I used to half joke with some of my investing friends that the
best time to buy stocks is during or right after a crash. Think
1987, 2000-2002, 2008-2009, and now -- perhaps gold miners? Well,
before we get too far ahead of ourselves, let's examine evidence of
a "crash." I like to use crowd behavioral, empirical, and technical
evidence in combination.
In a recent money managers' poll, virtually nobody was bullish on
gold or gold stocks, and over 80% of those polled were bullish on
(INDEXSP:.INX) and US stocks.
The percentage of dumb money traders (non-reportable traders) in
the futures markets with short positions on gold is at all-time
highs; they tend to be very long at the highs and very short at the
The insider buying ratio of gold mining stocks to sellers is
running over 10 to 1, the highest level since October 2008 when
gold bottomed out at $685 per ounce from $1030 highs. Quoting Ted
Dixon, CEO of Ink Research, "Such a high level of buying interest
among officers and directors within their own businesses in the
resource sector has correctly foreshadowed a recovery in share
prices in the past: That high point of nearly five years ago came
about six weeks before the venture market bottomed on December 5,
2008… While the excitement that surrounded mining stocks as
recently as two years ago has waned, experienced value investors
recognize that such periods of investor neglect often give rise to
the best deals." (Source: TheGlobeandMail.com)
The ratio of the
HUI Gold Bugs Index
(INDEXNYSEGIS:HUI) to the S&P 500 is at multi-year lows and in
near crash mode on the charts. The RSI (relative strength index) on
the weekly charts is at 10-year lows at -13.71, which is
Most trading message boards I view, such as Stocktwits and others,
are universally bearish on gold and gold stocks.
Gold is in a wave B or Wave 5 down re-testing the 1322 lows, which
my firm has discussed here for weeks
as very likely if 1470 was not taken out on the upside; this is a
normal sentiment pattern and re-test.
Gold has been in a 21 Fibonacci month correction pattern off a 34
Fibonacci month rally from 686-1923. In August 2011, I penned
articles from 1805 right up to 1900 warning of a massive wave 3 top
forming. Everyone was bullish, and now it's the complete opposite.
Currency debasement continues around the world with negative real
interest rates. This is bullish for gold once this correction has
run its course.
Hulbert Digest Gold Sentiment index is at an all-time low.
Gold-silver put to call ratios are at all-time highs.
I could go on and on with headlines and such, but you get the idea.
This is the same type of sentiment I wrote about on the stock
market on February 25, 2009,
here is that article
-- and nobody on the planet was bullish.
Below is a chart showing the Bullish Percent Index for Gold Miners.
As you can see, the last time we were at 0% was late 2008 when gold
had bottomed out and insiders were also buying like crazy as they
Click to enlarge
The GLD ETF chart also shows a likely re-test or slightly lower of
the 1322 futures lows of April, when insider buying hit 10-year
Click to enlarge
Obviously gold could end up going a lot lower than we think, and
the gold mining stocks could sink further yet. But for those with a
three to six month horizon, we expect the 21-24 month gold
correction to complete by no later than October 2013. During the
next several months, the opportunities to buy some miners on the
cheap will potentially make some investors a lot of money in the
next few years.
Editor's Note: David Banister is the chief investment
strategist and co-founder of
, a small-cap portfolio and market advisory service.