I am not going to play precious metals sponsor or cheerleader. I’ll get rid of positions if given the signals because all this ever was to this point is a bounce. But neither am I going to give up on the bounce/rally until it is time. Last week’s big inflation burst is getting hammered across the commodity spectrum even as bonds continue to break down today and yields rise.
Silver (SLV) has been hammered right back to where it started. SLV is filling a gap and has another just below the SMA 50. That is support.
Gold (GLD) is still in a daily uptrend but had started to get lame late last week. Maybe we will get that test of the SMA 200 after all. Not a pretty short-term picture here.
HUI is dropping to the short-term lateral support that used to be resistance at the top of the bounce pattern. We can allow for a test of the SMA 50 as support.
At this point the HUI/Gold ratio is pulling back a bit but has not suffered any technical damage (to the bounce scenario).
Last week was a big upside reaction and as noted by the Silver/Gold ratio at its SMA 200, the downtrend was never broken. Today is a reaction looking just as furious as the upside one. Exhibit A as to why we ignore silver pom poms even on the most bullish of days when in a downtrend.
All in all, it’s back to square one. Rising interest rates – if the yield curve is not also steepening – are not a good thing for the precious metals. As a reaction hits the sectors that went up last week the precious metals, which got caught up in the action, are going down as well. That is logical. We have only been on a bounce theme and the bounce is still intact by the support areas noted above. So keep an eye on them if you are involved with the sector. The bounce is in trouble if they are taken out.
Today Biiwii will be posting Keith Weiner’s weekly gold and silver supply/demand article showing the fundamentals for gold and silver significantly above market. Also, I don’t care for the stock market here and there are two ways to look at that. Stock market weakness, if it goes that way and gets bad enough, can drag down the gold sector. But ultimately, we are looking for stock market weakness as a key positive ingredient to a bullish gold sector view. As it stands now, the stock market still has not decided on bounce resumption or another downside test.