IN THIS ISSUE:


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• The gold rush is far from over

• Viv Govender clocks 44% on Gold in just 7 days

• Why gold stocks are still considered cheap right now
  

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From Gary Booysen, analyst, Stockmarket Sleuth

Dear reader,

It looks like last week's prediction on the Alsi Top40 was spot on.

We pegged the turn between 28,800 and 29,200 and, thanks to an incredibly poor set of US jobs numbers, the market briefly touched 29,024 before collapsing 500 points!

At exactly 2:30pm on Friday, all the investors and traders who believed the world was recovering nicely, were kicked in the teeth. Hard!

You see that's when the US non-farm payrolls number was released.

This number is possibly the most watched number across the globe. It gives an indication of the state of the US employment market. The number is so important we actually have an introductory job estimate (the ADP number) the day before just to help us formulate our expectations correctly.

But last week it all went wrong...


The ADP number showed things were improving, which wrong-footed the market completely when the real non-farm payroll number came in on Friday. The most pessimistic estimate for non-farm payrolls was a rise of 40,000, while the Bloomberg consensus was a jump of 105,000. The actual number was a dismal increase of only 18,000 jobs for June.

This is the slowest growth in NINE MONTHS! And dumps buckets of icy water all over the equity market.

As a result we've seen a run to safe haven assets and if you'd picked up gold last week you'd be smiling.


Especially if you'd geared it up like Viv Govender did in Index Trader.

He bought New Gold at R98.50 via an index CFD and yesterday was looking to close at R102 for a 44% gain in just 7 days!

Or if you're ready to start trading, why not drop me an email at gary.booysen@vunaniprivateclients.co.za and open your very own trading account. In fact, as a MoneyMorning subscriber I'll make you this "special" offer: I'll personally help you through your first trade...


For more on how to make money on gold and silver I'll turn you over to technical analyst Dominic Frisby, who's also riding gold all the way up!

From Dominic Frisby, at MoneyWeek in London

Five reasons to buy gold and silver stocks now

We’re back in the buy zone, folks, for gold, silver and the mining stocks. It might be another week or three before we hit rock bottom. Then again we might already have seen it. But I’m confident we’re in the zone.

A number of boxes on my check-list have been ticked.

For those that like a flutter, it’s "dipping your toe in" time. Here are five reasons you should be buying in now...

Reason 1: It’s early July

I don’t know why it happens – I can offer suggestions – but I don’t really know why it is that July and August repeatedly prove to be the best time of year to buy precious metals and precious metals stocks.

The simple strategy of accumulating over the summer and off-loading early the following year keeps on working.

This first chart shows gold (black line) and the CDNX (the composite of the Toronto and Toronto Venture Stock Exchanges – blue line), which I use as a proxy for junior miners. The vertical red lines mark the month of July.

As you can see, with gold (the black line), a low for the year repeatedly occurs in the July-August time frame. The strategy of buying gold in the summer and off-loading early the following year has worked every year since 2001, with the exception of 2007-08.

The juniors proxy, the CDNX (the blue line), is not as consistent as gold. But if the low doesn’t happen in the July-August time frame, it occurs the following October. If not one, then the other. It’s remarkably consistent in that regard. Again, the year that broke the rule was 2008.


Reason 2: The COT Report looks bullish for silver

The COT report shows the commitments of the futures traders on the Chicago futures exchanges. Broadly speaking, the fewer open positions (open interest), the more bullish the set-up, because the more potential buyers there are still to come into the market.

In a strong uptrend the open interest will expand – the new buyers are stronger than new sellers. A rising trend with declining open interest suggests that the market is being pushed higher more because short sellers are exiting positions than because new buyers are establishing positions. That’s a sign that a move is tiring.

In general, I have found the COT report to be a better identifier of lows than of tops. And the open interest in silver hasn’t been this low since late 2008, when silver was trading below $10. In other words, to me it looks as though buyer demand for silver can only go up.

Back in the spring, when silver had its mega correction, I said the most bullish setup would be for $33 to hold. It has held. It’s been repeatedly re-tested and it has held. Not only has it held, but the weak hands have now been flushed out, as evidenced by the COT open interest. So there is a lot of room for new buyers to come into the market.

A lot of people sold silver at $50. But were they clever enough to buy back in at $33? If not, there could be a scramble.

I am also extremely impressed by the way the gold-silver ratio has stayed below the key 45 level. Silver has stayed strong relative to gold.

We have had a run over the last two days, so some caution is recommended. But I am feeling very bullish about silver in the intermediate term. I expect a retest of $50 before year-end – or perhaps even sooner than that.

Reason 3: We’ve almost reached our friend - the 144-day moving average - again

Since the bust of 2008, the 144-day moving average – which shows the average price over the previous 144 days – has been the best gold indicator I have found. (Hats off to the trader Michael Hampton who first alerted me to it).

Gold repeatedly pulls back to it during sell-offs, and it has marked an optimum entry point. The average currently sits at $1,441 and rising. Gold began the week close to it at $1,480. I daresay the twain shall meet somewhere in between at some stage over the next month.

Then again, $1,480 held after the spring sell-off. It held during the weakness of the past 10 days. That may be the low.

Reason 4: Gold stocks are cheap

Gold stocks remain cheap compared to gold. Of course, there are all sorts of reasons for gold stocks under-performing. Rising mining costs, foreign exchange fluctuations squeezing profits, and general poor sentiment towards equities are just a few. And just because they’re cheap doesn’t mean they can’t get cheaper.

But valuations are starting to look compelling even to a cynic like me. With the horrible exception of 2008, gold stocks are as cheap relative to gold as they’ve been in eight years.

And if you look at the ratio between gold and the junior mining stocks, with the CDNX as proxy (see below), junior gold stocks are as cheap as they’ve ever been, bar a few months in 2008.

Reason #5: I can’t find a bull out there

There are the permabulls. But that’s it.

I don’t use a technical measure of investor sentiment, as some do. I follow investor chat boards. I listen to interviews. I read a lot. I go to presentations. I talk to people. My reading of investor sentiment is nothing scientific, just a judgement based on what I’m seeing and hearing.

There is no elation out there. There was last autumn, but not now. There is a feeling of fatigue, wariness and cynicism. There is also a feeling that 2008 is coming again. Maybe it is. In which case, all bets are off.

But what if it isn’t? In general, an atmosphere of fear and loathing is a better atmosphere to buy into than one of celebration.

All in all, I think there is a strong case to be buying into precious metals and precious metals stocks for an intermediate-term trade into early next year – or for longer if that’s your style.

It looks to me like we are entering the second phase of the financial crisis. When the banks were bailed out in 2008, we noted that all that was happening was that debt had been moved from the balance sheets of private corporations to those of governments. The next phase would be marked by sovereign debt default.

We are there now, whether it’s southern Europe, or the US’s issues with its debt ceiling. They might be able to put it off for a few more months, but it is coming. It is all incredibly bullish for gold. Sooner or later gold will pull its related stocks up, like a fierce mother with an errant child.

Until next time,

Dominic Frisby