Why The Precious Metals Sector Is Now A Contrarian’s Dream
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In this update we are only going to look at one chart, because I don’t want to dilute its impact by including anything else. There are many other charts supportive of a positive outlook for the Precious Metals sector going forward, which we will look at separately.
The chart we are now going to look at is the long-term ratio chart for the large cap S&P500 index divided by the XAU index for large cap gold and silver stocks. So that we can achieve a big picture overall perspective, our chart goes right back to the mid-80’s.
This astounding chart largely speaks for itself. The main point it makes clear of course is the extraordinary and extreme undervaluation of Precious Metals stocks relative to the broad stock market. This ratio is an amazing 9 times higher than it was at its 2011 lows! Another point revealed by this chart is that PM stocks are now much better value relative to the broad market than they were even at the PM sector low late in 2000, before the great PM sector bull market of the 2000’s began.
Finally, the MACD indicator at the top of this chart has risen to a wild unprecedented extreme reading, which means one of two things is going to happen – either the broad market is going to drop hard soon, which we are in fact expecting, or the Precious Metals sector is going to rally, or both at the same time. Either way you are much better off in Precious Metals stocks than in the broad market.
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Courtesy of http://www.clivemaund.com
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Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.
Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.
The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.
Visit Clive at his website: CliveMaund.com
