Obviously, we can’t know if the bottom is in but I’ll repost a chart which is my best argument for why we can expect a big rebound over the coming months. The chart shows all of the worst bear markets in gold stocks. At the top right I’ve annotated the ensuing recoveries. As you can see, D (the HUI from its 2011 top to last July 6’s close) is extremely close to B and C in terms of depth and duration. B and C occurred in a secular bull market and were followed by 606 percent and 560 percent gains. D is also close to E which was followed by a 205 percent gain in seven months. A, the 2008 collapse was followed by a 324 percent gain in less than three years.
The chart and data show that the recent downturn is well in-line with the history of gold stocks and more importantly, is well in-line with downturns in secular bull markets. Yet, the mainstream is acting as if gold stocks are going to go 0 and the industry extinct. The recent drivel from talking heads on CNBC and Yahoo Finance is exactly what you get at a major bottom. Simply put, it is the perfect contrarian opportunity and is the foundation needed for a cyclical bull market and future bubble.
Moving along, the gold stocks have a very strong resistance target which could come into play in Q4 of this year. GDX, the large-cap unhedged miners ETF has a confluence of retracement points near $38. Meanwhile, the current 400-day MA is at $43.71 and will likely come down to $38 before the end of the year. Following four major bottoms (1970, 1976, 2000 and 2008), the recovery hit that resistance (400-day MA) in the fourth or fifth month post-bottom.