What to Do If You Missed the Gold Rally

What to do if you missed the gold rally... Sjug was right again... New records for housing... New highs for oil... Jeff Clark: The gold correction is here... A special, subscribers-only event...

In today's Digest, we have some big news for gold investors.

If you missed out on gold's historic rally this year – or you're just looking for the best opportunities to add to your positions today – be sure to read on.

But first, a quick look at some notable market action this week...

Longtime readers know our colleague Steve Sjuggerud has been extremely bullish on housing for more than six years now. He has reconfirmed his bullish stance again and again over the years... and the latest data continue to prove him right today...

Yesterday, the U.S. Department of Commerce reported new home sales in April surged to the highest level since the start of 2008. But that was just one of a long list of bullish data points...

New home prices were up 9.7% since the previous month... the biggest monthly increase since 1992. The median new home price in the U.S. rose to $321,000... an all-time record. The number of new homes sold but not yet under construction rose to 209,000, the highest since May 2007.

Sales jumped 15.8% in the southern U.S. to a 352,000 annualized rate, the fastest rate since December 2007. The number of new homes for sale fell to 243,000 in April, enough to last just 4.7 months at the current pace of sales, the shortest in more than a year.

Meanwhile, this morning the National Association of Realtors reported its Pending Home Sales Index – which tracks sales of existing homes that have not yet been closed – surged 5.1% in April to a new 10-year high. This suggests existing home sales are likely headed higher, too.

Despite the big jump in sales and prices, Steve hasn't dialed back his optimism. He says the bullish case for housing still hasn't changed. He shared his latest thoughts in a private note this morning...

Mortgage rates are at around 3.5%, still near record lows. And the supply of new homes is low. There's enough to last less than five months at current sales levels. There's plenty of upside. But beyond these numbers, there's a bigger issue.

Mom and Pop America earn next-to-zero percent interest on their money in the bank... These folks can't retire on zero percent. They'll have to do something else with their money to earn income, and rental real estate is a natural choice.

These folks haven't started buying rental property, but they will. We might be getting in the later innings of this housing boom... But there's still plenty of upside from here.

We also note that crude oil briefly broke out to new highs above $50 per barrel this morning, before closing lower.

But behind the bullish price action, the fundamentals continue to urge caution...

Canadian oil-sands producers are reportedly already ramping production back up again, following the recent wildfires in Alberta, Canada that took more than 1 million barrels per day of supply off the market last month.

The managing director of Iran's national oil company said the country's oil production is increasing faster than expected. In particular, he said Iran's crude exports are likely to surpass pre-sanction levels by mid-summer. He also said the country has no plans to freeze or cut production anytime soon.

Finally, we note that while oil has been rallying, emerging markets and other commodities, like copper, have been falling.

This is a change of character... For much of the past few years, these markets have moved together. Unless its importance to the broad market is waning, this divergence suggests oil could soon be playing "catch up" to the downside.

Precious metals have also been falling...

Gold rallied 16% over the first three months of the year... its biggest quarterly gain in nearly 30 years. Silver lagged gold initially, but soared in April and closed the month with a 28% year-to-date gain.

But since then, the rally has slowed...

Gold is now down nearly 6% from its late-April high. Silver has fallen nearly 9%. And gold stocks – as measured by the VanEck Vectors Gold Miners Fund (GDX) – are officially in "correction" territory, down 13% from their highs.

Regular Digest readers weren't surprised by this move. We've been anticipating a pullback for several weeks.

Again, this is not a reason to worry or turn bearish on the sector.

As former Stansberry Research Editor in Chief Brian Hunt likes to say, investment trends are like sprinters. They can't run flat-out forever. They need to take a "breather" from time to time.

In other words, it's normal and healthy for a bull market to be broken up by periodic declines and pauses.

In fact, when markets don't have significant corrections and move nearly straight up – like technology stocks in the late 1990s, or oil in 2008 – that's when you should worry. Those kinds of parabolic moves are unsustainable and often mark the end of a speculative trend.

The gold sector had soared over the first several months of the year, and there were signs the market was getting a little "frothy." Seeing gold finally take a breather now is actually a bullish sign for the future.

But there could still be some more downside ahead...

Stansberry Short Report editor Jeff Clark has been closely following the gold sector as well. And he too has been telling his readers a correction was likely.

Like us, he noted that gold speculators had become extremely bullish, while commercial traders – known as the "smart money" – were extremely bearish. This situation often leads to at least a short-term pause.

And on April 28 – just one day before the gold sector peaked – Jeff warned that one of his favorite gold-stock-timing indicators had just triggered a "sell" signal. As he wrote in the April 28 issue of our free Growth Stock Wire e-letter...

Take a look at this chart of the Gold Miners Bullish Percent Index (or "BPGDM")...

A bullish percent index is a gauge of overbought and oversold conditions. It measures the percentage of stocks in a sector that are trading in a bullish technical formation. Since it's measured as a percentage, a bullish percent index can only reach as high as 100 or fall as low as zero.

