Last month, when I sensed that gold bugs were about to lose their lunch over the price movement of the US Dollar, I offered a post that should have relieved their anxiety a little. In hindsight it appears my analysis was correct (fortunately).
The present anxiety seems focused on the HUI miner's index and it's frightening under performance of seemingly every asset class and market sector imaginable.
This post will make the case that the HUI is behaving exactly within the historical context of it's bull market and should be relatively near it's ultimate low both in terms of price and timing.
I will admit that the most recent 4 months, in particular, have indeed been agonizing. Painfully agonizing. But viewed in the context of similar HUI setups, such as occurred in January - March 2003, March -May 2005, September 2006 and July 2007, perhaps one can recognize our present situation as something we've not only seen before, but also have every sensible expectation for a bullish resolution.
To get to the specifics, let's look at some weekly charts of the HUI miner's index from the inception of its bull in late 2000, track the major rallies and retracements right up to our current 2013 time frame, and see if my optimism appears justified. Sound good?
OK, let's begin with this weekly chart of HUI which covers the initial window of time (2000 - 2003).
|Click on any chart to ENLARGE|
What we see is a powerful rally that appreciated from $35.31 to $154.99 (a 339% gain) and then retested a 50% retracement one time.
Our next chart puts the action of latter 2002 through 2005 into view. Using the test of the 50% retracement in the previous chart as our low, we see another powerful rally that yielded a low to peak gain of 179%.
What we also observe is that the 50% retracement of this enormous rally was tested not once, or twice....but three times. We also measure that price rebounded northward off the 50% retracement level to yield a 48.5% gain - which was entirely taken back with a third test of the 50% level.
The next mega rally is seen in the following chart spanning all of 2005 - 2007.
Again, I have used the 50% retracement level of the previous rally to spot the low of this rally. We see another awesome gain of 142%. We also note some gyrating bounces off the 50% retracement of this rally that provide gains in the neighborhood of 37%.
Curiously, we also have three tests of the 50% retracement - as we saw in the previous chart. Equally curious is the placement of these tests. The first two are somewhat close together on the left side of the consolidation while the third test is the concluding low.
Our next chart gives us a clear view of how the HUI behaved in 2007 - 2010. A strong rally off the previous 50% retracement level provides a healthy 82% gain in just under 7 months.
This rally retests the 50% retracement three times - each 6 weeks apart - then the unthinkable happens.....the bottom falls out and price plummets. The eight year cycle low in gold and the massive deflation occurring in the financial markets inflict massive damage on the mining sector (and every other sector, for that matter).
And of all things, the 50% retracement level that would otherwise be expected to hold price at $400 in the consolidation phase became the exact retracement level that eventually held price from falling much below $167. (Price stopped falling at the 150% level on the chart above).
Well, it's time to look at the most important chart of the day. This is the weekly HUI miner's index from 2008 - 2013.
Wow - look at that 325% gain!
But hold on.......there is that 50% retracement metric again.
And the 40%ish rebound that always seems to get taken away just as the bulls think they have it in the bag, again.
And three retests, again. Right at the 50% level.
And the curious placement of the retests. The first two on the far left and a final 'blow your mind' at the far right just as the consolidation comes to its exhausting conclusion.
Hummmmm....... are you thinking what I'm thinking?
Well, in case you are not sure, here is what I am thinking: the HUI has yielded 5 huge rallies during it's bull to date. Each retraced 50% before beginning a new rally, except for the 2008 example which tried to hold the 50% level and failed. Several rallies featured a 'fake out' rebound sporting a gain in the range of 40%. And the final or third retest of the 50% retracement level always located the genesis of the next huge rally. Well, except for 2008, that is.
I really don't think this is 2008 all over again. Not with the world's Central Banks devaluing their currencies as aggressively as they are. And, we are years before gold's next 8 year cycle low is due.
So, I think we are at the tail end of another HUI consolidation that, like all the others, will catapult the miner's index hundreds of percent higher over the next year and begin not too long from now.
And as I have become fond of saying, it is a bull market, after all.