Precious metal stocks are as oversold today as they have ever been. Most are down on valuations. I think most are discounting (or already have discounted) $1000 dollar gold, and that of course will affect earnings. One of the tell-tale signs of the end of crashing commodities is the stabilizing and/or reversal of commodity stocks. Generally speaking gold stocks lead gold, and the same is true with silver stocks and most other miners.

What occurs to me is this is not only a good time for individual investors to pick up well run mines for the long term, but for major mining companies to be looking to pick up junior miners with good prospects. I wouldn't be surprised to see take-overs begin soon.

If we assume that gold will in fact fall to $1000 but rebound over the coming years to $1400 as reflation is pursued by all governments, then the average price of gold should provide plenty of profits for those miners whose cost of production is $800 to $900 dollars an ounce.

Right now stocks are trading on technicals. There's not much fresh news to base trading on. I'm a fundamentalist in my approach to the movements of gold, silver, and commodities in general. I watch the charts because so many other traders and investors do, who make their decisions based on them. But for me technical analysis is the study of psychology where fundamental analysis is the study of the real world.

What I mean by that is that technical analysis is tied to psychology as traders look to past trader/investor decisions and actions, and try to ascertain how that will influence markets in the future. It is concerned with what people think about markets, and how they've acted in the past. Fundamental analysis looks at the real world of supply and demand. These can be affected by a host of factors such as inflationary versus deflationary forces, productivity, GDP and employment; government controls and regulations, currency movements, or geopolitical events, the rate of world growth, and the interest rate, just to name a few.

Technicians argue that all of the above factors are already in the markets and therefore in the charts. They assert that human action can be charted and predicted. But few would argue that the charts saw the 9/11 attack coming, or the duration of the move up and the crash down in the NASDAQ when it occurred, or the 1987 crash and "V" shaped rebound. The record of technical analysis is at best shaky. Not that correct technical calls can't or haven't been made, but they haven't been made on a consistent basis.

And then there is the problem of which charts you look at. Chartists argue that it isn't the charts that are wrong; it's the interpretation of them by individuals. But that places us right back at square one. Technical analysis certainly gives one a good perspective on where we are and where we've been, but can like any other attempt at forecasting, be imperfect.

At the turn of 2014, I made the call that gold was about to move higher for the first time in 3 years. At the time there were no chartists that were also making that call. The price of gold at the time fell through $1200 an ounce to around $1180 and reversed. At the time $1180 was not a significant number. As far as most were concerned the price was in free fall and numbers like 1000 and 700 were being talked about as a final target.

My reasoning for buying at that time was that I saw a reversal from deflation to inflation occurring world-wide, and the prospects of world growth moving from down to up, therefore demand for commodities instead of continuing to decrease should have begun to increase with world growth -- and did. In June and July I began to warn of a reversal of both inflation and world growth rates and began to sell the rally and even shorted it at times.

I have found over the years that the gold market in particular is first and foremost a fundamentalist market far more than it is concerned with technicals. It leads, not follows. Technicals tend to take over only when there is little new fundamental news to trade on. Also, I've noticed that the gold market tends to punch through important levels such as the 50 and 200-day moving averages, throwing a head fake to chartists, just to turn on a dime and move higher again.

At the time that gold broke through $1200 late last year it was a technical signal that gold was indeed in freefall and there was no defined bottom. A further 20 dollar drop to $1180 was sufficient to bring on the last of the sellers, then buyers showed up. I am reasonably sure that if the Fed came out today and stated they were going to raise interest rates to fight inflation, gold would fall no matter what any charts said. Or if China declared it was going on a gold buying program in order to diversify their reserves of dollars, gold would soar. No one is predicting today that the 1140 area we just hit is the low, but it might be. It depends on the news from this point on.

I'm not saying that following charts is unimportant; I follow them myself all the time. But I am saying that fundamentals trump technicals and always have. My reaction to technical selling is to stand aside and let it exhaust itself, and if the fundamentals warrant, step in and buy.

Right now, precious metals stocks, commodities in general, and most resource stocks are as oversold as they have ever been in market history. Either the world is heading for a devastating deflationary recession, or these markets will stabilize in here and we'll get a playable bounce.

As of today, I'm a buyer of good low cost gold and silver producers. For more specific information see my "Market Update" at paulnathan.biz.