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NFTRH; Extensive Precious Metals Update w/ Daily Charts

In the weekend report we used weekly charts to show that gold has taken a good chunk of its apparent price risk out as key support was not too far away beginning in the 1180’s.  Silver had lost the breakout above the would-be supportive EMA 55 and HUI was well above key support, now 140 (lateral support at October highs) to 148 (gently rising EMA 55).  We have also been noting 211 as the point that greatly improves the prospects of a bull market, technically (I think the probabilities are that one is in progress, but the technicals are what they are).

Since the Commitments of Traders became bearish the sector has corrected by grinding its gears instead of dropping dramatically, with gold making a consolidation downward, silver dropping and the miners consolidating away an over bought condition.  Let’s check the daily charts.

Gold has been in an orderly down channel for the last month.  Best technical support, when considering the daily and weekly charts combined, is 1180.  But with the stock market at a point where it needs to decide whether it is going to top out or not, risk ‘off’ gold should be looked at as re-fueling, getting healthier (i.e. getting rid of the momos).

A month of downward activity has taken the over bought situation out of the equation.  The low near 1200 represented a much lowered risk vs. reward for gold price-wise, as noted last week.  If it makes it to 1180, a nice neat 100 bucks an ounce would have come off and that represents 7+%.  But as of now gold is trying to find support at the 50 day moving averages.  If it breaks the channel to the upside and holds for a couple days, the correction could be over.  This morning in pre-market it is right back at the channel top.

gold

Silver is also up in pre-market and has been more precarious.  It broke down from a bear flag last week and lost the 2016 trend line.  This also put it back below the weekly chart’s EMA 55, as noted in NFTRH 389.  It is below the EMA 20 and the 50 day averages.  This morning’s implied open puts this chart at 15.21, still below the trend line.

silver

HUI is in the form of a short-term triangle that has formed at the 1st level of support of 160 (rising 50 day moving averages) to 165 (short-term lateral support).  Like gold, its over bought status has long-since been worked off.  Any strength (as implied by pre-market) in the sector would take HUI out of this consolidation and that would be done with MACD and RSI having bled the momentum out for the last month.

hui

Further, we asked that the HUI-Gold ratio remain intact on any correction and it has as noted by the weekly charts in NFTRH 389.  Here’s the daily view, which is impressive.  The ratio price is near the high and the momentum has been ground out.

hgr

I am fully aware of having been like a wet blanket advising that there is key support at 140-148.  I hear from people who are eager to get back in after profit taking or are looking for a no brainer buying opportunity.  Indeed, while holding some miners (and my long-term gold position) I have been in the latter group, reserving eagerness for an event that brings them down despite the improved macro and sector fundamental backdrops.

I may have been wrong in this regard, but I hope you understand that my nature is always going to be conservative, to preserve capital first and then speculate.  While gold and especially silver are still technically in corrective mode, HUI is very close to signaling a next leg up, which would target the 2015 high of 211.

The bottom feeder view has been frustrated for the last month even as the bull momentum view also has been.  We can only go with current information and right now that is a consolidation in the leaders (miners) that has refused to break down and would indicate new upside with a breakout now.  Let’s see if pre-market is real or a head fake in gold and silver.

A couple more odds and ends.  It is obvious that we have given silver stocks almost no coverage despite a sharp rise.  This would change as the inflationary view comes into focus.  Being a conservative sort, I go with gold and gold stocks during the transition but the fact is that silver stocks are consolidating a big up surge.

sil

I will continue however, to focus on gold stocks until I get those inflation signals because the silver miners have led the gold miners only during the current bounce in risk ‘on’ markets, which began in February.  The greater trend remains down in silver miners vs. gold miners.

sil.gdx

Finally, a look at the holdout fundamental consideration, the 10yr-2yr yield curve.  The trend remains down, but here we consider yesterday’s update on the combined Commitments of Traders data on the long-bond (the 30yr has significant net shorting by commercial interests and the 10yr positions are flat, but only rarely go negative) and the 2 year note (commercials are net long).  If those implications were to play out in price, the curve below would continue to rise.

yc2yr

Bottom Line

Watch the gold miners.  A breakout (on a weekly close) here would signal a new leg to an initial target of 211.  A head fake keeps us in ‘as you were’ mode.  A downturn in the stock market would also be an important element.  Gold is about risk ‘off’ right now.  Later, the silver-gold ratio can be used to indicate an ‘inflation trade’ environment.