All bull markets have similarities and all equity bull markets have strong similarities. They go through similar phases. Most bull markets start off slow and then build towards what we like to say is an acceleration into a bubble and potential mania. In last weeks editorial we noted how bull markets, prior to the bubble phase, tend to make major bottoms every three or so years.  Yet, in looking at the present bull market in gold stocks and comparing it to the previous three equity bull markets (Technology, Japan and Gold Stocks) we find stronger and deeper similarities which confirms to us that the gold stocks are in the bull market of our time.

In examining these four bull markets we find that the typical secular bull market in equities follows a strong pattern. Most would assume that the bubble or mania phase is the strongest connection. While this is often the case its really the start of the bull market and middle phase that follow a textbook pattern. The first phase consists of a fairly strong rise over six or seven years while the second phase (through a correction or consolidation) consists of five or six years of no net progress. This sets the stage for the acceleration and eventual bubble phase.

The Nasdaq began its bull market in 1980 so its first phase ended with the historic stock market crash in 1987. The market rebounded fantastically through 1991 and 1992. However, it wasn’t until late 1992 that the market escaped a five year period of no net progress. Though not shown, it was 1995 when the market began to accelerate into its bubble.

Next we have the Nikkei which shows Japan’s historic bull market. Looking at historical data shows the bull market began in earnest in 1967. The first phase ended in 1973. From 1973 to 1978, the market made little progress. After 1978 things really began to takeoff.

In our next chart we show a rebalanced look at the current bull market (HUI in red) and the bull market from the 1960s and 1970s (BGMI in blue). The time scale is aligned to the BGMI. Note the distinct similarities between each other but also to the aforementioned Nasdaq and Japan.

First, note that each market made its initial major peak at virtually the same time, about seven plus years in. Second, each market endured a major correction though each was different in time and scale. The HUI recovered more quickly but has yet to break away from the initial high. The HUI hasn’t made much progress since 2006 while the BGMI did nothing from 1968-1973. The BGMI made its final low (late 1972) almost five months after its initial peak. It was at that point when the BGMI would surge over the next 18 months to a new high. If the HUI follows the same path and scale then it would make its final bottom within weeks and gain strongly until the fourth quarter of 2013.

From this point forward the three historical bull markets essentially accelerated course and endured one final correction before the mania. The corrections were (BGMI 1975-1976, Nasdaq 1994, Japan 1981-1982).

The only distinction to make is that the gold stocks (BGMI) didn’t have the kind of mania the other two bull markets had. Perhaps that is just because mining is such a difficult business or that speculators concentrated on junior companies, silver and silver miners. In other words, the mania was centered outside of the senior gold companies.

In any event, its important to share these similarities as it shows that the struggles in the gold stocks are right on par with previous bull markets. Nothing that has happened is out of the ordinary. In fact it is only following the pattern of equity bull markets. Combined with the low valuations and low ownership of gold stocks, this is some very powerful evidence of what lies ahead. If you’d like professional guidance in riding this bull market and uncovering the winning companies then consider our premium service.

Good Luck!

Jordan RoyByrne, CMT
Jordan@TheDailyGold.com

Related Posts:

• When will Gold Stocks Reach the Bubble Phase?
• When and How Gold Will Begin its Bubble
• Gold Stocks Break to New Highs Against Equities
• Gold Bubble? What Bubble?
• Gold & Gold Stocks are the Last Hope for Most

Gold is in a bull market and so are the gold stocks despite their struggle as a group to outperform Gold. This is nothing new though. We’ve written about this in the past and Steve Saville has before us. Nevertheless, the miners are in a secular bull market and investors need to pick better stocks and ignore the hundreds of losers. The bull market is moving forward but is nowhere close to a bubble nor the speculative zeal we saw in 2006-2007. Thus, it begs the question of what lies ahead and when can we expect the initial stages of a bubble.

In order to figure this out we first need to get an idea of how long the bull market will last.
Below is a great chart from Cycle Pro Outlook. It uses John Williams’ CPI, which is consistent over time. Interestingly, Steven Williams of Cycle Pro has found a 17.6 year cycle between equity bull and bear markets. It fits fairly well with the alternation between equity and commodity bull markets.

