We don’t hear much about gold and silver anymore on the news. This time last year you could not go five minutes without a TV or radio station talking about them. Why is this? Simple really: Precious metals have been building a Stage 1 Basing Pattern for the last 12 months. This boring sideways trading range is how the market gets most of those long holders out of an investment before it starts another move up.
The saying goes: “If the market doesn’t shake you out, it will wait you out."
We all know time is money so the above statement makes a lot of sense, doesn’t it? Why would you want your money sitting in an investment that's clearly displayed a large sideways range, with months and possibly years before any significant breakout will occur. There are other opportunities that could generate more gains until the precious metals sector sets up with a high-probability trading pattern.
The good news is that gold, silver, and precious metals mining stocks are forming a very large Stage 1 Accumulation Pattern on the weekly chart. This points to a multi-month rally in prices if they break out above these resistance levels.
Gold and Gold Miner Stocks -- Weekly Analysis
The chart below shows a lot of analysis, and to the untrained eye, it may look messy and confusing, so take your time to review it. In short, what I am showing are sideways price patterns using the previous highs and lows for support and resistance levels. The analysis shows the shift in prices from bearish (down), to neutral (sideways). The exciting part about this pattern is that a new bull market should emerge if my analysis is correct. Now, I’m not talking about 5 -10% move here; I’m talking about a multi-month and possibly a year-long rally in precious metals.
A break above the red-dotted resistance lines should trigger aggressive buying in gold miners along with physical gold bullion.
Silver & Silver Miner Stocks Weekly Analysis
This chart of silver and silver miner stocks (Global X Silver Miners
(NYSEARCA:SIL)), shows a very similar pattern to that of its big shiny sister (yellow gold). Silver carries a lot more risk because of its industrial usage. Also this commodity is thinly traded and can move very quickly on a daily basis compared to gold. Because of these quick price movements it has attracted a lot of speculative money, which also has increased the volatility. More often than not silver will move two to three times more on a percentage bases than that of yellow gold.
Battle of the Miner ETFs Weekly Performance:
This chart compares three precious metals miner ETFS (Market Vectors Gold Miners ETF
(NYSEARCA:GDX), SIL, and Direxion Shares Exchange Traded Fund Trust
Silver miners have held up the best because the herd saw how big the move was a year ago and is front-running the next potential rally. But, depending on how you read the charts and sentiment, it may be pointing to the dormant gold miners for a bigger-than-expected rally. But debating which one will break out and run the most is a conversation/debate of its own and even I can argue both sides.
The safe play? Even if gold miners (GDX and Market Vectors Junior Gold Miners ETF
(GDXJ)) underperform the silver miners (SIL), the NUGT, which is 3x leveraged gold miners, should be the same if not outperform silver miners.
Precious Metals & Miners Trading Conclusion:
In short, I favor trading the miners over physical bullion simply because the charts show much more profit potential than if one was to buy the bullion exchange traded funds SPDR Gold Trust ETF
(NYSEARCA:GLD) and SLV.
The market seems to be setting up for some very large moves in 2013.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
No positions in stocks mentioned.
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