Ron Struthers* has
crunched the numbers and his indicators have him thinking we will soon
see gold move easily above $2,000/oz, taking silver higher with it.
Interview with The Gold report.
Posted: Thursday , 16 Aug 2012
TORONTO (The Gold Report) -
The Gold Report: Last November, you talked about indicators you use to make investment decisions, mentioning the S&P 500, the PHLX Gold/Silver Sector Index (XAU:NASDAQ), the AMEX Gold BUGS Index (HUI:NYSE) and the TSX Venture Exchange. You recently predicted junior explorer stocks would stay low over the summer before recovering, along with the commodity price. What indicators are behind that, and do you foresee a dramatic rise or a gradual slope?
Ron Struthers: We have seen a downward correction in the market space, a deflation scare because of Europe, and that has been the theme for some time-a battle between deflation and inflation-while central banks print money to make up for a contraction in money because of imploding debt and slowing economies. But everything has corrected substantially; the senior gold stocks bottomed in May, and since then, gold has gone sideways. Gold stocks and the S&P 500 have rallied, but we've only seen part of a potential summer rise so far. Now the S&P 500 is at 1,400 and the high before the correction was 1,420. There will be substantial resistance, but the S&P 500 should rise above that.
On the correction, the S&P held its 200-day moving average and bounced off, forming pretty close to a perfect doji star reversal pattern. That's a strong candlestick indicator of a major bottom. With gold stocks measured by the AMEX Gold BUGS Index, we've seen the same doji star reversal pattern (that is a dark, down candle in a downtrend, followed the next day by a doji cross indicating indecision and the third day a long up or white candle); thus the predicted bottom during the early summer. A nice rally went into mid-June, came back down in mid-July and then bottomed close to the May bottom but above it, which makes sense, since the doji star reversal pattern indicates a bottom. The July lows were close enough for a double-bottom, meaning we have a strong base to rise from.
I closely watch the old Reuters Commodity Index, referred to as the Reuters Continuous Commodity Index (CCI), which has a strong correlation with the TSX Venture Exchange. It has been a constant measure of the same baskets of commodities and weighting, the only index for longer-term analysis. Most of the mainstream is fooled by the new Reuters CRB Index that is widely quoted in the mainstream press. It became a black box algorithm in 2005, constantly adjusting weightings every month, giving the perception of a better performing index. But that's far from the truth-it's just another modification to mask the inflation rate.
Meanwhile, while some say the commodity bull market is over, we are really seeing a correction in the continued bull market. The new CRB index has gotten nowhere close to its 2008 high, but the true measure of commodities, the CCI , reached well above the 2008 high of about 600. It fell back to 600 in late 2010 and went to a new high of almost 700 in 2011. The higher inflation scenario from excess money printing is alive and well.
Short term, both commodity indexes bottomed in May, and are moving steadily higher. The old CCI bounced off 500; now it is at 563, and it was 566 a few weeks ago. The bottom stands mainly because agriculture prices won't come down anytime soon, but there has been a strong correlation between both the CRB and CCI indices and the TSX Venture Index going back to 2008. We have seen a substantial rally in the CRB, so the TSX Venture should soon follow, and the move will be dramatic because the gold stocks and juniors are so depressed. They have not seen such low valuations since the 2008-2009 bottom, when there was severe panic in the market. We had an average gain of 155% in 2009 with gold stocks in my newsletter. I see the same opportunity now for late 2012 and 2013.
TGR: So this could be a sharp jump instead of a gradual increase?
RS: We could see a strong move over a six-month period, which most would consider short term.
TGR: How can you tell the difference between a correction and a turn toward a bear?
RS: I watch for several things in the long term. To be termed a bear, it should break substantially below a previous long-term low. The S&P 500 held above its 200-day moving average, so it didn't get into bear territory. You might call gold stocks a short-term bear market-the correction is about nine-months long. However, we have not broken down below the early 2010 low where the 2010-2011 rally started, so long term on a 5- or 10-year chart, we have not seen a lower low.
TGR: What impact could the presidential election have?
Read more>>Gold and silver in short supply and highly leveraged in currency war
