Jordan Roy-Byrne: Stock Market Correction To Be A Catalyst For Gold & Silver — 7/13/14
This week, Jordan Roy-Byrne speaks with Palisade Radio about the recent decline in certain commodities and how it may play out for gold and silver. In addition, Jordan believes that a correction in the stock market, as well as a correction in the energy sector could surprise gold and silver investors…
Jordan starts out by discussing the COT Report, or Commitment of Traders Report. He states that the COT is used as an indicator of future metals prices by many analysts. Producers of gold and silver use the futures market to hedge production into the future and currently, the COT shows a strong short position. However, Jordan points out that this is quite normal at the bottom of a market. Producers use a small movement up in gold prices to hedge their production costs. This does not mean that gold prices will drop.
Next we ask Jordan about commodities outside of the precious metals. Oil has broken down over the past few weeks and grains have dropped significantly. So what are investors to make of all this? Jordan points out that the grains peaked in 2012, a full year after gold and silver. Therefore, he believes that the grains are not as oversold as the precious metals because their bear market may not be over. In terms of energy, Jordan points out that the energy sector has been very strong for quite a while. Similarly to grains, Jordan believes that oil could suffer a bit, but gold and silver should not see the same price action. Energy has not been in a bear market, whereas the precious metals have.
Further, Jordan points out that energy is a huge cost point for the miners — a drop in the price of oil could actually be a huge benefit for gold and silver miners. Lower costs for mining would create better margins for the miners.
Finally, we ask Jordan about the general stock market. What can gold and silver investors expect if we see a correction in the S&P?
Jordan believes that we will see a cyclical bear market in the stock market coming soon. Jordan states that the gold and the stock market have not been negatively correlated for the past couple of years. The same thing happened in 1970’s, where up until 1974, the precious metals did well, but the stock market suffered. That flipped until 1976. But, in 1976, precious metals resumed its secular bull market, and the stock market dropped. Finally in late 1978, that correlation broke and the stock market started moving up, along side the precious metals.
Jordan sees the same pattern evolving today. How is this relevant? There has been a negative correlation since 2011. Therefore if the S&P falls into a bear market, it won’t necessarily effect the gold stocks.
Jordan Roy-Byrne, CMT is a Chartered Market Technician and member of the Market Technicians Association. He is the publisher and editor of TheDailyGold.com, a publication which emphasizes market timing and stock selection for the sophisticated investor.