Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold and Silver Metals Show Strength Relative to the USD Index

Commodities / Gold and Silver 2016 Oct 12, 2016 - 10:07 AM GMT

By: P_Radomski_CFA

Commodities

Gold, silver and mining stocks moved higher yesterday, but the size of the rally was not huge and it was another day during which the PM sector didn’t decline. The back and forth movement and decreased volatility appear to be temporary as this kind of performance is something that we’ve seen during both consolidations and bottoms. Which way will the precious metals sector go?


Before replying to the above question, let’s emphasize that it’s not the most important question at this time. The most important thing to keep in mind is that earlier this year precious metals likely rallied as a correction after a very big decline, but the final bottom has probably not been seen so far as the investors’ sentiment hasn’t reached extremely bearish levels. Now it appears that this big corrective upswing is over and metals and miners are moving lower. Consequently, whether we have a short-term correction from here or not is not extremely important if we are going to see lower precious metals prices in the coming months.

Having said that, let’s take a look at the charts (chart courtesy of http://stockcharts.com).

Starting with mining stocks, we see that they moved a bit higher on very low volume. This had previously meant that a bottom was likely in, but it changed when the uptrend changed into a downtrend (and even a bit before as the final top was formed in August, but the rally had more or less ended in July – the move above the July lows in August was insignificant). We now have a situation in which very low volume can imply nothing (like in early July and late September), a rally (like in late July and mid-September) or a decline (like in mid-August). The overall implications are now neutral.

What happened in silver? It rallied and outperformed both gold and miners, which can be viewed as a bearish sign (silver tends to outperform in the final parts of a rally or right before the plunge in the case of horizontal trends), especially that silver didn’t invalidate any breakdown. The white metal moved to the declining, dashed support line and moved back down. That’s a verification of a breakdown, not its invalidation. The bearish implications remain in place for the medium term.

On a side note, we received a question about the support in silver created by the 200-day moving average. Our reply is that this moving average in silver is not really effective as support. Please note that during the 2011 - 2016 decline, silver moved below it several times and it only served as support in mid-October 2012 and April 2016 (and once approximately in early 2016). On all other occasions (late 2011, early 2012, late 2012, early 2013, early 2014, mid-2014, mid-2015, late 2015), silver more or less ignored the 200-DMA. Consequently, since nothing happened in the majority of the cases, we don’t think it’s a major factor this time either. Other factors (discussed today and in the previous several alerts) seem to be much more important.

Gold moved a bit higher on relatively low volume. It appears to be a pause after a huge decline, not a big, volatile comeback. Still, it’s not a bearish confirmation by itself.

The key thing right now appears to be the situation in the USD Index and its relationship with metals.

Until today’s pre-market action, it didn’t seem like a big deal that metals moved a bit higher despite a move higher in the USD. The size of the phenomenon was limited and PMs were likely to pause regardless of what’s going on in the USD.

However, in today’s pre-market trading, USD moved higher by over 0.60 so far today and metals didn’t respond almost at all. The next strong resistance for the USD Index is at the July tops (at about 97.60) and this is exactly the price level that USD managed to reach today.

Consequently, we could see a reversal – especially that the turning point is just around the corner. As a reminder, turning points work on a near-to basis, which means the next one already has bearish implications (especially in light of today’s rally).

If gold and silver don’t want to respond to USD’s rally, they are quite likely to respond to USD’s decline (the above indicates that people don’t seem to be willing to sell at this time, which means that buyer can easily outnumber them).

In addition to the above, we just saw a confirmation (third consecutive close) of the breakout above the declining black line. This line stopped the rally in July (which was the biggest rally in the USD this year) and we just saw a confirmed breakout above it, which is a big deal. As discussed earlier, the cyclical turning point is just around the corner, so the USD may not be able to rally very high (the July tops seem to be a probable target) before a turnaround and a corrective decline, but still, the outlook for the following weeks has just improved. This means that the implications for the precious metals sector became more bearish for the following weeks, but at the same time, we could see a rebound in PMs and miners as the USD corrects.

Consequently, we the odds for decline’s continuation in the following days declined from about 70%-80% to about 45%, which is means that keeping a short position opened at this time is too risky.

If we get a rebound in gold, silver and miners, we will probably re-enter the positions at higher prices, and if we don’t see a significant rebound, we’ll (probably – unless other factors change) get back to the short positions when gold and silver once again respond to USD’s signals, which means getting back in the positions at lower risk. Either way, exiting the short positions at least temporarily and taking profits off the table appears justified from the risk to reward point of view at this time.

Summing up, due to the recent strength in the precious metals relative to the USD Index and the likely turnaround in the latter (perhaps after an additional rally, but since PMs no longer react USD’s upswings, it doesn’t really matter), it seems that exiting the short positions and taking profits off the table is now justified from the risk to reward point of view. We had originally featured these short positions on September 30. On that day, gold had closed at $1,317 and the closing prices for silver and GDX were $19.21 and $26.43, respectively. Yesterday, GDX closed over $3 lower, silver closed over $1.50 lower, and gold closed over $50 lower. In case of the DUST ETF, the profits are almost 50%.

We may have a good opportunity to re-enter the short position at higher prices, but if the risk/reward ratio suggests opening long prices, we’ll likely proceed as well. We will be monitoring the market for opportunities and report to our subscribers accordingly. If you’d like to join them, we invite you to subscribe to our Gold & Silver Trading Alerts today. If you’re not ready to subscribe today, we invite you to sign up to our free gold mailing list – you’ll receive our Gold & Silver Trading Alerts for the first 7 days as a starting bonus.

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules