This was little reported anywhere, but the PHLX Gold/Silver Sector index (^XAU) appears to be bouncing today off of historic lows set all the way back in 2001.
Price action in gold stocks was quite out of the ordinary today as the major miners (NYSEARCA:GDX) rallied 2.5% despite the fact that gold fell substantially. Such action in the past has usually led to gains in the metals themselves in the days and weeks following. It is not uncommon for the stocks to lead the underlying commodity out of both short erm and long term bottoms. We will see if this is going to be the case tomorrow as well.
Speaking more broadly, the last time the PHLX Gold/Silver Sector found a major bottom was on October 1, 2008, 7 years ago to the day. In the two years following, the index gained close to 200%. The lows being approached now on the index are 50% below the low in 2008, and the price of gold is still 50% higher than it was back then. Something is way off balance here, and the correction back up, when it comes, could be extreme.
That means when the pressure is finally released in this sector, the ensuing bull market could rival anything we have seen so far in the gold market since the bubble top of 1980.
On the side of a bottom is the now-increasing growth rate of the money supply, which seems to have bottomed out last month and is now growing fast once again. Action tomorrow in the metals should be very telling as to what direction we will take over the next few weeks. Where the next intermediate low is should also tell us if this is indeed a bear market bottom or just another bear market rally in gold.
Continued strength in the mining sector here could mark as major a bottom as bottoms get in gold stocks going out decades. It just shows how low we have gone considering that the gold price has not even halved since the bull market top in 2011, while gold stocks have lost an average 80% of their value.
Disclosure: At the time of writing, the author was long GDX, GDXJ, SIL.