The mining stocks (to a smaller extent also gold and to a very small extent also silver) moved higher today and you might be wondering if this rally changes the outlook. In short, it seems that it’s too early to say so.
The GDX ETF moved above the November lows, but the HUI Index moved right to its 50-day moving average (both November tops were formed when this moving average was reached) and the same thing almost (the ratio is very close to the 50-day MA) took place in the HUI to gold ratio. In case of the latter, moving to the 50-day moving average not only stopped the rally in November, but also earlier in December. Exiting the short positions given the above could be exiting them at or very close to the top, which is the last thing that one would want to do.
Besides, other markets are not confirming the bullish indications from mining stocks. In today’s alert we wrote the following about gold:
“Gold also seems to show that there’s nothing special about this upswing – in early December, the quick very short-term move was over $30 – gold didn’t move as much this week. Besides, please note that the volume that accompanied this week’s upswing is relatively low, which is a bearish sign.” In light of today’s upswing gold moved about $35 from the intra-day low - that’s still relatively close to what we saw in the past as a counter-trend bounce. Nothing extraordinary happened from this perspective.
Silver is also up rather insignificantly (it’s at about $16.12, while we entered short positions about $1 higher). If the self-similar pattern remains in place (which seems likely) we can expect a major decline in silver shortly (within the next several days or a few weeks at most). Please note that back in 2013, it took about 6 months for silver to accelerate the decline (March/April 2013) after it had reached the top (October 2012). The 2016 top formed about 6 months ago. We will feature details (silver’s long-term chart) in tomorrow’s alert.
As far as the USD Index is concerned, it’s consolidating, but there was no breakdown - just back and forth movement between approximately 102.5 and 103.5. There are no bearish implications of the above. Once the rally in the USD Index resumes, PMs and miners are likely to slide.
Summing up, it doesn’t seem that the outlook changed based on what we’ve seen so far today. It could change based on today’s closing prices and volume levels, but it’s too early to say that. We will provide more details in tomorrow’s alert.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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