Gold stocks eye silver’s leadership
Silver’s CoT is in decent shape. Silver has been leading gold. Silver is STILL leading gold despite the sector pullback/correction. In not having had a sentiment blow off to the upside and maintaining its status in relation to gold I have to lean toward the view that this rally leg is not over. A top of some kind happened last week, but the top of the rally, let a lone a bigger bull market? I don’t think so.
This morning’s update showed the Silver/Gold ratio fully intact to its rally. That is still the case. The leader has not blown out amid widespread pumping and touting (just some minor anecdotal stuff I witnessed and had thrown at me because my upside target for silver was ‘only’ 27.50). And again, CoT, which is ultimately a sentiment indicator, appears far from terminal.
Using the weekly HUI chart, we see that the rally was reversed right where it should have been reversed, at clear lateral resistance. If it loses 250 (+/-), we can talk more epic ‘higher low’ support down at 225. But again, silver never did make big headlines, its CoT remained restrained and our best projection of this rally is the upper trend line around 310 or so. That is still in view as long as HUI and GDX (below) hold these near-term support levels.
Back to the daily GDX chart, the upper trend line on HUI above equates roughly to a fill of the highest down gap shown at left. Hold 33 (+/-) and that remains our objective. Another mid-range pullback objective (above the gap fill at 27.95) would be a test of the uptrending SMA 50, currently at 30.54.
The narrative that makes the most sense to me right now is this (bearing in mind that it is all just theory based on various inputs):
- Gold stocks take a normal, possibly even moderate pullback/correction (in process), but hold either immediate support (HUI 250/GDX 33 or the equivalent of the up-sloping SMA 50 on GDX and then finish the rally, filling the GDX gap at 40.14 while HUI approaches or hits its upper weekly chart trend line at around 310 (and silver gets to or through the 27.50 target). This would likely also mean that the broad stock market rally is not dead yet.
- But then what makes most sense to me is for everybody to get out of the pool in that situation because it could come with the broad bear market rally expiring and the often problematic summer seasonal pattern in the precious metals.
- It would be after all of this plays out that we’d look for the real beneficial macro to engage for the gold mining industry. But it would probably do so with the stocks being marked down by panicked sellers. I’ll continue to look for the 27.95 ‘higher low’ gap on GDX in that case and dream sweet dreams of a table pounding buying opportunity, maybe by late summer into Q4.
- But for now, I lean that the rally is not over. Just being interrupted.
If the above view gains traction we will note it and detail it. If it starts to look unreasonable, we’ll note that and detail it. But if I’m looking ahead into my cracked crystal ball, this scenario sure does look viable.