In nominal terms the last two commodity bull markets lasted about 15 years and 18 years. Gold stocks were in a bull market from 1960 to 1980 while Homestake Mining (a proxy for the ancient past) was in a bull market from 1923 to 1937.

So are we looking at something closer to 15 or 20 years?

The following chart should answer that. This is the Barrons Gold Mining Index, courtesy ofsharelynx.com. There isn’t much data available on gold stocks but what is available shows that the 1980 high is roughly equivalent to the 2008 high. The gold stocks broke to a new all-time high but it won’t be confirmed until they sustain the breakout and make new highs. Eventually the breakout will be confirmed with the next leg higher. The point here is do not expect this secular bull market to end four or five years after a major multi-decade breakout. That is too soon.

Moving along, lets take a look at the Nasdaq because there are some similarities. The Nasdaq had its initial rise from 1982 to 1987. Following 1987, it would be four years until the market was able to breakout to sustained new highs. That was nine years into the bull market. The bubble began just before the 13th year of the bull market, in 1995. The circle shows where I think we are now based on various indices which includes my proprietary gold and silver indices.

The early conclusion is that the start of the bubble is at least a few years away. Based on the price action we are likely to have a major breakout and a few years of strength which will set the stage for the start of a bubble perhaps in 2014. As you can see in the chart below, the gold stocks while in the 11th year of their bull market have not sustained a new all-time high for quite a while. The gold stocks are ripe for a breakout and a powerful move higher.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Related Posts:

• Relative Strength of Gold Stocks Signals the Future
• The Gold Stocks are Tracking Past Equity Bull Markets
• Gold & Gold Stocks are the Last Hope for Most
• Bifurcation in Precious Metals Complex and the Implications
• When and How Gold Will Begin its Bubble

We’ve written about the importance of intermarket analysis. Movements in various sectors and asset classes influence each other. The Treasury market is the largest in the world and affects trends in other markets. Interestingly, Bonds at times move with Gold. In these cases it is due to a safety or flight to quality play and as a result mining equities tend to underperform. Earlier this year, the safety plays were the Swiss Franc, Gold and Bonds. The first two were first to reverse and now Bonds are putting in an important top. The beneficiary of this market shit will be mining equities and equities in general.

First we want to show that Bonds have reached an extreme. Below is a composite sentiment indicator from the very trustworthy sentimentrader.com, which provides excellent sentiment data. Their indicator has nailed the last three peaks in Bonds and I’m guessing it will be four for four.

The chart below illustrates that the gold stocks tend to bottom ahead of important peaks in Bonds. On top we show TLT, the Bond ETF and below it the HUI Gold Bugs Index. The past three peaks in TLT coincided with the early phase of a strong advance in the mining stocks. The 2005 peak in Bonds lasted for two years while the 2008 peak lasted for the two years.

The recent widespread carnage came as a surprise to us as the gold stocks never provided any negative signals. However, we forgot about warning signals such as a surge in Bonds and plunge in emerging markets including China. Now its time to look forward. At present Bonds have reached an overbought extreme and the risk reward is quite negative and in turn, positive for other markets.

Meanwhile, global equities are very oversold while the mining stocks have rebounded from support without violating their summer lows. These equities are set to benefit as capital shifts out of Bonds. Precious metals have been the entire focus of our premium service but we’ve supplemented this with increased coverage of global markets.

If you’dlike help from a professional in navigating and profiting in these markets, then we invite you to learn more about our premium service.

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

Related Posts:

• Relative Strength of Gold Stocks Signals the Future
• Gold Stocks Break to New Highs Against Equities
• The Gold Stocks are Tracking Past Equity Bull Markets
• Time to Dump Stocks for Gold
• Gold Will Outperform After Stocks Peak

I think next week will mark a major turning point in the gold market. Depending on whether the dollar continues higher or turns back down we will either see a resumption of the D-Wave decline or this will just turn into a normal run-of-the-mill intermediate degree correction followed by another leg up in this 2 1/2 year C-wave advance.

