Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Where Is Support for Gold and Silver Stocks?


Current and past events are frustrating and confusing some mining stock investors who are dangerously losing faith in a bull market.

It has been a tough year for the mining stocks. The large stocks have moved back and forth in a range from support to resistance while the mid tiers and juniors have really struggled, especially in recent months. With Europe seemingly on the brink and most markets turning down, it is an opportune time to examine the technical support of the various gold and silver equity indices. The longer the large cap equities maintain support, the more internal strength they build in preparation for a breakout in early 2012. In turn, such action would greatly help the juniors and non producers who have had a difficult year.

We start with our flagship market (GDX), the ETF for large unhedged gold producers. Since June, GDX has made slightly higher lows. Not bad considering the S&P 500, emerging market and commodity stocks all made news in that period. GDX continues to hold its 600-day moving average which was key resistance in early 2009 but support in early 2010. The market has support from $52 to $54.

Next is XGD.TO, the Canadian version of GDX/HUI. XGD provides a look at the gold stocks in Canadian Dollar terms. XGD shows little threat of the gold stocks breaking support. The market printed a low of $22 in June but since then has held above $23. Its 600-day moving average has been support since late 2009 and currently sits at $23. A weekly close above $25 could potentially confirm that the market is on its way to testing the all-time highs.

As we know, the juniors and non producers have struggled. (GDXJ) broke its June low near $33 and plunged to $27. However, the market rallied to $33 and has held $27 on the initial retest. A weekly close above $28 could confirm a potential double bottom.

Meanwhile the silver stocks ((SIL) ETF) are at a critical juncture. SIL broke below support at $22.50 but was able to hold above $20. The initial retest held. If SIL makes a weekly close above $23 then the bottom is in. However, if the market made new lows it would not find strong support until $16.

Current and past events are frustrating and confusing some mining stock investors who are dangerously losing faith in a bull market. Gold has had
a fantastic 2011 but it was no help to the mining stocks as a whole. The potential cyclical top in equities combined with the European sovereign debt crisis has added to the malaise. However, investors forget that 2009 and 2010 were banner years for the mining stocks and that a sharp correction or long consolidation is normal after fantastic performance.

The reality is, the mining stocks are sitting pretty for savvy investors. The large caps continue to hold support in a very bullish consolidation while the more speculative quality companies improve their prospects and enhance their value as share prices stagnate. Record metal prices and a lack of cost pressures (unlike 2007-2008) have yielded terrific cash flow and earnings for producers. These companies continue to trade near record low valuations and remain under-owned by both institutional and retail players. Combined with potential massive action from the ECB, China and the Fed and we could be looking at a massive springboard into the next phase of the precious metals bull market.

Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.

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.

Featured Videos