The precious metals are getting sold hard in the face of whatever ‘feel good’ thing is going on with some ‘US may not invade Syria after all’ hype. Whatever, it is a correction and it was in the cards since over bought silver led the precious metals sector into a furious pop and reversal a couple of weeks ago. Hype and momentum are always punished.
Here is a weekly chart of GDX (used in place of HUI because it shows volume) updating the situation.
The major gold stocks are still on course for the anticipated bottoming pattern taking the form of an Inverted Head & Shoulders. The hard thrust upward off the bottom was reversed amid the war noise and we have been on a correction within the bottoming pattern ever since. MACD and TRIX remain on the bull message.
GDX has lost the weekly EMA 10, but that is not a major concern at this point. The main concern parameter continues to be a lower low per the noted key level above (coinciding with HUI 217). The pattern continues to look symmetrical and as such could still have a couple or few more weeks of grinding left in it.
For reference here is the HUI daily showing the series of higher highs and higher lows. The black arrow should be turned green or there will be a technical breakdown. Similarly, RSI should not make a lower low.
What is nice here is that our situation is clear; lose HUI 217 and it would taking the bottom retest express. Continue to grind on peoples’ nerves for a couple more weeks, making a right side shoulder above (preferably well above) 217 and there is potential for a hard – and do mean intense – rally. In short, HUI, GDX, etc. will tell us what we need to know. Can’t ask for more than that.
Looking at the leader, silver (SLV), we see potential for a hard drop but also a weekly moving average that could be supportive.
Of note is that silver, while very over bought on a daily chart did not get nearly as over bought on the weekly as it did last year (yellow highlight). This could be a positive beyond the current correction. We still hold open initial target potential to 26 or so on silver if support holds on this correction. Here is the daily view showing the over bought status and a rounding pattern that must hold current support to avoid significant downside potential.
While waiting for the precious metals to work out future direction, I am going to continue to concentrate on the broad market, which forced me to take a loss on some SPY puts yesterday and may do the same for some profits on US tech and global (emerging and Asia) if the momentum keeps up here; especially if there is a any kind of ‘war relief’ being propped into stock prices.
We will continue with the theme of trying to gauge inflation expectations but also gold’s relationship with things like oil, base metals and other positively correlated items to gain insight as to whether indeed there could be a global growth spurt (China) or whether gold will resume its new found out performance to commodities and stock markets, signaling resumed contraction.