Gold and Silver Stocks 'Par Excellence' Buy Spot
Contributed Opinion

1. Clive Maund: I determined which companies would be included in this article based on my research and understanding of the sector.
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The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks cannot be construed as a recommendation or solicitation to buy and sell securities.

The week of December 10 was an interesting one in the markets. The markets hang on the Fed's every word as if it is a feudal emperor, which is understandable because, in real terms, it is. So when the Fed said midweek that it was thinking of doing only 2 rate cuts instead of 4, markets took a real exception to this, and it triggered a steep drop.

Shortly afterward, we figured that this was probably just a "storm in a teacup" and that the market would steady and turn higher again and after Trump said he was thinking of abolishing the debt ceiling that's what happened with strong gains on Friday, December 20, but what was more remarkable was the volume of stock buying on Friday, which is interpreted as bullish.

The key point to understand in all this is that nowadays, an overwhelming proportion of stocks are owned by seriously wealthy people, and they want the value of their holdings to be at least maintained and, better still, to rise. So, as they control the levers of power, they have organized the system so that money flows up the pyramid from the lower and middle classes to them.

So, working in cahoots with the Fed — the Fed is run by seriously wealthy people — they have created a perfect system of wealth transfer. The way it functions could not be simpler. The Fed works to continually increase debt, which is their product, but the now exponential increases in debt have the effect of destabilizing the debt market and driving up interest rates, and the solution to this problem is simply to create even more debt. This increase in debt /credit works largely to the benefit of the seriously wealthy, who get first use of the newly created money and drive stock markets higher and higher, but of course, the massive increase in the money in the system eventually feeds through into inflation and the "little guy" ends up paying for all this profligacy with huge increases in the cost of living.

Because we are so far past the point of no return with all this, it will continue until the system flies apart and self-destructs via hyperinflation, which is actually viewed as an ultimately attractive option by those in power because it will mean that the debts can be paid off in worthless coin. This is why the stock market trends are relentlessly higher even as the economy spirals into depression. It would appear that we no longer need to be worried about a market crash but instead be prepared for the fast-approaching hyperinflation.

Now we will review selected charts, paying special attention to the precious metals sector because it will be one of the biggest beneficiaries of a hyperinflationary environment, simply because gold and silver always retain their intrinsic value and because it is great value here after its recent selloff which has lately been exacerbated by end of year tax-loss selling.

Starting with the 6-month chart for the S&P 500 index we can see that the heavy selloff on Wednesday didn't even put a dent in the major uptrend in force, with the market still way above its steadily rising 200-day moving average, but notice the large reversal candle on Friday and especially the huge volume driving this reversal which is viewed as having very bullish implications — it suggests that we will see new high again before long.

Next, we look at the 6-month chart for the 10-year US Treasury Yield where we can see at once why the market freaked at Powell's remarks — rates were at their highest level for many months but by the end of the week, the cavalry were riding to the rescue to stabilize the debt market as we had expected.

The prospect of a stock market crash spooks precious metals sector investors, and with good reason — look what happened during the 2008 market meltdown — the sector was trashed, with GDX losing more than two-thirds of its value and a combination of the sector having a normal correction being exacerbated by end of year tax-loss selling and then re-emerging crash fears last week conspired to beat the sector down to a relatively low level where many stocks are now considered to be most attractive bargains since it should recover from here, especially as seasonals for it are also favorable.

Another point is that the sector doesn't just get taken down by the big drops in the broad market; as we can see on the 6-month GDX chart, it has dropped on several occasions this year in tandem with the broad stock market. We can also see that we have a high degree of "compression" here with its having been pushed down through its still steadily rising 200-day moving average to a support level, which it has arrived at in an oversold state. In addition, the retreat from the October high now looks like a 3-wave A-B-C correction that has taken the form of a bullish Falling Wedge with lower volume on the C-wave retreat as compared to that on the A-wave retreat, which is seen as a positive sign.

You will recall that we (I) had earlier thought that it would Double Bottom with its November low, but the midweek plunge put paid to that. However, the idea was not so wrong as a Double Bottom can also be a 3-wave decline, according to Elliott Wave Theory, where the 3rd wave stops at the level of the 1st wave low. In any event, the sector now looks like a beach ball pushed underwater and has several big things going for it, which are — a resumption in the advance of the broad stock market, favorable seasonal factors, the end of tax loss selling as we go into the New Year and the fact that it is oversold within a larger uptrend.

So, this looks like a great time to buy the sector across the board, although it should be noted that large and mid-caps can be expected to conform best with expectations, a great example being Newmont Corp. (NEM:NYSE), which has taken a hammering over the past couple of months but rose on the biggest volume for more than seven months on Friday.

Lastly, it is worth us taking a look at GDX on a 1-year chart because, on this, we can see that, although it broke down from its upper trend channel in November and dropped, it has arrived at the lower rail of a larger prospective uptrend channel which, if valid, assures us of big gains across the sector going forward.

From the uptrend's origin late in February, we appear to have a classic 5-waves up with the 5-wave being extended and breaking down into 5 sub-waves, followed by a 3-wave correction, which is exactly the sort of thing you expect to see in an ongoing bull market.