The precious metals were due to pull back and here is a pullback. Please review this morning’s post for a look at how the macro market is setting up for the gold sector’s next bullish phase. Remember that we launched fundamentally based on gold’s out performance of nearly everything else, as indicated by the weak silver-gold ratio. But the rally matures as silver vs. gold matures.
So now the process of cleaning out the momentum players and inflationists seems to be engaged. If gold continues to out perform stock markets and commodities, this reaction/pullback/correction will have been a buying opportunity. In that regard, here is how the 3 Amigos look now by daily chart.
GDX has still not hit the short-term support of the EMA 20 (orange dotted line). While not shown on the chart, neither have GDXJ or SIL. Below the EMA 20s are the channel lines and then the 50 day moving averages (which generally meet up with a 38% Fib retrace level) and then the gaps at the green support lines.
If this is a normal correction (with for example, a continuing drive to HUI 251 in the cards) then the lower of these parameters should hold. With the notoriety the sector has received, the over bullishness and CoT in bear alignment, we cannot discount that a primary correction could be starting as well. Either way, this appears to be the start of a bull market and as those signals came in, a correction became more likely as we have been noting. It is also indicated to be an opportunity for those waiting to buy.
Let’s let it unfold with patience.
