Gold & Silver Correction Imminent
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
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?
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