Recently, gold's performance and silver’s performance weren’t what precious metals investors had expected, even though it seems that this turbulence is just temporary – fundamentals are great with the Fed promising to print even more money and continuous reports on rising demand for gold and its shrinking supply. Moreover, the trend is still up from a technical point of view. Yet waiting for the precious metals rally to finally kick off can be frustrating.
But the fact that the big rally hasn’t started yet provides a great opportunity to take a look at the whole market from a distance and analyze it in search of some decent investments. Most investors focus solely on gold and silver, completely overlooking other profitable precious metals such as platinum and palladium and – what seems to be even more important – precious metals stocks
. The latter are excellent for diversification
purposes and can outperform the underlying metals (this hasn’t been the case in the past months, though). And this is why in today’s technical part we focus on both gold and silver stocks. We’ll start with the former (charts courtesy of http://stockcharts.com
In the medium-term HUI Index
chart, we see a decline but not below the level of the December lows. This seems to be a retest of the declining long-term support line and previous local lows. It could be the case that the miners will not move much lower even if gold declines.
However, if stock prices move lower, which could be the case based on the "gravestone doji" pattern discussed in our last essay
, lower prices could be seen here, though this does not necessary have to happen. On a side note – the general stock market -- as measured by the S&P 500 Index
(INDEXSP:.INX) -- is rallying heavily today, which further decreases the odds of a decline in gold stocks in the short term.
Let us now move on to silver stocks.
Click to enlarge
The outlook is bullish here as the breakdown below the declining resistance line has been invalidated. Silver stocks are once again above it. More importantly, we saw a buy signal from the MACD indicator, a tool that has been quite reliable for silver stocks in the past.
Based on this SIL ETF, we have bullish implications for silver and other parts of the precious metals sector as well. If you followed our suggestion to invest in silver stocks rather than gold stocks
a few weeks ago, you are likely smiling today.
Finally, let us have a look at the precious metals mining stocks’ performance relative to the general stock market.
In the GDX:SPY ratio chart, we saw the RSI move to 30 (probably a local bottom) and volume levels significant. Since the RSI suggests a local bottom, the mining stocks are likely to outperform other stocks in the coming weeks. In short, the technical picture for mining stocks is favorable.
Summing up, the mining stocks outlook continues to be positive for the medium term. The short term appears somewhat unclear as the next rally will likely be significant, but the exact timing of when it is to begin is difficult to estimate. Replying to the question from the title of this essay, the answer is both, but with emphasis on silver stocks and medium term in mind, while being prepared for possible short-term volatility.
Thank you for reading. Have a great and profitable week!
For the full version of this essay and more, visit Sunshine Profits' website.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.