Here’s another one for you Bruce that might create the back drop to give you the sort of move in ABU that might surprise you. Just one traders opinion but a logical possibility IMO.
Following a week of explosive precious metals and mining share prices, Gary Savage, technical gold trader and publisher of the Smart Money Tracker, was kind enough to share his comments. Gary’s trading calls have outperformed most of the world’s hedge funds during 2011 and 2012. TD: Gary, a popular question over the past week, is if there will be another pullback for people to add positions after this explosive move. What are your thoughts there? GS: Well, it has been my opinion that the last eight months was not a completely natural move. I think the precious metals were manipulated to a great extent into an artificial bear market. But I think the manipulation for the most part is done, other than maybe a little short term stuff around options expirations. So I think the big money is now trying to get in on the long side and I think this move up out of this bear market bottom probably isn’t going to behave like a normal rally. The market is breaking the manipulation and it’s going to have a violent regression to the mean for the secular trend to slam back into control. My earlier theory was that we were going to see a pretty strong V-shaped rally out of this bottom and if you look at a five-year chart of gold that appears to be what’s going on. So it’s very possible we could see gold retesting the September 2011 highs in the next three or four months depending on how hard the dollar falls. If the dollar is testing the 2011 lows, I think gold is going to be testing the all-time highs. TD: Gary, what kind of timeframe do you think big pools of capital (tens or hundreds of millions)—How much time does that money need in order to get positioned? Can they do that in just a couple of days or do they need weeks or months to fully accumulate whatever it is that they’re buying? GS: I think they positioned themselves during the bear raid. I think that was the purpose of the bear raid, for big money to not only knock the sector down, but to get a better entry. Let’s say if the next leg of the bull was to start at $1600 and go to – I’m picking a number out of the air but let’s say $3200. That would be about a typical leg up in the secular bull, about 100%. So if you entered at $1600 and got out at $3200, you made about 100%. Well if you can manufacture a bear raid to move the market down and enter at $1200, and get out at $3200, now you’re not making 100%. You’re making 200% and you’ve knocked a lot of people off and allowed yourself an entry into big positions at a much lower starting point. I think that’s what happened over the last eight months. TD: So Gary, what are your thoughts here on performance going forward for mining shares, as well as silver? The mining industry faced a borderline extinction event over the last year. What are your thoughts when you look at those two groups? GS: I believe that both of those are going to be the biggest gainers over the next two years, simply because they got beaten up so badly, much more so than what the fundamentals were calling for. So I think the regression to the mean is going to be most violent in those two sectors. TD: To further ask you a speculative question—what kind of numerical expectation do you have for those two groups? GS: If gold tests $1900, I think silver could get to $40. In the miners, that one is kind of a toss-up. If gold is testing at $1900, the HUI could be testing between 500 and 600.
ABU Price at posting:
3.3¢ Sentiment: Buy Disclosure: Held
(20min delay)