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Gold & Silver Correction Imminent

Commentaries & Views

What we wrote in May applies again.

In a bull market, you buy and hold. Now is not the time to buy. A correction in precious metals is imminent and could be underway as you read this.

The signals are overwhelming.

Gold and silver miners started the week by gapping up on Monday and Tuesday. They gapped up again on Wednesday, but that gap filled immediately.

A series of gaps typically occur after the start of a move or right before its end.

On Wednesday, the silver stocks underperformed a huge move higher in Silver. That was a warning sign.

On Thursday, Gold climbed another $25/oz, but both Silver and the gold stocks made a higher high before closing lower. That divergence is another warning sign.

On Tuesday, we alerted subscribers to the potential for an interim top because of the gaps coupled with extreme breadth readings.

The percentage of HUI stocks that had closed above the 20-day, 50-day, and 200-day moving averages was 100%, 94%, and 94%.

Meanwhile, the percentage of GDXJ stocks that had closed above the 20-day, 50-day and, 200-day moving averages was 100%, 96% and 96%.

The bullish percentage index, another breadth indicator has touched 100% in recent days.

When a market is this overbought, there is virtually no room for immediate improvement or upside.

We should anticipate lower prices over the days ahead.

Below plot the daily bar charts of GDX and GDXJ with the 100-day moving average.

GDX has support anywhere from $35 to $37.

This pullback in GDXJ could be the “retest” of its breakout through 7-year resistance. Keep an eye on $50-$51.

It has been four months since the gold stocks bottomed in March.

Four months after the October 2008 bottom, GDX endured 43 days of correction, which included a 23% decline and a 21% decline after a rally. Both declines bottomed around the 100-day moving average.

The low in price occurred in 15 days, but GDX didn't resume its rip-roaring uptrend for another month. From there, GDX exploded another 80% over the next seven months!

To sum things up, this is not the time to buy.

A correction is likely, and it probably will last more than a few weeks.

However, recognize it as an opportunity.

Eventually, GDX and GDXJ will resume higher towards the measured upside targets of $50 and $83.

Gold will correct too, but what happens to this sector when Gold breaks $1900?

We continue to focus on identifying and accumulating those stocks with significant upside potential over the next 12 to 24 months. To learn the stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.