Generally, the situation in the precious metals market and related markets hasn't changed since yesterday's second Market Alert was posted, so what we wrote in it remains up to date. We will quote that alert and add one more comment. That comment is about the Dow to gold ratio.
The Dow to gold ratio declined yesterday to 12.66, which means that the major breakout above the 12.50 level has not been invalidated so far. This means that the ratio is still likely to rally significantly in the coming weeks and this would likely translate to much lower gold prices.
The Euro Index moved to 137.95 - the declining long-term resistance line based on the 2008 and 2011 highs measured by weekly closing prices - and then moved back down a bit. The long-term resistance was reached, which means that a move lower here is to be expected.
If you consider the link between the Euro Index and gold in the recent months, you will notice that gold has been underperforming very strongly if we take into account that both are alternatives to the USD.
Gold corrected to its 38.2% Fibonacci retracement level based on the October - December decline, which means that the short-term trend is likely still down, but at the same time it invalidated the breakdown below the long-term rising support line, which is a bullish sign.
The HUI Index didn't invalidate its breakdown below the previous 2013 low in terms of daily closing prices and the situation here remains bearish.
The downtrend in the HUI to gold ratio remains in place, which is one of the major factors that leads us to believe that the decline in the precious metals sector is not over yet.
Silver moved sharply higher, but it's hard to draw meaningful conclusions here without miners following in silver and gold's footsteps. Silver is known to move strongly up just before plunging even more significantly, so we are not focusing on its rally as a signal by itself.
Additionally, the True Seasonal patterns suggest a final move higher between Dec. 8 and Dec. 11 after which gold usually declines well below the previous December low.
Taking all of the above into account, it still seems to us that we are going to see much lower precious metals prices in the coming weeks.
To summarize:
Trading – PR: Short position in gold (half), and mining stocks.
Long-term investments: No positions.
Stop-loss orders for the speculative short position:
- Gold: $1,272
- HUI Index: 214
- GDX ETF: $22.80
As always, we'll keep you - our subscribers - updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) and we will send additional Market Alerts whenever appropriate.
The trading position presented above is the netted version of positions based on subjective signals from your Editor, and the automated tools (SP Indicators and the upcoming self-similarity-based tool). You will find more information by following links in the summary of the latest Premium Update.
As a reminder, Market Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
