The gold stocks have frustrated investors for several reasons. First, the sector has had a general inability to keep pace with gold and that struggle has been particularly incensing over the last year in which gold has gained. Second, the substantial rebound in the equity market has provided no lift. We know that the gold stocks can be vulnerable when gold falls and when the stock market is plunging. Yet, the gold stocks did not respond as expected despite the reverse favorable conditions in the past year. In the words of a friend, these stocks couldn’t advance if a rocket ship landed up their ass! It is time to bail, right? Wrong! Considering the extreme negative sentiment and our technical work, we believe the market made an important long-term low last week.

First, let’s look at the large caps, which have really struggled over the past six months. Sure, the HUI broke to new 52-week lows but the market has been so oversold for so long that this breakdown didn’t initiate downside follow through. Veteran observers of the sector know that there are numerous false breakouts and breakdowns. Over the past two weeks, the HUI has formed bullish hammers, which is a sign of a reversal. More convincing is the fact that the market bottomed at the 38% retracement. Finally, consider the 40-month moving average. It provided key support at the 2007 bottom, resistance in 2008 and early 2009 and then support in early 2010.

Moving along, we show a daily chart of our proprietary gold stock index, which contains the 10 largest and strongest companies. This market was able to hold its December low after a pair of retests in the last two weeks. An advance above 75 and a weekly close above 75 this week should confirm the bottom.

If that is not enough evidence then consider the junior market. In reality, the companies that comprise the GDXJ and ZJG.to ETF’s are mid caps and small caps and not juniors. That being said, these ETF’s offer us insight into another important part of the sector. The weekly chart below shows both markets potentially completing important double bottoms. More important, while the HUI (large caps) made new lows GDXJ and ZJG.to did not. That is an important positive divergence.

The reality is that the gold stocks have been correcting what was a substantial two-year recovery. Pull out a historical chart of this sector and you will observe that it often is either in a state of a strong impulsive advance or a consolidation that lasts months and months. Remember, the 18-month consolidation from 2004-2005? Remember the consolidation from 2006 to 2007? Apparently, most gold bugs and gold investors do not remember how accustomed this sector is to significant drawdowns and persistent range-bound activity. We admit it is difficult to keep it all in perspective.

All one can do is maintain a level head and accumulate at times like this and take profits when the market and sentiment are extended. Now we see sentiment that echoes the 2008 crash. Anecdotally, there is talk on several gold-bug forums of throwing in the towel, giving up and considering other sectors. The more extreme gold bugs are out with their “only physical” mantra, which comes precisely at the wrong time. Through careful stock selection and basic market timing, an investor can utilize the equities to far outperform. That is what we focus on in our premium service. Consider learning more.

Good Luck! 

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com“>Jordan@TheDailyGold.com
TheDailyGold

David Morgan, Editor of The Silver Investor joins Michael on Saturday, March 31st. Listen live at www.cknw.com at 8:30am Pacific time or download the podcast above.

Find out what is next for Silver and Gold.

Around this point in the fractal cycle in the late 70’s, Gold busted out of its channel to rise sharply higher, along with Silver. Silver’s channel top will lie up around $68 to $70 over the coming months which we believe will be reached in 2012. The next higher angled resistance bands for Silver run from $112 to $115, and then up at the $123 area. By the end of the Silver Bull, we expect to see Silver reach $500+.

Dollar Devaluation Drives The Fractal Relationships

The fractal relationships to the late 70’s are driven by the aggressive Dollar Devaluation in both periods, with the current period one Elliott Wave Degree higher.Both periods present as pure 5th wave parabolas in Dollar Devaluation, and thus, in the Gold and Silver Charts.We are seeing a price expansion in the current Vth wave versus the 5th wave of III in the late 70’s for Gold and for Silver.

We have noted for years that the Fed “owns” the psychology of the markets.The Fed is in the process of converting the Deflationary K-Winter into a period of Stagflation.“Stag” refers to the very sluggish economy, and “flation” refers to rising inflation created by the aggressive Dollar Devaluation.

