Today’s positive reversal in precious metals and shares of most gold and silver companies has lent further credence to those who recently have said that the sector is due to resume its uptrend.
One individual in this camp is Bill Fleckenstein, who in his latest weekly column for MSN Money – entitled Has gold’s next bull run began? – argued that “the stage remains set for more rallies” in the sector.”
Describing the action of gold stocks over the past two weeks, Fleckenstein wrote that “The action in the miners the next day (i.e., the day last week’s column was published) was strong, but not definitive. Still, I felt there was some chance it could turn out to be “the” low for the year, while expecting that some part of the range between $1,580 and $1,540 an ounce for gold could be retested once or twice.”
“Tuesday was negative, as the metals went on a nerve-testing roller-coaster ride,” he continued. “First, they staged a pretty decent turnaround, led by silver, which declined about 1.5% overnight but quickly turned that loss into a similar-sized rally. That didn’t stick, however, and silver lost 1% on the day. Gold turned a roughly 1.5% loss into a tiny loss, then that fizzled, and it ended up losing over 1% on the day. However, gold mining stocks, amazingly, behaved pretty well.”
“The next day’s trading (Wednesday, May 23) brought a giant, stunning reversal to the upside in gold stocks, even as other metals were tanking, then reversed, making it seem very likely that their collective low on May 16 will not be broken.”
Looking ahead, Fleckenstein contended that ”What a precious metals bull would like to see is silver, gold and the miners all ratchet up ‘a level’ together on decent volume. We’ve seen better behavior from the miners (finally), but gold and silver need to start acting like the miners are beginning to (if you can believe I said that) if they really want to convince us that the whole complex has turned the corner.”
He went on to say that “If May 16 was the low, of course, it means folks will have to pay up a bit to capture this idea going forward. However, given how depressed the metals complex has been, paying up a little bit and being a bit more confident in one’s risk assessment is not an insane strategy, especially with regard to mining stocks. When markets or sectors have been bludgeoned as the metals and the miners have, any subsequent rally will also have pullbacks, so it’s not necessary to leap to a decision at the very first sign of strength.”