The precious metals sector has been dormant since both gold and silver topped in 2011. But the long term bull market remains intact. As long as we do not have the price of gold close below the lower yellow box on the monthly chart then technically speaking precious metals should continue much higher.
Large consolidation periods (yellow boxes) provide investors with great insight for investments looking forward six to 18 months upon a breakout in either direction (up or down). The issue with investing during these times is the passage of time. One can hold a position for months, and sometimes years, and have their investments fluctuate. This adds extra unnecessary stress.
Once a breakout takes place, a powerful rally or decline will start putting an investor's money to work within days of committing to that particular investment compared to money invested waiting months for the breakout and new capital gains to occur.
Gold Price Chart - Monthly
Gold Price Chart - Daily
The chart of gold continues to form a large bull flag pattern with a potential 3 or 5 wave correction. If price reverses this week and breaks above the upper resistance trend line then it will be a 3 (ABC) wave correction, which is very bullish. But there is potential for a full 5 wave correction which is still bullish, but it just means we have another month or two before metals bottom.
Gold Miner Stocks – Market Vectors Gold Miners ETF (NYSEARCA:GDX) Chart – Daily
Gold miners do not have the best looking chart. A strong looking bull flag was formed, but it has continued to correct and is not nearing a key support level. This level could act as a triple bottom (bullish), or if price breaks below then it would be breaking the neckline of a massive head and shoulders pattern. This points to 50% decline. I remain bullish with the longer term gold trend until I'm proven wrong.
Silver Price Chart – Daily
Silver remains in a long term bull market much like the monthly chart of gold. Silver continues to work its way through a large bull flag pattern with a positive outlook at this time.
Silver Miner Stocks – iShares Silver Trust ETF (NYSEARCA:SIL) – Daily Chart
Reviewing the precious metals sector, it seems that silver miners have the best-looking chart. All price patterns are showing strength and are in proportion to one other. If this chart plays out to what technical analysis is pointing to then we could see the precious metals sector put in a bottom and rally within the next week or two. And if this is the case then silver miner stocks should provide the most opportunity going forward.
Precious Metals Trading Conclusion
In short, what you need to focus on is the yellow consolidation box on the monthly gold chart. A breaking in either direction will trigger a massive move that should last six to 18 months. Until then long term investors can simply sit back and watch the sector while they put their money to work in other active sectors.
From a short term trader's point of view... I am looking for a signs of a bottom on the daily chart to get my money working earlier to play the bounce/rally that takes place and actively manage the position until a breakout occurs. The charts overall are not that clear as to when a breakout will take place. Metals could start to rally this week or in a few months, and all we can do is wait for a reversal to the upside before we get active.
Knowing the big picture trends and patterns at play along with major support and resistance levels (breakout levels) is crucial for success and peace of mind.
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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