Tuesday, 22 July 2014

Are the precious metals markets toying with investors?

Look at this chart of the gold mining ETF GDX. There is a possible rising wedge with a false upside break, followed by a false downside break.

In my view, this market is toying with bulls and bears, stringing both along as long possible. The action is almost creepy.

This action is the hallmark of a treacherous, deceptive market.

Return of the dollar?

I've got my eye on that potential neckline of a possible head and shoulders bottom in the U.S. dollar:

For those wondering why gold has stalled, even in the face of recent geopolitical upheaval, look no further than the above chart.

If the dollar strengthens, by and large that tends to put pressure on the metals -- not always, but usually.

If the dollar should break out above that neckline in the chart above, and hold above it with conviction, the outlook for the dollar could become much brighter in the days and weeks ahead.

I'm with Jim Rogers -- gold's bottom is likely yet to come

In a recent interview, Jim Rogers, the famed commodity investor, restated his view the bear market bottom in gold has likely not yet arrived:

“I think that there will be another time to buy gold later. I don’t think we’ve seen the final bottom for gold yet. I haven’t sold any gold, but I’m waiting to buy more.”

As readers know, my models continue to warn that gold's bear market low likely lies ahead. So count me in the camp of Jim Rogers. If gold's bear market bottom is still to come, the question is whether or not the recent rally was the high for the move.

My models suggest the time is right for the turn to down to commence at any time, but I continue to wait for signals the turn may be underway.

The first strong signal I am looking for is for gold to close for several days below the support line in the chart below. The chart below is of the gold ETF GLD, and my proxy for the gold action. GLD is sitting right on that (resistance) line turned support. A multi-day close below that line would be the a significant warning signal the bear market may have resumed, according to my models.

IF gold does close below that line with conviction, the miners can be expected to start to weaken dramatically, according to my models.

So I'll be watching that line like a hawk.

Monday, 21 July 2014

How strong is gold's grip?

The bulls are showing some strain on Monday, with gold up a couple of bucks, and the miners going in the opposite direction in an outsized way (at the time of writing, well before the market close).

Gold remains overbought, and its price action remains a little too close for comfort to the bull market uptrend line shown in the chart below.

It seems possible gold may re-test that support line; if it does, it will make the miners jittery -- and for good reason. 

If that support line were to give way in the weeks ahead, the bulls would lose their swagger in a hurry. 

Late notes: Near the session close, bulls came in and bought the miners on the dip. The question is whether this is strong hands buying -- or exhaustion buying.

Friday, 18 July 2014

Bull or bear?

I am not surprised to see the precious metals sector pulling back on Friday. I view this as an extremely deceptive, treacherous market.

Bulls see a breakout and backtest in the gold miner ETF GDX:

However, the HUI gold mining index is not in sympathy:

If the GDX top resistance line were drawn to approximate the HUI's, it would look like this:

Bottom line: the market is doing it's best to throw both bulls and bears a bone, and to string both along for as long as possible. 

The precious metals markets remain overbought on the weekly charts. 

Here is a weekly chart of the senior gold and silver mining index, the XAU, showing the overbought status:

Sometimes what is overbought can stay overbought. Unless "this time is different", the overbought posture tends to increase the odds of a more profound downside reversal at any time. Time will tell. 

Thursday, 17 July 2014

Bulls press their advantage

With the news of the Malaysian airliner being shot down over the skies of eastern Ukraine, and Israel's military push into Gaza, gold saw safe haven inflows and more than a $20 pop at one point on Thursday.

Bulls used the news to press their advantage, and attempted to recapture bullish momentum.

The bulls pushed right up to the underside of the previous support line in the gold miner ETF GDX:

Bulls achieved a similar outcome in gold's chart as well.

This is an interesting juncture as the mining indexes remain overbought on the weekly charts. Here's a weekly chart of the senior gold and silver mining index, the XAU:

What is overbought can sometimes stay overbought. At the same time, overbought conditions on the weekly charts can often be dicey.

IF this is a transition from one leg of the bear market to the next, as my models suggest, such  transitions often feature a strong move up before the turn, to pull in the bulls.

I'll be watching to see how the precious metals complex closes out the week.