• 484 days Will The ECB Continue To Hike Rates?
  • 484 days Forbes: Aramco Remains Largest Company In The Middle East
  • 486 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 886 days Could Crypto Overtake Traditional Investment?
  • 890 days Americans Still Quitting Jobs At Record Pace
  • 892 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 895 days Is The Dollar Too Strong?
  • 896 days Big Tech Disappoints Investors on Earnings Calls
  • 897 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 898 days China Is Quietly Trying To Distance Itself From Russia
  • 899 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 903 days Crypto Investors Won Big In 2021
  • 903 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 904 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 906 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 906 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 910 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 910 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 911 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 913 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  1. Home
  2. Markets
  3. Other

Precious Metals Sector Due for Bounce, but…

The precious metals sector has declined sharply in recent weeks with no pause or intermittent breaks in the decline. Including today, Gold is down eight consecutive days and 16 of the past 18 days. The gold miners (GDX) have lost roughly 20% in the past seven days. The sector is extremely oversold in the short term and a reflex rally culd begin in the next few days. While Gold and gold bugs should get temporary relief, the larger picture remains quite bearish.

The daily candle charts of Gold and GDX are included in the image below. (Note that Gold is not updated today). Gold which has traded as low as $1084/oz today, has support in the $1080/oz to $1100/oz zone. Meanwhile, GDX after gapping lower today found support around $13.50. GDX has good support in the $13.00 to $13.50 area. Gold and gold stocks are very oversold and have reached levels at which a bounce could begin.

$GOLD Gold - Spot Price (EOD) CME
Larger Image

While Gold and gold shares are likely to rally in the days ahead, the overall prognosis remains decidedly bearish. Consider the monthly candle chart for Gold. Monthly charts carry more weight than weekly charts and much more weight than daily charts. Gold appears to be breaking down from the bearish flag pattern formed in recent months. After plunging in July, Gold rallied in weak fashion and failed one last time at major resistance of $1180/oz. The flag projects to a downside target of roughly $1035/oz. Ultimately, the bear market could end at one of the two targets shown in the chart, $970/oz or $890/oz.

$GOLD Gold - Spot Price (EOD) CME
Larger Image

Sentiment indicators are one set of indicators that can help us gauge when Gold is due for a rebound or when the bear market could end. In the chart below we include the GLD put-call ratio (smoothed with a 20-day moving average) and the net speculative position in the futures market. We measure that position as a percentage of open interest. As you can see, the two sentiment indicators are not yet close to bearish extremes. The smoothed put-call ratio is at 0.74 which is well below the 1.10 level that has corresponded with the lows of the past two years. Meanwhile, the net speculative position of 35% (which I'm guessing will be below 25% after this week) remains way too high. Plenty of speculators are left to cut positions and push Gold lower.

$GOLD Gold - Spot Price (EOD) CME
Larger Image

The final collapse or final capitulation in Gold that has eluded us for a few years appears to be in motion. After an oversold bounce, Gold should test support at $1080/oz and finally threaten the key $1000/oz support level. Last week we warned: The specter of $950 to $1000 Gold looms larger now and readers are advised to cut losses and prepare portfolios for the bearish scenario. We took profits on our shorts today and will re enter on strength. The conditions that will bring about a buying opportunity and the end of the bear market (extreme bearish sentiment, extreme oversold conditions and strong technical support) are not yet present but could develop in the weeks and months to come.

 


As we navigate the end of this bear market, consider learning more about our premium service including our favorite junior miners which we expect to outperform into 2016.

 

Back to homepage

Leave a comment

Leave a comment