First the pros:
The COT report has now reached a maximum bullish level on the commercial contracts. In the past this has always marked major bottom turning points.

Sentiment & breadth have reached extreme bearish levels (contrary indicator).

Chart courtesy of sentimentrader.com

It’s possible that gold has formed a small T-1 continuation pattern (A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected).

There is a small problem with this interpretation as the second leg of a T-1 pattern is generally slightly smaller than the first leg.

And now the cons:

The current intermediate cycle is too short. Barring a shortened cycle, which does occur rarely, there should be one more leg down into the normal timing band for an intermediate degree cycle bottom (20-25 weeks).

Also the HUI mining index is potentially forming a megaphone topping pattern. If gold does have one more move down into a true D-Wave bottom then the bounce off the lower trend line should fail followed by one more aggressive move lower.

Also there is a much larger T-1 pattern in play that fits the normal parameters much better than the smaller version.

You can see from the chart above that unlike the smaller T-1 the larger version does feature a second leg slightly smaller than the first, and if this pattern is playing out then we need one more move lower to test the midpoint consolidation zone.

Right now the battle is being fought at the $1600 level. So far every time gold reaches that level buyers step in.

If however gold closes below $1600 that would be a serious warning sign that the current daily cycle will be left translated and that gold is indeed caught in a true D-Wave decline. If that’s the case it still needs to test the consolidation zone of the large T-1 pattern and the intermediate degree cycle will bottom in the normal timing band (November). If this scenario unfolds then we can look for an A-wave advance to begin once that final D-Wave bottom is in place.

As I have noted before A-waves usually test but fail to exceed the prior C wave top. They are almost always followed by a lengthy 1-1 1/2 year consolidation before the next leg up can begin.

In my opinion next week is going to be critical. Either the current daily cycle is going to break down below $1600 in a left translated manner, in which case we will probably see gold continue sharply lower to test the 75 week moving average and the consolidation zone of the large T-1 pattern. Or, if gold can gain some traction and breakout of the recent trading range to the upside then the smaller T-1 pattern comes in to play and we should see gold make another run at $2000.

I’ve had quite a few requests for a trial subscription link, so I’m going to add a permanent trial subscription offer – $10 for 1 week of full access to the premium SMT report. If you decide you like the premium newsletter your subscription will automatically convert to the yearly rate after seven days. If not, just cancel your subscription prior to your week expiring by following the directions on the premium website homepage.

To access the trial subscription click here and then click on the subscribe link on the right-hand side of the homepage.

Related Posts:

• Golden Fireworks are About to Begin
• Carpe Aurum (Seize the Gold)
• Summer Break
• Focus on What Matters
• Hoping for a Break

I recently watched this video special on the History Channel that calls into question if there is any US Gold left in Fort Knox which has not been publicly audited since the early 1970′s. I think it is time to lift the veil of secrecy on Fort Knox and thoroughly audit the gold there. I am sure this is something no one in our government with the exception of Ron and Rand Paul, would want to touch with a 10 foot pole. This gold belongs to the American people and we have the right to know if our gold is there or not. See videos below.

Related Posts:

• Mainstream Media Continues to Exclude Ron Paul
• US Mint Out Of Silver And Gold American Eagles, Again
• The Coming [Gold & Silver] Price Explosion Video
• SHORTCOMING GAINS – DVD TRAILER
• 500 Ounces Of Silver To Buy A House?

We use a combination of sentiment analysis and technical analysis in market timing which often gets a bad name courtesy of mainstream retail nonsense. The dumb money tries to time the market while the smart money utilizes market timing to weigh risk and reward. It’s rather simple when you acquire the skills and helps you understand markets. Recently we had been quite bullish on precious metals but thought we were in a small corrective period. We were wrong as the sector has suffered from Europe’s version of 2008. The good news is, our market timing work leads us to believe that the worst is soon to be over and this is an opportunity on the long side for those who have a twelve month time horizon.

