re the general stock markets and precious metals and precious metals equities about to experience a reversal in fortunes? Based upon current evidence, I think so.
Buy on extreme weakness, sell on extreme strength. This is one of the fundamental laws of speculation, but one that is very difficult for most of us to act upon. Why? Because most of us have difficulty in being out of step with a crowd and the investment crowd is generally most bullish in times that markets are displaying extreme strength and most bearish at times when markets are experiencing extreme weakness.
At this time, the general stock market is a position of extreme strength and gold and gold stocks are displaying extreme weakness. The S & P 500 has been bullish since March 2009 and since that bear market low the Index has increased in value by 200%. Gold and gold stocks have been in a bear market since September 2011, when the price of gold peaked at $1,920.00 (U.S.) per ounce and the HUI Gold Bugs Index reached a record high of 638.59 points. Gold is currently priced at about $1,320.00 (U.S.) per ounce down a little more than 30% from $1,920.00 (U.S.) per ounce and the current value of the HUI (Gold Bugs Index) is close to 240, which is down a whopping 62.50% from that existing record high level of 638.59.
Investment market prices are driven by the bullishness or bearishness of the investment crowd. The longer and further that prices move in a certain direction the more bullish or bearish are market participants. Rising prices bring an increasing number of participants to that particular market, whereas falling prices contribute to a reduction in the number of investors. The bigger the moves in either direction the more investors are drawn in or driven out of the market. On the bullish side in a market that has been ongoing several years and risen multiple times in value, almost all investors are buying the market. A bear market that has been ongoing for several years and has experienced huge price losses sees the opposite; virtually all investors have fled the market. As the saying goes and it is important that we not forget this, “Mood follows Price,” and not the other way around.
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