Federal Reserve willing to devalue the currency. When the dollar panic begins, gold will explode very quickly, and in dramatic fashion. I’m a trader and a technician, and I can tell you this will not likely be a “tradable” situation, when it happens. Quite frankly, if you don’t hold physical gold, you may end up roasted. I recommend 30% of your entire investment portfolio be in physical metals outside the banking system.

• Silver backwardation? That is a small issue compared to what could be a coming gold backwardation issue. A time may be quickly approaching when institutions pile into physical gold, rather than gold ETFs. If institutions begin making a move into the physical metal in a sizable way, there could be a shortage and price would get disorderly, to the upside. Look again at my UUP dollar proxy chart, and you should believe such a time is approaching quickly.

GDX 12 Month Chart

Gold Stocks Analysis

• The US dollar remains in a long-term bear market, so gold is going to the moon. The removal of Bin Laden doesn’t end the debt bomb crisis. I don’t know whether he really was killed a week ago, died years ago, or is still alive living in Beverly Hills. Quite frankly, our mainstream media has become so corrupt that all we know is that the report of his death is a factor in market action. I consider the debt bomb much more of a factor than he is or was, for gold.

• Gold stocks are my favourite tradable asset to accumulate, and soon will be Wall Street’s favourite, too. My target remains firmly at $72 for GDX and that is simply a stepping stone to much higher numbers.

• The sentiment indicators I ran through Thursday’s action are mind blowing. The fear levels are so extreme that I believe gold stocks will likely end up taking the leadership role in the next leg of the precious metals bull market.

• My SFII (Super Force Intensity Indicator) is a key indicator that I use to measure oversold conditions in the market. The SFII registered a maximum oversold reading yesterday. The last time I saw a reading this intense was as the bottom of the Flash Crash May 6th 2010 in the S&P 500. When I see a signal of this intensity the panic has almost certainly come close to running its course in your stocks.

• When you consider the milestones that have been crossed in gold rising towards $1580 and silver towards $50, corrective action is normal. Markets are not always rational and there is not a better way to make money in the gold stock sector than buying right now. Buy GDX & GDXJ, or more of your top individual favourites, but do it now.  

• Do not take your eye of the debt bomb ball, nor off the long term big picture on this GDX weekly chart.

GDXJ 12 Month Chart

• There is a throw in the towel “get me out of here, I don’t care about the price, just get my out now, I’ve had enough” mentality becoming a tidal wave amongst juniors investors. At minimum, that allows for a solid rally from this general area.

• While the gold stocks are spiking downward now in a panic, I predict gold stocks, and quite possibly juniors, will take the leadership in the next leg up in this bull market. In a bull market, sector rotation is healthy. Buying into maximum negative sentiment is where the greatest real wealth is made. Look at the facts; a higher gold price demands more gold be mined, and that plays out in the biggest picture to higher gold stock prices.

Silver (SIVR Proxy Chart)

• For the past few months, silver has been the leader in the precious metals sector. I see the possibility of a six to seven month trading range coming for silver now, with current price trying to establish the lower end of that range. That is similar to what we’ve seen in gold stocks for the past 6 months.

• It is important to buy the lower end of this range.

• In early March as the price of silver overshot, I raised my target to $50 and warned to be cautious about buying from $35 and higher. That warning is now lifted. Please re-enter the silver market on the buy side.

• The action we are seeing now in silver is very natural and long term I believe it is healthy. I believe it is better to get the leveraged players out of silver now, rather than have a worse problem later. Price has entered the buy zone. I am adding more physical and trading position silver to my positions here and so should you!

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