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Metals - Time to start buying?

Commentaries & Views

Miners continue to seemingly carve out a bottom; below is an updated chart of the 2x leveraged Canadian gold miner ETF we first presented in an article on August 12th entitled Gold for the Brave. The opportunity we identified then and that still exists is a mean reversion trade back to the 200-week average. The yellow highlighted areas represent the period when prices were stretched way beyond the moving average and came back.

As we had cautioned the first time: This trade is not for the faint of heart.

Note the period of early August to late December 2018. The current setup seems to be mirroring it exactly; recall that it was also in fall/winter of 2018 that the FED was posturing hawkishly and raising rates, until that emergency meeting of the Presidents working group on financial markets (colloquially known as the Plunge Protection Team) was called on X-mas eve to intervene.

Miners have held despite the ongoing pattern of lower lows in spot gold. Below shows the clear downward price channel that has led to the breach of the 200-week moving average. Going back to 2015, further downside has come following a breach of the average. However, since December 2015, every breach of the 200-week moving average has led to the last leg down prior to significant long-lasting rallies.

The question remains as to whether the low is in, or another scary sell-off yet lies ahead, but one thing is certain: short positions here would be unadvisable in this trader's opinion.

Conversely, USD longs may be late to the bullish party, as the DXY has turned down from the top trendline we showed earlier this week , while the negative divergence we have been showing in the index seemingly beginning to play out (shown below).

It may be time for investors looking to dollar cost into a position in metals, to consider making a buy of that first tranche. More conservative traders or investors may wait for a bullish signal via a close of spot gold over $1680 on a weekly basis, or a breach of the downward channel to the upside.

Thanks and have a great day

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.