Prepare For The Coming Precious Metals Sector Opportunity
Jordan Roy-Byrne, CMT | Oct 15, 2020 12:48AM ET
I don’t mean to be a broken record, but the precious metals sector remains in a correction.
Although the miners have outperformed Gold in recent days, their prognosis has not changed. Do you think a 180% rebound (in the VanEck Vectors Gold Miners ETF (NYSE:GDX)) will only be corrected by 19% and in less than two months?
Even after the initial 2009 rebound (which was not as strong), the correction was 23%. The miners have outperformed Gold in recent days, but Gold and Silver appear at risk of more selling.
We plot the Gold and Silver daily charts below.
There is a potential bearish flag pattern in both Gold & Silver (in red).
There is a risk the metals could dump lower towards their 200-day moving averages. Gold has a confluence of solid support around $1775, and Silver does around $20-$21.
The miners have outperformed Gold in recent days, but that could be a function of strength in the broad market rather than an indication of future strength in Gold. (When the stock market is performing, that can give a lift to the miners relative to Gold).
At present, GDX (bottom) and VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ) (top) are sitting between support and resistance.
On Wednesday, GDX traded to almost $41 and GDXJ to as high as $59.22. There is stiff short-term resistance in the high $42s and mid $61s.
We should be skeptical of immediate upside potential because precious metals are currently underperforming the stock market. Large, impulsive advances usually don’t begin with a lack of relative strength.
Within a larger correction or consolidation, it is best to avoid chasing strength and buy weakness. Unless the consolidation is a mature one, it is best to buy the dips.
I cannot tell you how this will play out, but if metals break lower and miners decline again, don’t be afraid. That is precisely when you should be a buyer.
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In the current case, don’t chase strength yet. Hold, and buy weakness. I suspect there will be another good entry point in the next month or two.
In the meantime, we continue to focus on identifying and accumulating those stocks with significant upside potential over the next 12 to 24 months.
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