The Fed and its banks blew out the loan multiplier system for providing new Dollars directly into the economy in 2007 and 2008.The 2nd round of Dollar Inflation is via the Fed printing new Dollars to buy US Government debt- pure debt monetization and default on debt.Thus, they are devaluing the huge load of debt by devaluing the US Dollar.

The Fed “shows inflation when it wants” and it “shows deflation when it wants.”It does so by suggesting that it will, or will not be printing Dollars, the liquidity that drives the markets.All of this jawboning is a joke since the Fed has no choice but to print Dollars at an accelerating rate yet, the markets and investors run a constant bi-polar gauntlet by taking the Fed at their “word.”

The big trading banks dominate the markets.They do the “bidding of the Fed at key junctures.”This is a process of rotating liquidity into the different asset classes that must be supported in the process of changing the cycle during the 2nd leg of debt monetization.

It is the devaluation of the US Dollar that ultimately creates the price rise in Gold, in Silver, and in the PM Stocks.The only true read on the Dollar Devaluation is through the rise of $Gold so the true devaluation of the Dollar can be hidden from the market at key times.In reality, it is the market that creates the devaluation of the Dollar against Gold creating the Gold Parabola so the psychological whims of the Fed can muddle the psychology of the markets.The Gold parabola rises in fits and momentum runs as the market devaluation of the US Dollar ebbs and flows around the psychological effects of what the Fed says; accompanied by the help the Fed receives from entities trading with the Fed’s words.

The spastic Gold market is also affected by a focus on the Dollar Index that has little to do with Dollar Value once Global Competitive Currency Devaluations start in earnest.

We Can Expect QE to Infinity

As Jim Sinclair says, this is complicated stuff.Per Mr. Sinclair we already have approximately $1.3 trillion that were printed and sent to Europe.The markets have not factored this into the price of Gold, yet.Once it does, we should see Gold rise sharply.Remember that it only took $600 Billion of new QE printing to drive Gold up to $1920 in 2011 as per my forecast back in January and April, 2011 in my article entitled Goldrunner: Gold on track to Reach $1860 to $1,920 by Mid-year(gold reached $1,917.20 in late August, 2011 and $1,923.70 in early September, 2011).

All of the US Debts must be on the US balance sheet before Gold goes completely parabolic, for full devaluation of the Dollar and the debts.This is the essence of the question that a Congressman asked Tim Geithner.Tim delayed until the Congressman tossed out the $20 Trillion and then $50 Trillion numbers.Mr. Geithner responded that the number would make the Congressman “uncomfortable.”GEITHNER IMPEACHED BERNANKE’S COMMENT ON “MAYBE NO MORE QE” WHEN HE BASICALLY ADMITTED WE NEED QE IN SPADES GOING FORWARD.Mr. Geithner confirmed that the number of Dollars that must be printed to cover off-balance sheet items is huge.This covers items like unfunded Social Security, unfunded Federal Pensions, future unemployment claims, and the losses of Fannie and Freddie through the end of 2012.

Unfortunately, investors generally keep looking at the trees on a short-term basis, rather than seeing the forest of Dollar Devaluation.As Jim Sinclair constantly notes, we will see QE to infinity.This means that Gold will go vastly higher than most expect in order to devalue the debt and to balance the US budget.

The current markets are completely managed by the Fed and its henchmen.The complete management is a complicated issue as Jim Sinclair has noted. For instance: the Fed and its helpers recently inhibited Gold and Silver at a time when the Greek debt issues were being worked out.It was the Fed’s helpers who had sold the OTC Derivative “insurance” on all of the failed Greek debt.It appears that they hammered inflation expectations to help the deal from go smoothly; and there were cycle timing issues that were already stretched a bit.In reality, most of the Greek Debt holders were forced to take on a different debt series before “default” was declared for a final few.This gives us “insight” that the time in the cycle is short, due to the necessary quick fix deal.

