Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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