Typically, a sector is extremely overbought when its bullish percent index rallies above 80. It's extremely oversold when it drops below 20. Trading signals are triggered when the index reaches extreme levels and then reverses.

Jeff noted that, back in late January, this indicator had turned higher from a deeply oversold reading of 13, triggering a buy signal. And it was clearly correct... GDX soared from just $13 per share to above $25, a gain of more than 90% in less than four months.

But by late April, the opposite situation had developed. The indicator had rallied to a deeply overbought reading above 80 and turned lower, triggering a sell signal.

Again, this indicator was spot on. GDX has fallen double digits since the sell signal was triggered. But Jeff says the selling likely isn't over just yet. He shared his latest thoughts on the sector with Growth Stock Wire readers this morning...

Well... it has been a few weeks. With GDX trading cheaper today, you have a much better buying opportunity right now than you did in late April...

Take a look at this updated chart of GDX...

Jeff says the gold sector is oversold in the short term, and gold stocks are sitting on "support" at their 50-day moving average ("DMA"). So we may see a short-term bounce over the next few days. But Jeff believes a more significant rally is likely still a few weeks away...

First, he notes that the "smart money" is still relatively bearish...

The commercial traders' net short interest – shown by the weekly Commitments of Traders (COT) report – is still at more than 290,000 contracts. That number needs to drop back down to less than 100,000 contracts before we can start looking for another rally in gold. (You can read more about the commercial traders' positions here.)

Perhaps more important, he notes that his gold-stock-timing indicator hasn't turned bullish just yet...

The BPGDM – which triggered the sell signal last month – is still too high. Here's the recent chart...

The BPGDM traded at 51 yesterday. That's a neutral condition. It needs to get closer to oversold before it can generate a buy signal. A reading of less than 30 on the BPGDM would suggest we're getting closer to the end of the current decline and ready for another rally in the gold sector.

For now, though, despite the potential for a short-term bounce off of its support level, the gold sector still looks like it has lower to go.

So what should you do with this information? It's simple...

If you followed our advice earlier this year – and already have significant positions in physical gold and silver and select mining stocks – you can be patient. You're likely already sitting on big gains, and you can wait for what will likely be better buying opportunities over the next few weeks.

But if you missed out on the rally this year, our recommendation is different. We suggest buying at least partial positions in these investments as soon as possible.

Why?

Because the risk of not owning enough gold is far greater than the risk of buying before a short-term correction.

We believe a historic bull market in gold is just beginning... And the next leg up could be even bigger than the last.

In fact, Porter says a "tipping point" has now been reached, and this summer will likely be remembered as the time the "bull mania" in gold really took off.

In short, he believes the next great buying opportunity has arrived... and he's hosting a special live event for Stansberry Gold Investor subscribers next Tuesday, May 31 to explain it all.

Again, this event is only for Stansberry Gold Investor subscribers...

So for a limited time, Porter has agreed to reopen the service to new subscribers. If you weren't able to get in before the doors closed last month, this is your chance.

Please note, like before, we likely won't be able to accept new subscribers for long. If you're interested in joining us, we urge you to act quickly.

You can get all the details on this special event – including how you can become a Stansberry Gold Investor subscriber – right here.

Be sure to read to the end of today's Digest, where we're featuring a bonus essay from best-selling author and contributing editor P.J. O'Rourke...

New 52-week highs (as of 5/25/16): Aflac (AFL), PNC Financial Services – Series P (PNC-PP), and ExxonMobil (XOM).

In today's mailbag, several subscribers comment on P.J. O'Rourke's latest must-read essay. Let us know what's on your mind at feedback@stansberryresearch.com.

"Thanks for the great words of wisdom, P.J. Whether you are educating or entertaining, your input is always time well spent." – Paid-up subscriber Timothy S.

"WOW!! Finally a contribution from P.J. that I can agree with and enjoyed reading. Well done!" – Paid-up subscriber Jamie Diamond

"Dear Porter, please, may I forward P.J.'s essay about Friedman's free market econ theory to my tragically miseducated 20, 30, and 40-something children and friends? It is an amazing distillation of free-market economic theory about which they know nothing! Thanks!" – Paid-up subscriber Judy Poole

Porter comment: Of course! Permission granted.

"O'Rourke says we have 'no Ronald Reagan on the horizon,' but he's wrong, or at least only half right. We had a candidate that could have been, potentially, a better Reagan than Reagan. Too many morons in this country chose to support a fraud instead. We'll see how badly that works out in short order." – Paid-up subscriber Chris Carman

P.J. O'Rourke comment: Chris, I sure hope you're right about there being someone who's potentially "a better Reagan than Reagan." But I also wish you'd tell me which candidate you mean. I must have been snoozing when that man or woman was running...

Regards,

Justin Brill
Baltimore, Maryland
May 26, 2016