Have we seen the bottom yet?   As you know, the gold / silver miners have been grinding out a horrible and tedious bottom over recent months.  It’s been gruesome but I sense that an upturn is near.  The action in the GDXJ today was the most solid its been for a while.  For some clients I have been selling naked puts on larger miners like Newmont and Barrick but have now moved to aggressive buying of both the stocks themselves as well as some long dated call options.  I expect that they will pay off handsomely over time.

Why do I think that?  Well…consider, among other things:

1. The recent Commitment of Traders (COT) reports the commercials net short position has reduced significantly and is close to where they were at the bottom in 2008.  The smart money is betting that gold is not going much lower, if at all.

2. The not so smart but not entirely dumb money either mob (basically asset managers who get paid to do what they do) are increasing their shorts on gold but possibly in some cases to hedge their long positions, if they have them.  While they are not ready to sell their gold, they are increasingly nervous about where they stand with the shiny stuff.

3. The commercials have a real solid (no pun intended) interest in the bullion itself.  The other guys are probably holding paper.

4. If gold does not fall through the floor and in fact does the opposite, the not so smart money will rush to cover by buying more gold paper, thereby creating a squeeze of sorts which will only accelerate the rising price.

Let’s face it.  The fundamentals are in place…

• the dollar is way too high
• the printing presses are running 24/7
• the politicians continue to prevaricate and fabricate
• governments are pressing for audits of their gold holdings in foreign vaults (Mexico is the most recent)
• there are no great new gold sources being discovered
• the costs of gold recovery are increasing, the central banks are hoarding
• the effective interest rate is zero so there is no lost opportunity to holding the actual stuff
• many of the miners offer compelling values and more than decent dividend yields…

I could go on but I’m sure you get the picture.  And being a bit early is much better than being a lot late to this party.