A bevy of gold and silver miners are printing 52-week highs today. I believe this is significant because miners tend to lead the physical metals. This, in turn, suggests that gold and silver are probably close to their next legs higher. As I've said before, the intermediate and, arguably, the long-term trend has turned in the bull's favor. Don't try and outsmart the market by trading all of the day-to-day noise. Sit tight and be right. This move will play out for months and probably years.
Once again I'm sorry for the lack of posts recently. I've been out of town and away from a computer. To be honest, there wasn't a whole lot of action in the metals or the equities as most of the movement while I was gone fell into the "noise" category if you know what I mean. Well, at least until yesterday that is.
Two very important dates are now behind us: July 26 (Comex gold expiration) and July 27 (FOMC announcement). First, Comex gold expiration has always been a "play thing" of the bullion banks. Prices tend to get pegged or massaged in the days and weeks leading up to expiration based on max pain levels in the options markets. Very rarely do the metals rally into expiration. For that reason alone, I wasn't surprised to see gold and silver drift down in uninspiring trade. Keep in mind also that Silver trades on the heels of gold, just in a more volatile fashion. As gold goes, so does silver.
The second date, July 27 (yesterday), was the usual FOMC day where gold and silver get smashed the moment the announcement is made (the first reaction is literally always lower, regardless of the statement). FOMC days are a cluster and I would never recommend trying to trade an announcement. After the initial smash lower, there tends to be huge volatility in both directions. So it is likely that you will get whipsawed out of a position based on knee-jerk reaction trading. Also, it usually takes a day or two for the metals to settle down after the announcement.
So now that those two days are behind us, there really aren't any more wild cards in that I'm seeing in the short-term which should bode well for the PM sector. That said, let's take a look at some charts and see what's going on.
After reaching a new 52- week high of $1377 on July 6, gold has pulled back in a fairly orderly fashion on innocuous volume. Each of the last three pullbacks has now established a nice upward-sloping trend line, shown above. Yesterday, after the FOMC announcement (and the usual knee-jerk smash), gold reversed higher and jumped off that trend line, leaving a decent gap on the chart. Technically speaking, it's great for the bulls that the trend line acted as support once again. Don't be surprised if gold corrects a bit to fill that gap, but I think this chart is very supportive of a continued move higher.
Silver, to me anyway, is painting a much cleaner chart than gold. After printing a new 52-week high on July 3, just above $21, it too began to correct on light volume. For the next three weeks, it painted a beautiful pennant consolidation pattern (shown above). Yesterday it exploded higher in a no-doubt bullish breakout. I would put a conservative price target of $23.00 on the current advance based on the size and duration of the pennant formation. I'll explore the longer-term charts in a future post to see what that means in the big picture. But for now, the daily chart looks awfully bullish.
Moving on the miners, they too saw a healthy bounce yesterday post-FOMC. As you can see above, the 50 dma has been providing support for several months now. As a result, I would continue to expect this going forward. If you're looking for an entry point, waiting for a pullback to this level makes sense. Aside from a brief blip in May, the RSI mid-line has acted as support for the last six months so keep an eye on this as well if you're looking to get in. Overall, I really like the action in GDX. It's been grinding higher all year, with brief, shallow pullbacks along the way. I see nothing bearish on this chart.
Last but not least, I wanted to share the daily chart of Platinum - the much less talked about precious metal. I tweeted about this yesterday, so this chart may look familiar if you follow me. Talk about a beautiful cup-with-handle formation! Everything on this chart is working in the bull's favor. From the tight price action, to volume increases at exactly the right times, to yesterday's breakout - very, very nice. I don't post on Platinum too often, but the chart was so compelling that I wanted to show it.
That's all for today folks. Thanks so much for reading!
Almost one year ago, I posted that the XAU:Gold ratio hit a fresh all-time low. The XAU gold miners index has been around for over 30 years, so when you see it touching 30-year lows against gold, there's probably an opportunity. If you bought the miners any time in the 2nd half of 2015, then you're likely enjoying some amazing gains.
Today I'm going to take a look at a bunch of individual mining stocks. I didn't pick these for any particular reason - you could basically pick miners at random and the charts all look the same (ie: bullish). Will they see a pullback? Yes. When? I have no idea. Right now the charts are suggesting very nice upside before any serious resistance comes into play so you might have to keep waiting for that pullback.
