Over the last several days volatility in the gold market has collapsed forming what is known as a coil.
I think the Fed announcement tomorrow
will probably break gold out of this holding pattern. But contrary to
popular belief, about 70% of the time the initial move out of a coil ends
up being a false move that is reversed by a more powerful and durable
move in the opposite direction.
In this case if gold breaks lower out
of the coil it is late enough in the intermediate cycle that the move is unlikely to last more than a few days before forming what would
presumably be an intermediate cycle and B-Wave bottom.
I suspect many gold bugs are going to
get knocked out of their position if this scenario plays out tomorrow.
However, if this does turn out to be a B-Wave bottom, and I think it
will, the next couple of days are going to be the single best buying
opportunity for the rest of this secular bull market.
This doesn't mean that gold will
reverse and head straight up immediately. I expect we will probably see a
volatile consolidation with several tests of the all-time highs above
$1900 but no breakout for the rest of the summer.
Traders are going to be looking for
the next trend once the stock market bottoms. I doubt that tech stocks
are going to resume the leading role that they've enjoyed since last
October. More likely liquidity will find its way into a beaten up
As I always say, liquidity will
eventually flow into the most undervalued assets. There is no sector as
undervalued and as unloved as the mining stocks right now.
Sentiment in this sector has reached levels of pessimism
capable of generating triple digit returns over the next couple of
years, and I wouldn't be surprised to see a 25 - 50% gain during
the next intermediate cycle alone.
I think the next momentum move is
about to begin in the sector most overlooked and least expected by
investors, the mining stocks.
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