Gold and silver moved higher yesterday, and once again we have received several questions about these moves. We finally decided to wait with sending out this message until today, as we wanted to re-examine the charts and be sure that we are not affected by emotions while preparing the analysis.
Our view is that we still see too many bearish signals at this point to consider moving on to the short-term bullish camp. In other words, we still view a short-term decline as likely.
The volume was relatively high in the past two days on the gold market, but given the amount of other signals, it is not enough to make us believe that gold is going to go much higher before correcting. Please take a look at gold's performance on June 17th and 18th - it was up on relatively high volume only to plunge several days later.
The abovementioned other signals include:
- Gold in yen has failed to move back above its multi-year resistance line,
- Take a look at gold in Euro chart (or the gold:UDN ratio) and the RSI indicator on it - it has just moved from 30 to 70 in less than one month. Such a strong rally took place only once in the past few years - right before the October 2008 carnage,
- Way too many people send me "you're wrong" e-mails
- thus confirming excessive optimism that is indicated by the GDXJ:GDX ratio analysis,
- Very-long-term XAU Index chart shows that precious metals stocks are on the verge of breaking below a multi-year support level. If they do, things could get ugly. I will comment on that further in tomorrow's Premium Update.
-The GDX:SPY ratio is very close to its resistance level at 0.5 (closed at 0.491) and the RSI indicator based on this particular ratio moved much higher - to the 70 level. The starting / ending point and the shape of the rise in the value of the RSI indicator here resemble the May 2009 rally. Back then we didn't have to wait long for a decline.
- The silver spike - this is similar to what happened at the beginning of Dec 2009, and May 2010 - declines followed. There is a price gap on the silver market just below yesterday's open, but we've seen this phenomenon also on May 11th 2010, and June 21st 2010 - right before tops. In many cases this phenomenon would be perceived as bullish, but that is not really the case with the silver market.
- Gold is moving into new highs and gold stocks are not.
- Gold is re-testing its rising resistance line created by connecting Nov 2008, Mar 2010, and early July 2010 lows.
- There is one more confirmation of the excessive optimism - this time from the comparison between the GDXJ:GDX ratio and the SPY ETF. We will comment on that in tomorrow's Premium Update.
Summing up, not every factor mentioned previously is still in place, but there are several new, and the final outcome remains the same - there appears to be little upside and a big risk of a bigger downturn (taking precious metals sector to the July lows or so).
We will support the above points with appropriate charts in tomorrow's Premium Update. If we believe that the above is no longer up-to-date, we will let you know.
Thank you.
Sincerely,
Przemyslaw Radomski