I have to be honest - I did not think Brexit had a chance. Apparently Wall Street didn't either because trading on Friday was a disaster for equity markets around the world, with banks taking a particularly hard beating. There was a very clear flight to safety with defensive sectors like Utilities and precious metals outperforming. Speaking of precious metals, gold, silver, and the miners had a terrific day as you will see below.
The tide is turning folks. Equity markets, depending on how one measures valuation, are at or near all-time highs. Earnings have been declining for months and yet stocks continued to march higher (at least until yesterday). Precious metals have been bottoming for over a year as both fundamentals and technicals continue to tilt in the bull's favor. In my post from Wednesday I commented, "I feel like there is going to be a huge move soon, possibly in [both equities and precious metals], but I have no idea which direction it will be." Well, I think Brexit has given us the answer.
Today's post will be chart-heavy with annotations and a few comments smattered about. My takeaway from Friday is nothing more than a confirmation of what I've been saying for over a year: equity markets are topping and precious metals are bottoming - it's time to position yourself accordingly.
First up is a look at the S&P 500 daily and weekly charts. Friday did a ton of damage to the bullish thesis. If the 7-year bull market is still intact, it's going to be a long, hard slog to repair what has happened in a single trading session. 2100 has become a very clear line of resistance - just check out the weekly chart to see what I mean.
And on to the Nasdaq. Same story, different index. Down 4% in a single day with massive volume to boot.
And a quick peek at Financials. Lots of room to fall to that lower line of support.
I specifically wanted to show you a couple charts of our old friend Deutsche Bank. It's now trading just pennies away from all-time lows. The word FUBAR comes to mind...
Now we head to the stars of Friday's show: precious metals and miners. First, we start with gold.
And now a look at gold's more volatile sibling, silver. Silver's move on Friday stopped right at big-time resistance. Look back at 2013 and 2014 and you'll see that $18.50 provided support for a long time. Once that level was breached in September 2014, it became resistance with lots of overhead supply sitting on top. Also, I would like to note the curious lack of volume on Friday. Not sure what it means, if anything. Overall, silver continues to paint a very bullish picture on the charts.
The gold miners continue to look good as well.
I'm going to end with the WTF chart of the day. Take a look at the FTSE weekly chart. If you're not familiar with it, the FTSE is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. In other words, it's very similar to the Dow Jones Industrial Average. Did you know that after Friday's bloodbath the FTSE still gained 2% on the week?
First, my apologies for not posting much lately. To be honest, there hasn't been a lot of new developments over the last several weeks. Equity markets and precious metals alike continue to churn sideways. I feel like there is going to be a huge move soon, possibly in both markets, but I have no idea which direction it will be. The S&P 500 still has not made a new 52 week high in over a year, but at the same time it continues to float just a hair below all-time highs. Gold and Silver saw an explosive move higher to start the year but they've essentially moved sideways since February. That's not a bad thing, by the way. They definitely needed to consolidate their gains, but it makes it really difficult for bloggers like me to tease out any useful insights!
Anyway, here are the charts prior to the Brexit madness. I've added support and resistance lines as an FYI. As of today, gold, silver, and the miners are all firmly within their up trends. What happens tomorrow is anybody's guess.
I've seen at least a dozen articles this weekend, from both mainstream and alternative news sources, arguing for an imminent pullback in gold, silver, and the miners. Can you blame them? Just look at the YTD performance and tell me these aren't ripe for a pullback:
Most of the mining indices have literally doubled in the last four months. Think about that for a minute. The Philadelphia Gold & Silver Index, or XAU, is a market cap-weighted basket of 30 individual stocks, some of which are massive companies. For the XAU to double, it means that on average, all 30 companies have doubled. For one single stock to double in four months is rare, but for a basket of 30 stocks? Almost unheard of.
So why, as the title of this post suggests, would I argue for the rally to continue? Below I lay out the various arguments I've read calling for a pullback and then provide my rebuttal. Take a read and see what you think.
Argument #1: The massive net short position by the Comex bullion banks and the net long position of the hedge funds are at record highs.