Below is the Commitment of Traders (COT) for Gold. The data is as of last Tuesday. The commercial short position has dropped nearly 50% in the last few months. The commercials (the smart money, the end users and producers) are positioned more bullish than any other time in the past two years. This is another way of saying the speculative long position is at a two year low. Meanwhile, open interest is 28% off its high and close to a two year low.

In Silver, we see that the commercials are are net short only 24K contracts. This is the lowest since December 2008. Open interest is 35% off its high and at its lowest point since the end of summer 2009.

In addition, the latest public opinion report from sentimentrader.com (as of last Tuesday) shows 58% bulls on Gold and 31% bulls on Silver. Any further drop in Gold would mark a three-year low while the public is its most bearish on Silver since September 2008.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Related Posts:

• Spec Money Exits Gold & Silver but Remains Heavily Long Other Markets
• More Clueless Mainstream Commentary on Gold
• Time to Dump Stocks for Gold
• Speak up and be heard by the CFTC one more time
• Relative Strength of Gold Stocks Signals the Future

By Jordan Roy-Byrne, CMT

For a historical perspective on the gold stocks relative to the stock market, one should consider this chart from Nick Laird of Sharelynx.com. This picture shows the ratio of the Barrons Gold Mining index versus the S&P 500. Although a year old, the current ratio is fairly close to where it was in 2010.

It is important to note that the strong outperformance of gold stocks usually begins later in the bull market. During the 1923 to 1937 bull market, gold stock relative performance surged from 1930 to 1935. In the 1960 to 1981 bull market, gold stock relative performance didn’t begin in earnest until 1973. We are 11 years into the current bull market and the BGMI/S&P ratio has yet to surge though it has increased gradually.

History tells us two things. First, it shows that when Gold is in a bull market, the gold equities will outperform the stock market if its in a bear market. That was the case from 2007-2009, 2000-2002, 1977-1980 and from 1929-1932. Second, it shows that the biggest gains for gold stocks in both nominal and real terms come in the second half of the bull market.

Precious metals and the related equities cannot have a strong bull market lasting several years if conventional stocks are rising. If conventional investments are rising then the mainstream and retail investor won’t put one cent into Gold. After all, if conventional assets are healthy then why do you need Gold? Gold flourishes in an environment where stocks and bonds are questioned. The gold stocks do best in such an environment, provided the equity market is not crashing.

We have already had two 50% declines in the last ten years. We are following the typical pattern of a secular bear market. The pattern calls for a cyclical bear market over the next few years. The private sector has already had to deal with two recessions in ten years. It is prepared for this environment. This cyclical bear will be a government-led recession in which high inflation and rising interest rates hurt growth. Meanwhile, households are still in a delevarging process that will last another five years at least. It is a muddle through environment.

For gold stock investors, this is nothing to fear. This is exactly the environment we need for gold and silver stocks to flourish. Their relative strength amid the equity carnage is a positive omen. They are starting to act as called for by the aforementioned history. However, we do understand why some investors are concerned. Equities are selling off and with 2008 in the rear-view mirror this can be even scary for Gold. If you’d like professional guidance in riding this bull market and managing the ups and downs then we invite you to learn more about our service.  

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Related Posts:

• Relative Strength of Gold Stocks Signals the Future
• Gold Will Outperform After Stocks Peak
• When will Gold Stocks Reach the Bubble Phase?
• The Gold Stocks are Tracking Past Equity Bull Markets
• Interim Peak in Bonds Coincides with Rebound in Mining Stocks

I generally don’t post much information about political candidates on GoldStockMania.com. However, I am going to make an exception for 2012 Presidential candidate Ron Paul. If there ever was a candidate for the people, for an honest monetary system including gold & silver, pro abolishing the IRS and the federal income tax, pro citizen privacy, pro US Constitution, etc., then Ron Paul is that candidate. The mainstream media continues to almost completely blackout his campaign in attempt to prevent people from hearing his message. Jon Stewart from the Daily Show does a great job of exposing the Ron Paul Media Blackout. See this short video below, where Jon makes it all to obvious.

