Now that we’re in a panic liquidation in gold I think it’s time to develop a game plan for taking advantage of this great opportunity. It might not seem like it now, but buying at panic lows can produce phenomenal returns, especially as I believe gold is in a cyclical bear market, and not a secular one. This means gold should re-emerge into a bull market that will take metals prices to new highs once this bear is over. This will also push mining stocks much higher than they are now, so prices down here are extremely attractive.
We’re probably close to a bottom but who knows where it is. Right now I’m looking at another 10% decline in the metals, or gold down around $1000 and silver down to $13.50 or so. That should take mining stocks down potentially another 30% from here on the high side, but since they are so decimated I could see their losses start to mimic gold and silver here and be on the 10-20% range. Also it’s very possible the miners are making a bottom now and gold and silver are going to make their final bottom shortly after.
We still haven’t seen panic washout in volume in the metals either. In the mining stocks we’re starting to see it, GDXJ traded 30 million shares today and has a float of 68 million shares. That’s half the float turning over in one day. GDX has about 323 million shares outstanding, and recently traded over 100 million shares for a couple of trading sessions. Furthermore both of these ETFs have completely turned over their float in about a week, which shows how much thrashing and turmoil there is in these markets. That usually spells a bottom coming after a long decline, but since gold and silver are still crashing there’s probably more downside coming.