Saturday, April 12, 2014

More Weakness Ahead for Precious Metals

The Fed minutes were dovish and this helped push Gold above $1310 to $1320. However, the miners, which usually lead the metals did little to confirm the rise. In fact, the miners have been relatively weak in recent days and had a bearish reversal on Thursday. Their rebound from an oversold condition has petered out. Another point is Gold, during this rebound has made no progress against foreign currencies. It’s starting to show some strength against the equity market but it needs to show strength against all currencies and not function only as the inverse of the US Dollar. Be on alert as the short-term trend for precious metals (especially the miners) could resume to the downside.
Looking further out, forthcoming weakness shouldn’t last that long in the big picture. The miners have been basing for quite a while and started to gain traction in Q1. The next low at worst could be a double bottom or otherwise would mark the first higher low in this bottoming process. In the chart below we plot GDX (large caps), GDXJ (juniors), SIL (silver stocks) and GLDX (explorers). We note how much each would have to decline to test its December low.
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