Ron Paul nearly won the Iowa Ames Straw Poll and did very well in the most recent republican debate. Which many feel he was the winner according to online polls. Anyway watch the below clip and see how the mainstream media talking heads appear to be all reading from the same script while completing ignoring that fact that Ron Paul is or should be in the top tier of Republican Presidential Candidates.

ZeroHedge.com also covers this media blackout of Ron Paul in Iowa. If you believe in freedom, abolishing the IRS, abolishing the Federal Reserve, asserting gold & silver as money, adhering to the US Constitution, then consider supporting Ron Paul’s campaign in whatever way you can. I would imagine that spreading the word and/or financial contributions to his campaign are two of the biggest ways to contribute.

If you want to know more or want to get involved, then visit the official Ron Paul 2012 website. There is great strength in numbers. Everyone can make a difference!

Related Posts:

• US Government Ready To Tax Your Gold or Precursor for Confiscation?
• Is There Any Gold Left In Fort Knox?
• Gold & Gold Stocks are the Last Hope for Most
• Time to Dump Stocks for Gold
• Parts Of Michigan Now Using Gold & Silver as Money?

Savvy and experienced market technicans and traders will laud the concept and importance of relative strength. Relative strength analysis can be used on any time frame. On large time frames it can tell us which sectors could be future leaders. On shorter time frames it can also provide insight to the future. In this analysis we examine the relative strength of the gold stocks today and compare it to the past as some important insights can be gleaned.

In both stock market crashes (1987 and 2008), the gold stocks performed much worse than the market. In the 2007-2009 equity bear market, the gold stocks escaped the start and the end but fell victim to the middle stages when equities crashed. From the September high to October low, the S&P 500 fell by 33% while the gold stock indices fell by about 60%. Checking back to 1987, the XAU plunged 41% while the Dow fell by 34%.

In the recent carnage, the S&P 500 fell by about 19% while large cap gold stocks (GDX) fell 13%. Beyond the numbers there are some important observations here.

In the chart below we plot large golds, junior golds, silver stocks, commodity stocks, emerging markets and the S&P 500. The short-term observation is obvious but important. The mining stocks held their summer lows while the other markets failed and plunged below support. The horizontal line shows each market’s 2007-2008 highs. The gold stocks are trading above their previous all-time high and though SIL doesn’t go back that far we can probably assume its trading above its 2007-2008 highs. Note that commodity stocks and emerging markets failed to surpass that resistance and the S&P of course is furthest behind.

Here is why all of that is important. The various conventional equities not only have to repair significant short-term damage but in the process they face multi-year resistance. Precious metals shares do not have that short-term damage and have already surpassed and successfully retested that multi-year resistance. So what will happen in the next six months as precious metals equities make new highs, Gold is at $2000, Silver at $50 and the average person is looking at their stocks going nowhere?

The next six to nine months should set the table for the beginnings of a bubble in precious metals. Throughout this bull market, other markets have performed well enough at times which has diverted investors attention and capital away from precious metals. With conventional equities fading, major concerns with bonds and relative strength in precious metals, the tables are set for the mining shares over the next few years. If you’d like professional guidance in riding this bull market and selecting the right mining stocks, then we invite you to consider our premium service.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Related Posts:

• Gold Stocks Break to New Highs Against Equities
• Interim Peak in Bonds Coincides with Rebound in Mining Stocks
• When will Gold Stocks Reach the Bubble Phase?
• Gold Will Outperform After Stocks Peak
• Bifurcation in Precious Metals Complex and the Implications

For those of you waiting for the next silver price explosion, I highly encourage you to take a few minutes and listen to this interview below by Bix Weir. He talks about a pretty substantial event taking place before the end of 2011 that will cause all hell to break loose in the Silver market. I also believe it is long over due, see 7 Reasons Why Silver Will Make You Rich! I hope you got your silver positions before the train leaves the station.

Related Posts:

• The Silver Perspective
• 500 Ounces Of Silver To Buy A House?
• The Coming [Gold & Silver] Price Explosion Video
• SHORTCOMING GAINS – DVD TRAILER
• Are Comex Commercial Gold Short Sellers Losing Control?