The June low for the gold mining sector was believed to the bottom for gold miners and as such presented a buying opportunity for the precious metals community. At the time we greeted this event with some trepidation and described the capitulation as a capitulation of sorts, but not a final one.
In any bull market we have to climb the wall of worry and gold and silver did exactly that in the first phase of this bull market as many objectors denounced its progress. This wall of worry will always be with us as gold clings on in the hope that there is a U-turn coming and the bull returns with a vengeance.
The Gold Bugs Index (HUI)The June bottom in the mining stocks produced a rally that took this index from 210 to 280 for a gain of 33%. Since then the froth has dissipated and the HUI has dropped back to close at 204 today. It could be that the miners have returned to retest these lows and the bulls may lend a hand here by making more acquisitions, thus providing some support. On the other hand if the miners lose support and the HUI continues to plunge, then the June bottom will join the ranks of the many false dawns that we have experienced since the heady days of a couple of years ago when the HUI traded at around 625. Since then the HUI has lost almost 70% of its value, a gut wrenching disappointment for gold bugs if ever there was one.
The fortunes of the gold and silver producers are largely predicated on the price of both gold and silver and so it goes that we must focus intently on their progress or lack of it, as the case may be. Although it has to be said that there are other factors that could adversely affect mining companies, such as a major stock market correction which would in turn weigh heavily on mining companies as they could be grouped with stocks in general and sold down accordingly.