alice, nftrh

Precious Metals Bounce Status

We noted last week that a bounce was possible in the precious metals due to over sold conditions.  Then this week we reviewed a repaired gold CoT status (with silver lagging).  We also note that the precious metals are in a bear market right along with commodities and that until fundamentals come in line (stock market turning down, treasury yields aligning in a gold-positive manner, etc.) any over sold rallies with improved CoT can only be called bounces or counter trend rallies.

So where are we at?  Gold became over sold (RSI) enough to indicate good bounce potential when combined with the now favorable CoT.  It is mashing around down there trying to trigger MACD up as it did in March and August for the 2 previous bounces.  The drop to new lows meant little other than to try to get breakout traders a little hysterical about a big breakdown to come.  More often these upside or downside breakouts in gold resolve as bull or bear traps.  It’s a non-issue with regard to gold’s ability to bounce.

gold

Silver held its August lows and is similarly over sold.

silver

GDX is also mashing around trying to turn MACD up with RSI creeping above its EMA 20.  We noted that the failure of GDX (and silver) to make new lows was a positive divergence to gold, which did.  Support is well-formed at 13 (+/-).  The would-be bounce target – or at least its first bounce target – is 14.50 and the 50 day moving averages.

gdx

You may have noticed that I never took the 150 target off of the HUI weekly (linear) chart we continue to review each week.  That was for 2 reasons; 1) I don’t want to sweep a bad target under the rug and 2) it may yet not be a bad target.  The moving average is declining, so if the sector does bounce why don’t we figure on the 140’s as the daily SMA 200 has since declined there (now 144).  The equivalent would be high 16’s to 17 on the GDX chart above.

hui weekly chart

Let’s close with a couple ratios.  HUI-Gold ratio shows the positive divergence in miners to gold noted above.  Now the thing needs to break above the 50 day averages if it is going to lead a rally.

hgr

Silver-Gold ratio is not doing much thus far, but recall that with the bloodshed in the sector it could have (and usually would have) gotten annihilated.  So it had sported a positive divergence but has not yet moved upward from that point.

silver-gold ratio

Bottom Line

If it plays out, we are talking about a bear market bounce, which is all we have been able to talk about for years when plotting potential bounce points in the precious metals.

Seasonals could come into play as well because this is usually a time of year to begin anticipating a bottoming out in the items that have been sold down all year.  In other words, it is tax loss season and as these items get sold out, they can prepare to bounce.  This could also play out in commodities and other beat downs in various market sectors.

I added back 3 of my favorite small miners this week (KLDX, PG.TO and AKG).  I am watching the sector closely as noted in NFTRH 370.  If a bounce brews I’ll employ the usual suspects per the list on the last page of each weekly report.

We will of course always keep an eye on the fundamental backdrop as well.  All it would take is for a real correction to hit the stock market and the bond market getting out of lockstep in its confidence in the Federal Reserve.  That’s not too much to ask, is it?  Wait, don’t answer that.  :-)