Gold, Mining Stocks Set to Reach New Highs in 2 Weeks

This week we witnessed precious metals and mining stocks markets quickly retreat to support levels after a rally sent prices back to cyclical highs on Monday. Since our buy alert in our Feb. 11th commentary, RBY rose from $ 1.28 to well over $ 1.50–at least 17% in profit opportunities in just 2 weeks.

After Monday’s high, RBY dipped to support levels between $1.32 and $1.36. We expect to see new highs reached between March 9th and 20th or during the last quarter lunar phase.

Earlier this week we learned that interest in gold is gaining significant momentum. Gold trading, specifically in the GLD ETF has increased to all-time highs.
As interest in gold persists, gold production is waning, creating temporary supply concerns. Output from 2 of the world\’s largest producers, South Africa and Australia dropped to new lows.

As mentioned in last week’s commentary, higher US gold demand coupled with a strong dollar means that gold priced in Indian Rupees is at all-time highs–in other words, Indians are not buying AT ALL.. According to the charts below (USD/Rupee and INR etf), it looks like the Indian Rupee is set to rise very soon.

Gold Hits 7-Month Highs, Dow Re-Visits 4-Month Lows

Today, the price of gold moved closer to $1,000 when it hit 7-month highs between $970 and $983. This should serve as a wake-up call to all who have not bought into the precious metals bull market that is in full force. It’s worth mentioning that both Gold and RBY are following upwards trends that we had forecast and laid out in two commentaries from December 20th and the 26th.

As gold hit new highs, we observed a new pattern that began in late December: a divergence between the Major Stock Market Indices/industrial metals and Precious Metals/Mining Stocks Sectors/US Dollar. The following chart shows the new direct relationship between GLD (gold ETF) and UUP (US Dollar ETF):

For one, investors have shown that they’re just too pessimistic about the major companies trading in the world equities markets and future economic development. This helps to explain the low demand for industrial commodities like copper and oil as well as the dejavu back to November 2008 lows. As money has been converted to hard assets and cash, the US Dollar Index hit new 3-month highs above 87 on yesterday.

The divergence is telling us that fear is high and that investors are either holding cash or rushing to the safe havens–gold, silver, and quality mining stocks. Although we expected this scenario to have occurred sooner, it’s happening now because gold and silver recently passed through key resistance levels (discussed in Jan 12th commentary, ). In short, precious metals and mining stocks now have the necessary investor support needed to continue the long term upwards trend.

Remember that gold still hasn’t reached all-time highs in US Dollar terms. It’s easy to see this when we consider that the world’s largest buyers of gold, Indian consumers are refusing to buy gold at such high prices. Presently, the price of gold is at all-time highs in Indian Rupees. As it and other developing-world currencies begin strengthening against the dollar, the price of gold will be more attractive in India. We expect this rise in demand to start in late spring 2009 and continue through the early part of the summer.

Is the divergence pattern we’re observing creating a win-win situation for gold, silver, and mining stocks? Well, think about. Now that gold and the dollar are trading directly, gold is being used as a safe haven. When we revert back to the ususal inverse relationship, then not only will we see the increase in demand from India, we’ll see gold reach new highs in dollar terms as well–which in our opinion, means you can’t go wrong with gold.

Stimulus Sends Gold, RBY to New Highs

You may recall that last week’s commentary alerted our readers to cyclical lows on or near Monday, February 9th and we were right on target. On the 9th, gold and RBY prices fell to $ 892 and $1.26 respectively and quickly bounced back the next day. Although support levels seem much higher than we expected, it’s a good indication that prices must go even higher in the near term.

Today the price of gold and RBY jumped to $947 and $1.51 respectively, highs unseen since last summer. The price spike was associated with the following events:

- Congress’ released news that crews hit yet another high-grade gold zone at its Phoenix Gold property. This is the 7th such discovery within the past 7 months at Red Lake, Ontario, one of the world’s historically mineral-rich regions.

In spite of today’s price surge, prices quickly retreated. Such action may indicate that speculation was high and that prices have potential to go even higher by the end of the month. We’re targeting February 25th as the date we expect to see new highs.

Central Banks will Drive Gold, Mining Stocks Higher in 2009

In January, we told our readers to look out for January 26 as it would signal the beginning of a new uptrend in the precious metals markets. The week of the 26th pushed gold and mining stocks prices to highs unseen since fall 2008. Most importantly, prices smashed through previous resistance levels.

Over the next few days, we’re looking for prices to settle near $840 to $860 for gold and $ 1.05 to $1.15 for RBY on or near February 9, 2009, near the time of a full moon.

On a positive note, world central banks and treasuries have been increasing their gold holdings. In fact, the German Finance Minister made it clear last week that it would be unwise to sell gold reserves. Furthermore, China and Russia have long stated their intentions to add to reserves, leading us to wonder if central banks will be helping to drive this year’s commodities bull market.

Mining and exploration companies will indeed have a market for their extracted minerals. After major market corrections like that of late 2008, the mining companies most poised for future development are the ones that perform the best. Yesterday Rubicon Minerals Corp, which has prime, unmined property near mineral-rich Red Lake, Ontario announced that it received a necessary de-watering permit. We considered this a crucial step in developing the property. The permit was the only thing holding big money from attracting to RBY; now that it’s behind us, we can confidently continue trading RBY this year.