By Stewart Thomson
1. Unfortunately, most precious metals investors don’t take the food markets very seriously. Please click here now. That’s the corn chart.
2. The major media may be playing down the skyrocketing prices of corn, wheat, and soybeans, but the price charts are telling another story. Note the vertical move by corn. It has blasted up and out of this “super-wedge” chart pattern.
3. Please click here now. That’s the gold chart. Note the tremendous similarity to the corn chart. They both peaked at the end of last summer, and the price action since then is very similar.
4. A lot of investors are worried that the price zone of $1525 for gold might “break”, producing a sizable decline.
5. Please note that corn broke its “$1525-equivalent” lows, and then it soon went as vertical as a flagpole.
6. I wouldn’t worry about whether $1525 breaks or not. I’d worry about whether you are on board the gold rocket, if it makes a move like corn does. When the price of an asset goes vertical, there’s no time to “buy the breakout”. You have to be in before the move occurs.
7. It’s not fun getting in when the charts tell you that the price is going lower, but getting richer involves very little fun, on the buy side of the equation. Most investors’ problems are caused by having a little too much fun when buying!
8. You rarely know in advance what will trigger a violent price move. Please click here now. There are quite a number of long-term factors that could lead to much higher corn prices, and the ability of pests to engineer themselves against “Monsanto’s finest” is one of those key factors.
9. Rising food prices have an effect on gold. There is only so much marking to model that Ben Bernanke can engage in, before he has to admit that there are growing inflationary pressures in the food markets.
10. A price chart that shows food prices gapping higher is positive for gold prices. Please click here now. That’s a chart of soybeans, and you can see a clear head and shoulders top pattern in play. Unfortunately for the food price bears, it’s just a two day chart.
11. Please click here now. You are now looking at a longer term chart for soybeans, and there’s a fantastic head and shoulders bottom pattern in play. The mini-top on the two day chart is simply indicating that there could be a pullback towards the neckline area of this giant h&s bottom formation.
12. The target of the h&s bottom on soybeans is about $17 a bushel. That’s a substantial move. There are massive bull wedge patterns in play on both corn and wheat. This incredibly bullish action in the grains could send gold & silver surging higher, just when everyone has almost given up on it ever happening.
13. There is not much rain in sight in America’s corn belt, and the word amongst farmers there is that the corn crops grown on lower-grade soil could be wiped out by Saturday. Even if it starts raining right now, these farmers are expecting prices to rise about 20% from current levels.
14. Please click here now. That’s the silver price, and you can see that it broke the demand line. What happened when that line broke? Silver didn’t fall down. Be careful about getting overly-bearish on gold and silver here, as the seasonally strong season for these mighty metals gets underway.
15. Please click here now. That’s the seasonal chart for silver, courtesy of Dimitri Speck. Today is June 26, and that date is right in the area of silver’s point of maximal seasonal weakness.
16. Rather than predict further declines in the metals, I’d suggest you should “err” on the side of being overly-bullish.
17. Think carefully about gold and silver as assets of the highest quality. That's more important than whether they might have another leg down against the dollar. I doubt that many investors can do that successfully, but that fact doesn’t mitigate the importance of trying.
18. Most chart patterns don’t work. Even when they do, professional investors will accumulate an asset that has “broken down technically”. The biggest question is whether value is offered to the investor, when they buy.
19. In the case of gold stocks, value is offered to the investor at current prices, but there is a broadening formation on the weekly GDX chart.
20. To view that formation, please click here now. It could be argued that a broadening top pattern is in play, with a technical target of about $30. I think the supposed broadening top is more likely just a chart shape.
21. Gold stocks may be beginning to exhibit an important non-confirmation with bullion. Note how far away from the $39 area lows GDX is, while gold (and especially silver) are very near to their lows.
22. In the final analysis, if the broadening formation on GDX is a real chart pattern, you have to be prepared to buy and endure prices down to the $30 level. I’m fully prepared to increase my position substantially if GDX trades below $39.
23. If it’s just a shape, then you need to be sure you own a nice chunk of gold stock at these levels, so you can benefit from much higher prices.
24. GDX is currently trading about 12% above its $39 area lows, while gold is only about 3% above its $1525 area lows, and silver is almost right on its lows. The outperformance of senior gold stocks is extremely bullish, for the entire precious metals sector!