The logic behind this argument is that Bullion Banks are the "smart money" and Hedge Funds are the "dumb money." Bullion banks are considered the smart money because they have an inside track on the precious metals market as they are the swap dealers and therefore the most "connected" with institutional supply and demand. It's important to know that bullion banks tend to take equal-but-opposite positions of the hedge funds. So, for example, if hedge funds are mildly net bearish, then bullion banks tend to be mildly net bullish. Argument #1 is based on the fact that oftentimes extreme bullion bank positioning is a good indicator of future price movement in the metals. Since bullion banks are the "smart money," price tends to move according to their positioning. So right now, these banks have a massive short position in gold and silver. On Thursday and Friday alone, the Comex banks sold short over 50,000 gold contracts representing 5 million paper ounces of gold worth over $6 billion (!). A major reversal must be on the horizon, right?
My counter to this argument is that while Comex positioning tends to indicate future price movements, it by no means is guaranteed. First and foremost, all of the positioning data is based on the COT report, reported weekly by the participating banks. As Dave Kranzler put it the other day, "...the veracity of the COT data is predicated on the reliability of reports generated by the likes of JP Morgan, HSBC and Scotia. If these banks are providing bona fide, non-fraudulent Comex data reports, it would be the only area of their entire business for which they are not publishing corrupted financial information." He is, of course, referencing the myriad of price rigging scandals perpetrated by the big banks which include the most recent admission of gold and silver price manipulation by Deutsche Bank. So for starters, if you base trading decisions on the COT report, you're assuming the data is clean and honest. Secondly, as Kranzler goes on to explain, there are plenty of times throughout history where gold and silver moved against extreme bullion bank positioning. This would suggest that the "conventional wisdom" of trading alongside the bullion banks is not always the right move. I suggest you read his post (linked above) for the full analysis. Bottom line, to sell here based solely on the COT report ignores plenty of historical precedent to the contrary.
Argument #2: Mining stocks have run too far too fast.
Now this is an argument I would typically agree with. As I laid out at the beginning, mining indices are up 100% in just four months with some individual junior miners up more than 500%. After these kinds of gains I would usually expect some consolidation. After all, the strongest bull markets need to pause and build bases from which future gains are made.
While I'm not arguing that "this time is different," I will argue that there are plenty of gains still to come before any significant consolidation. Take the weekly chart of GDX for example:
With it's close of $25.83 on Friday, it is officially up over 100% from its 2016 low of $12.40. That's a huge run no doubt, but you need to look at it in context of the bigger picture. After a 100% gain, the weekly RSI has only just now reached the overbought level. The MACD crossed above the center line only a few weeks ago. So if GDX could stay deeply oversold for literally years (2012-2016), then who's to say it can't stay overbought for the next 6 months or two years? Then, moving to the annotation I've made on the chart, there's a significant gap on the chart from April 2013 that's going to act like a tractor beam for price. Many, many times in technical analysis we see prices fill gaps on the chart. I believe that GDX has a one-way ticket to $31, the price at which the gap gets filled. That would represent a 20%+ gain from Friday's close.
Now, let's move on to Gold. First, I want to show the weekly chart:
While precious metals miners broke out weeks and months ago, gold just now is breaking out of its consolidation pattern. With a weekly close above the "handle," it's cleared the way for higher prices. Using $1045 as the low and $1265 as the breakout point, I measure the expected move to be somewhere in the neighborhood of $1500, or 15% higher than current levels. Again, plenty of room to run before a significant consolidation. The monthly chart only further solidifies my argument:
First and foremost, the monthly MACD has only recently made a bullish cross but it still remains deep in negative territory. The $200+ gains in 2016 just barely moved the needle. As my annotation states, there's a lot of room for gold to run just to get the MACD back to the zero line, much less into overbought territory. Secondly, my $1500 price target for gold is further supported by the fact that it lines up perfectly with my $31 price target for GDX. Both would reset the price back to April 2013 levels.
I'm running out of time so I'll wrap it up here. I was also going to argue that the new Yuan-denominated gold fix was yet another bullish variable to consider, so if you're interested, you can read a nice analysis posted here.
The bottom line here folks is that now is not the time to get cute and wait for a 15-20% pullback because I don't think it's happening for the arguments laid out above. Gold and silver were so oversold for so long that the beach ball can no longer be held below the surface. The "no-brainer" trade of selling any and all precious metals rallies has now reversed, and all those levered short positions and pair trades have to be unwound. Will we see a correction again? Yes, absolutely, but I don't think it will happen until prices hit the levels I noted above. And even then, with all of the craziness we're seeing in the financial markets (QE, ZIRP, NIRP, etc), who knows how long or deep any consolidation will actually be.
