n my last article -- Freefall in Silver, What's Next? -- I described the current situation in silver. Today my firm would like to provide you with a mining-stock-related follow-up. Gold and silver markets appear to be consolidating after a slide in the immediate past. If there is anyone in the world happy about the declines in precious metals, it must be Warren Buffett who keeps on buffeting gold at every opportunity. Here is what he said at the recent Berkshire Hathaway’ annual general meeting: "You can fondle it, you can polish it, you can stare at it. But it isn’t going to do anything. Gold really doesn’t have utility. I’d bet on a good producing business to outperform something that doesn’t do anything." A very well-known quote of Buffett’s about gold which we have previously used is that gold gets dug out of the ground, then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head. Of course Buffet said this when gold was trading for a fraction of its current cost. He must be scratching his head and asking himself why he didn’t buy it when it was less than $300. I guess that we will start worrying the day Buffet says he’s buying gold. That could be the ultimate signal that it’s time to sell. If even the most die-hard gold bears are buying, it seems absolutely everyone is already in the market. Whatever the logic behind taking positions in precious metals markets, one thing is true, ‘a lot of things are happening.' Off-beat, let’s see how gold and silver mining stocks perform amid the fluctuations in precious metals. Let’s turn to the technical portion with analysis of the XAU (Gold and Silver Mining Stocks) chart. (Charts courtesy by http://stockcharts.com).) Actually, the above chart analysis is just a warm-up as in this case, the only thing that can be seen is that gold and silver mining stocks have once again moved to their 2008 highs. This factor alone should make you consider betting on higher precious metals prices in the short-term. More details are visible on the HUI Index chart below. On the above chart we see additional important trade signals. The index has moved to the long-term rising support line (marked dashed line) and the RSI indicator (at the top of the chart) has declined to a point which has marked previous local bottoms. Consequently, an upturn from here appears quite probable regardless of the following medium-term move. Please take a look at the S&P Gold Stock Extreme Indicator for more details. The chart provides extreme readings, however recently it has been providing accurate buy signals. This signal greatly increases the odds that the local bottom is in and that a short-term rally is likely. My firm has described this in a previous report: In the Gold Stock Extreme Indicator, we see a quick move above the dotted line. This has coincided with local bottoms for gold stocks every time this line was crossed since 2008. As we can see, not each and every bottom was indicated, but each time we have actually seen this indicator flashing a buy signal a short-term rally followed. This happened on most occasions prior to 2008, but every time since. 100% accuracy simply cannot be ignored. Overall, the gold and silver mining stocks’ charts suggest a short-term bounce from the current levels similar to what is likely for gold and silver themselves. The way this bounce plays out could provide many of the missing details which might impact the precious metal sector on the whole and determine if we are still in the final part of the rally or if a major decline has already begun. Summing up, while the next medium-term move still appears rather uncertain (with a slight bearish bias), it seems that from the short-term perspective gold, silver, and the mining stocks are likely to be impacted in a positive manner from the support levels currently being reached. For the full version of this essay and more, visit Sunshine Profits' website.

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