Mr. Sinclair has discussing how the US Dollar’s days as the World Reserve Currency are numbered.This begs the question of what effect this will have in terms of the Dollar’s “value.”Personally, I think that new Dollar Supply is most important, but freeing up huge numbers of Dollars with its loss of reserve status could be a reason for a sharp rise in US inflation if all of those Dollars head home – and a large number of those Dollars coming home to roost might find themselves “chasing Gold and Silver” which could add to the process of the markets re-valuing Gold and Silver much higher.

We are seeing a “price expansion” in the charts of Gold and Silver in the current period with little evidence of a “cycle time expansion” to go with it, other than the general increase in fractal time warranted at one higher Elliott Wave Degree.

In the late 70’s the top in the Gold Chart came as a momentum high into early 1980 with a lower final high coming later.It is possible that we will not see the momentum high before the final high this time, yet it is probable since the continuing deterioration in the economy demands a fairly quick devaluation of the debt before the economy completely rolls over.

THE SILVER CHARTS

The first chart of Silver is the current log chart where Silver is trading inside the black trend channel.We can see the exaggerated decline into the deflation scare bottom in late 2012.Silver appears to be correcting in a flag formation at this time.The measured target of a flag break-out to the upside would target the $65 to $70 area at the top of the black channel.We have break-outs on the RSI and the MACD with the RSI trying to hold the Bullish 50 mark.The Fed has already printed $1.3 Trillion to go to Europe, with more QE necessary to buy US Debt.As the markets factor the Dollar Devaluation in, we’d expect to see Silver explode upward on a fundamental basis.It only took $600 Billion in 2011 to drive Silver from around $20 up to around $50.Additional QE to buy US debt would suggest about 3 times the 2011 Dollar Devaluation from Dec. of 2011 to the end of 2012.The timing appears to be supported with this being a Presidential election year.

If you would like to have access to my detailed proprietary fractal analyses of what is likely to unfold for Silver, Gold, Copper, the HUI and a large number of specific mining company stocks in the months and years to come, the link to our subscription service at the bottom of the article (only $30/mo.). If you do not want specific information but would just like to keep abreast of my general views on the markets, you can send an email requesting to receive my coming free newsletter Goldrunner’s Fractal Corner. See the bottom of the article for further subscription and newsletter contact information.

The Late 70’s Fractal Silver Chart

The next chart of Silver is an arithmetic 70’s chart.There was no “deflationary bent” in the late 70’s that caused the steeper retracements we have seen in the current period to create increased volatility in the ever expanding environment of Dollar Devaluation, yet it is obvious that we have not seen the first wave of sharp price expansion in Silver that occurred in the late 70’s.Fractal Cycle timing suggests that it should be directly in front of us, and it appears that the next round of aggressive Dollar Inflation is already underway to fuel that type of move as soon as the market factors the aggressive round of Dollar Devaluation into Gold and Silver.

The Silver Parabola is not a smooth flowing form like the Gold Parabola is (as can be seen in a previous article here).We can see that the huge price rise in Silver came almost completely toward the tail end of the 70’s Bull.

We are still in a short-term period of potential cycle weakness until options expire for Silver and Gold futures into the end of this week – but the Fractal Cycle suggests that things will heat up soon to see Silver on its way to $70+ in the next up-leg. We have previously laid out our fractal expectations for Gold in 2012 via our article,Goldrunner: Fractal Gold Analysis Says Gold On Way to $3,500 Mid-year.

For the moment,

Goldrunner, THURSDAY, 03-29-12

NOTE: A link to the Goldrunner subscription service can be foundhere. If you would like to be added to Goldrunner’s mailing list to receive his new and Freenewsletter, Goldrunner’s Fractal Corner, send an e-mail toGOLDRUNNERBLOG44@AOL.COM“>GOLDRUNNERBLOG44@AOL.COM.

Please understand that the above is just the opinion of a small fish in a large sea.None of the above is intended as investment advice, but merely an opinion of the potential of what might be.Simply put: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions.In the interest of full disclosure, GOLDRUNNER is personally invested in the Precious Metals sector including various Precious Metals and other individual stocks.GOLDRUNNER reserves the right to modify or eliminate any or all positions at any point in time.