The price coiling I highlighted in gold in my last post failed to the downside, which I mentioned was a possibility. There were two key levels, the 1865-1880 band, and then 1800, which would have retested the entire move. Buyers came in strong at 1865 and price held, right at the 100 day moving average. The breakdown from the pennant has created a bull wedge, and the RSI (relative strength index) never hit oversold levels, which implies to me that bulls remain in control. Gold is not completely out of the woods – a breakout of that bull wedge would confirm that 1865 was the interim low. I am looking for confirmation above 1935 and then 1950 for next sizable move. The price action in silver and the miners confirm this thesis.
Like gold, silver never got oversold on the 14-day RSI during the recent selloff, and price similarly bottom-ticked the 100 DMA. A break above the recent high of 24.57 should set up a retest of 26.
GDX – Gold Miners ETF
GDX appears to have successfully recovered support at 39. At the moment, the recent sell off looks like a false breakdown from horizontal support, and price has formed a bull flag during this recent consolidation. Like the metals, RSI never got oversold during the sell off. This looks to me like a 2-3 month healthy consolidation in order to digest the explosive gains from the March low. Bulls just need price to stay above 37.
GDXJ – Junior Gold Miners ETF
The junior gold miners look even better than the majors. The entire selloff has been a simple retest of the breakout from the 2016 high. Like GDX, price has just been consolidating for 2-3 months and has formed a bull flag into support. RSI never got oversold during the selloff. Bulls want price to stay above 52.
In a bull market, we want to see silver outperforming gold on a relative basis, which implies a lower ratio. In the chart below, we can see that the trend remains down, and the ratio is pushing up against falling resistance. A breakout in price should send the ratio falling back towards a retest of the 68 level. In this case, we notice that the RSI was “oversold”, meaning the downward fall became extreme, and the pullback never hit overbought levels, which implies that the downwards pressure is prevailing. These signs indicate silver outperformance, which is far more prevalent when prices are rising than when they are falling. A breakout of this ratio would imply a skew towards risk off, which would be less bullish generally.
As always, we would love to hear your feedback.
This is an update from my post on Friday:
Gold broke down from its pennant yesterday and hit first support at $1880. Price remains in a bull flag, but a break below $1875 should see a quick drop to $1800, which would be a backtest of the entire breakout.
Since mid-August, sales in the physical precious metals market – red hot at the peak of the COVID outbreak – have begun to taper off slightly. This slowing of demand is directly correlated to price action. I will focus on gold specifically.
A closeup of the gold chart shows a narrowing and tightly wound price coil of lower highs and higher lows. This narrowing trading range has formed a symmetrical triangle (pennant formation) that probabilistically favors a move in the direction of the underlying trend (60/40). At present, the equilibrium in the market is notable: price is sandwiched between the anchored VWAP (volume-weighted average price) from the August high to the August low, slightly above the 50-day moving average. Price remains in the center of a price channel formed by the March high/low. Relative Strength (RSI) is static at 50, right in the middle of its range. Periods of tightening price equilibrium and consolidation are healthy in uptrending markets as the market digests new prices. As we approach the apex of this coil, gold appears to be setting up for a very big move.
The downside risk remains on a break of $1930 to $1880, and then possibly a full retest of the breakout at $1800. At present, this looks less likely to me. Meanwhile, a breakout above $1980 would setup gold on a path to $2300. Resolution is coming soon – likely late September/early October.
In a stark reversal from the collapse of nearly every market just six months ago, the winds of inflation have pushed the sails of those same markets back to new (or near) all-time highs. The rebound from Covid has been a V-shaped recovery, not an L-shaped, W-shaped, U-shaped, or some-other-letter shaped recovery. The move in asset prices should not be conflated with an underlying economic return to normalcy – far from it. The rebound is simply a commentary on price.
Let’s start with my favorite markets – precious metals: (more…)
The precious metals market is very clearly in a secular uptrend and prices look poised for further significant upside into the end of the year. My technical view is that in the short term prices have gotten a bit extended and that a pull back/consolidation is due (and healthy) to build the base for the next leg higher. (more…)
Precious metals prices broke out this morning above key resistance levels in the mining sector as well as the underlying futures market for the raw metal.
Silver has been a shining star in the metals complex since the March low of $11.60, outperforming all other metals on its run to $18.90/oz. The upside leadership was a welcome sign for precious metals bulls, as silver tends to be a bellwether for bullish appetite in the space.
It has been over a month since my last entry on the markets, and aside from a few Twitter posts, most of my analysis has been confined to my desktop. The impact of the coronavirus on the retail precious metals market has been historic, with dueling supply and demand shocks, and as president of Texas Precious Metals, my time has been consumed by day-to-day operations. I finally have a bit of a respite this afternoon to share a few thoughts on the metals markets.
The sell off in markets accelerated by coronavirus and the global reaction to curtail the pandemic has left no prisoners, as nearly all asset classes are selling off in a flight to liquidity. As large institutions face margin calls, they are forced to close positions or raise cash by selling anything and everything that is liquid. Gold and silver – the “safe haven” assets – are no exception. I would remind readers that in the global financial crisis gold fell 27% and silver fell 55% in nominal terms. Gold outperformed equities on a relative basis, but silver actually underperformed.
Fear or Greed?
The last two weeks have been extremely volatile in the markets, and for the first time in a long time my friends and family have called to inquire about “what is going on in the markets?” Coronavirus contagion fears, coinciding with all-time highs in the markets, has been the scapegoat for a rapid, deflationary decline across nearly all markets except bonds, which resiliently continued to fetch a bid. Even the US Dollar, traditionally a safe haven in deflationary swoons, declined.