With the gold sector having held key support and now bouncing with the risk ‘on’ markets after dropping with those markets, I don’t find reason yet to view the sector as being unique as it one day will be for its counter-cyclical aspects (ref. yesterday’s update including a chart of GDX vs. SPY, among other market indicators). Here is the top panel of that chart.
The HUI/Gold ratio, which is often a leading indicator for the sector is still very negative. It can bounce, but its trend is firmly down.
Silver/Gold ratio as well remains firmly negative (and a potential negative factor not only for the precious metals, but for the broad markets as well).
These are not pictures that are providing reasons for optimism in the form of a positive divergences. So with these things in mind let’s look at some bounce parameters for the gold sector, as we did for the S&P 500 (SMA 50 around 2720 is favored) in a public post.
HUI can bounce to the clear resistance area at 190 to 195 (roughly SMA 50 & SMA 200). But if we do not get improved trends in HUI/Gold, Silver/Gold and even GDX/SPY, that would be a place to sell or at least not buy and have caution if you are an investor buying the long-term process. I understand this is tricky business because I believe we are in a long consolidation that could one day be looked back upon as 1.5 to 2 year buying opportunity. But my job is to give you these short-term views along with long-term views like that. If HUI gets to the SMAs 50 and/or 200, have caution if some of the internal dynamics do not start to swing positive.
Gold held support at the SMA 50 and has turned up a bit. The gateway to a new bull market is the 2016 high of 1377.50. Technically it looks capable of breaking that level, but the cart needs to stay behind the horse. Gold is below very key resistance by $48/oz. Next resistance areas are the 2017 and 2018 highs of 1362.40 and 1365.40.
I have been (incorrectly so far) expecting silver to take up leadership to gold but as of now its relative weakness is a negative sign for the sector and potentially the broad markets. As such, its first key daily resistance is at around 16.75. If it gets one of those good pops it is famous for, the next resistance is 17.30 to 17.60.
Bottom Line
To be more constructive I’d have hoped by now to see some divergences in the picture and they are simply not there yet. One implication is that the more speculative end of the precious metals (the miners & silver) are more vulnerable to another bout of risk ‘off’ selling in the broad markets than gold is.
Whatever the case, taking the TA in its own right, the key short-term resistance areas are noted above so that we can start the decision making process ahead of time, not in real time when emotion may be getting involved. If involved in the sector, understand ahead of time whether you are a trader or an investor accumulating on the big dips.
