Are we at a bottom for gold shares?
In my piece from a week ago, I put in a screenprint of the XAU over gold chart from StockCharts. At a ratio of .182, the chart showed the most negative ratio of gold shares to gold in the last five years. This week the ratio got even more negative with the ratio plunging to .176. People simply hate gold shares.
Since most profitable investors use contrarian opinion, the ratio is a screaming buy signal for both gold and gold shares. We are in a worldwide financial collapse with more banks going under each week but there is a lot of money sitting on the sidelines waiting to find a safe home. Nothing has changed my belief that the only safe haven is in natural resources, preferably gold and silver production stories.
It has been said that the market can remain irrational longer than you can remain solvent but this chart is telling me now is a safe time to invest in either gold or gold shares. In addition, seasonality of gold says August is the best time of the year to buy.
August is also the time most stock brokers take vacation so share trading is generally lighter than any other month of the year. It's entirely possible for shares to drift down even further on the lightest of volume. However I believe when gold turns, the climb in shares will be violent and quick. We have had the crash in gold I called for on March 17th. I believe we are at a bottom or near as dammit to a bottom.
Aug 3, 2008