Today's post will be chart-heavy and text-light. I just want to highlight all of the chart breakouts I'm seeing across the gold and silver complex. This is exactly what you want to see as confirmation that a new bull market has started. I marked up each chart and put some comments here and there. The blue circles represent price targets based on the measured move of the breakout. Enjoy
This is a re-post from about a year ago but I thought it was still very relevant, particularly given the price action in Gold and Silver today.
Originally published by Goldman Sachs via ZeroHedge
Late last year, when looking at a Goldcorp slideshow, we noticed something surprising: the gold miner had forecast that 2015 would be the year when gold production would peak among the mining industry.
According to a report issued by Goldman's Eugene King looking at commodity scarcity, the chart below "shows that there are only 20 years of known mineable reserves of gold and diamonds."
Some further observations on gold and scarcity in general from Goldman:
Of course, this analysis is meaningless in a vacuum: if the "known reserves" of gold plunge in the coming decade, no matter how many gold futures and GLD short sales are conducted by the BIS, the price will have to go up, and it will go up high enough to where a new surge of gold miners will come online and find thousands of new tons of gold reserves around the globe.
Unless they don't, and Goldman is correct that "peak gold" may have arrived. This will be even more true if over the coming years the long overdue fiat economic panic finally washes over the globe, and a revulsion toward central bank policies forces a scramble into gold whose value (if not price since fiat currencies will be redundant) soars.
The answer is unclear, but what is certain is that like the price of oil over the past decade and until last fall when price discovery finally became somewhat credible, what happens in the physical realm has absolutely zero marginal impact on the price of commodity which has about 100 ounces in deliverable paper contracts for every ounce in underlying. It will be only after the gold price distortions via the derivative market are eliminated that such trivial price-formation forces as supply and demand are once again relevant.
Goldsqueeze note: Is it correlation or coincidence that Gold and Silver both bottomed in late 2015, precisely the point in time when production supposedly peaked? Maybe there's something to supply and demand fundamentals afterall?
If you follow me on Twitter, then you might have seen a retweet from Friday where it was shown that big money is flowing into GDX calls. Also noted was the fact that there was "huge put selling" in NUGT (3x bullish miners ETF) in recent weeks. Both of these observations are suggest institutional money has turned very bullish (at least in the short-term) on the sector.
@WallStreetJesus posted the following graph of May 20, 2016 option activity in GDX. You can see clearly that call buying is overwhelming put activity. The biggest money is being placed around the $25 strike, which is a full 10% higher than current levels.
Today, right out of the gate, we get another options update, this time by @SL_SteamRoom:
In other words, the bullish option action from Friday is being followed by even more bullish option activity this morning.
The takeaway here is that when this kind of money is being bet on direction AND timing, investors need to take note. This is definitely bullish not only for the miners, but the underlying metals as well.
Although gold and silver have been struggling of late, the miners continue to hang in there, as evidenced by this weekly chart of GDX. Look at that beautiful volume during the breakout and then compare it to the last two weeks of tepid volume during the pullback. GDX needs to take a rest for a few weeks and let the hot money exit. It damn near doubled from its January low before seeing a meaningful pullback so this is certainly the pause that refreshes.
A peak beneath the surface confirms that individual mining stocks are holding strong while the metals themselves pull back. Take a look at Kinross Gold (KGC) for example:
Kinross exploded higher yesterday on big volume for an 11% gain. And then today, after opening down, it reversed higher on heavy volume and closed the day in confirmed breakout territory. I calculate a price target of $4.00 for the current move, more than 15% higher than current levels.
Looking at Goldcorp, one of the big dogs in the industry, further reinforces the miners' strength:
After getting nailed in late February on huge volume, price held support at its 200 day moving average - four consecutive days! It then proceeded to rally to new short term highs before falling back along with the other miners. Notice how volume is drying up while price moves sideways. That's a good sign that only the hot money is selling - big investors are standing pat. Also note the bullish cross that just occurred on the moving averages. The last time the 50 dma was above the 200 dma? A year and a half ago.
Anyway, I just wanted to share some observations on the mining sector. Everything I'm seeing is consistent with a healthy pullback as opposed to a breakdown. Gold itself is still very overbought on a weekly basis so don't be surprised if it continues to fall or chops sideways for a few more weeks. If I'm correct that the miners are just in a healthy correction, then I would expect to see more of them start breaking to the upside in advance of a bullish move in gold. That will be our clue.