The GLD ETF declined yesterday on volume that was greater than the volume that had accompanied Tuesday's rally, even though the rally had been much bigger than the decline. This is a bearish sign, as it indicates that the volume that accompanied Tuesday's rally should have been much higher than it actually was.
From the non-USD perspective (meaning the gold:UDN ratio), gold is at the rising medium-term support/resistance line after closing there last week, so at this time there is no meaningful breakout to speak of.
Gold stocks declined very strongly yesterday and so did the gold stocks to gold ratio. In fact, it more than cancelled Tuesday's move up.
In case of the Euro Index, we saw another - failed - attempt to move above the declining resistance line. For a market strongly positively correlated with gold, one might expect this to be enough to trigger a significant rally in the yellow metal. That was not what happened. Gold declined and mining stocks declined even more significantly. Silver held up quite well, but the white metal can provide misleading signals if they are not confirmed by other parts of the precious metals sector, so we don't make much of silver's recent strength.
The mining stocks to general stock market ratio has been a quite good indication of where things are going this year. It declined significantly weeks before the April plunge. What is this ratio doing now? It's declining after breaking very significantly below it's previous 2013 low. The implications for the precious metals sector are bearish.
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
