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Gold and Silver Stocks Begin Oversold Bounce
Heading into this week it looked like the miners would fall further before finding support. However, over the past two days the sector clearly reversed its short-term course.
Jordan Roy-Byrne    

The bottoming process for gold and silver shares has been arduous as they've oscillated back and forth for almost a year. My firm noted a month ago that the failed breakout in March was strong evidence that an interim top was in place. Heading into this week it looked like the miners would fall further before finding support. However, over the past two days the sector clearly reversed its short-term course. For now, this appears to be a rebound from an oversold bounce.

We plot the Market Vectors Gold Miners ETF (NYSEARCA:GDX), the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), and the iShares Silver Trust ETF (NYSEARCA:SIL) in the chart below. As of Monday's low, the miners were very oversold in a small space of time. From recent highs, GDX was down 18%, GDXJ 27%, and SIL 21%. Thus the miners were ripe for a bounce. The bullish reversal on Monday coupled with confirmation on Tuesday signals that a rebound is underway. The initial upside targets are the open gaps from six days ago and the 50-day moving averages.

apr22edminers

Is this low the right shoulder of a head-and-shoulders pattern and the low that springboards the sector to a sustained advance?

It is really difficult to tell. My gut says no. Most of the precious metals sector failed to rally all the way back to the 2013 summer highs. I previously noted that this, in addition to the strong weekly reversal, was a sign of weakness. It seems unlikely the market would begin a major move higher only a single month later. Thus, at my firm, we think more weakness is possible after this rally. However, we always should keep an open mind when the outlook is uncertain.

The chart below plots the strongest indices which include Canadian indices such as the TSX Global Gold Index and ZJG.to (the Canadian GDXJ) as well as the Global X Gold Explorers ETF (NYSEARCA:GLDX), the PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ), and the Tocqueville Gold Fund (MUTF:TGLDX). While a right shoulder could be forming, it appears that more time and consolidation could be necessary. The time between the left shoulder and head is about five and a half months. Translate that forward for the right shoulder and June could be apt for the next low.

apr23miners2


We should be vigilant and note the various possibilities. Inflation is starting to creep higher, by the preferred indicators of the market. Last week the Labor Department reported that wages increased at the fastest pace in more than four years. Both the CPI and PPI accelerated from February to March. The Wall Street Journal reported that big banks are ramping up lending. Meanwhile, commodity prices (CCI index) broke out of their multi-year downtrend and have held firm close to 12-month highs.

The capital markets only care about the margin. Just a small sustained increase in inflation expectations could drive precious metals to confirm a bottom and the miners to begin a move that would break out of this long bottoming base. We are not saying this is imminent. We are thinking about what could be the driver of the future breakout in this sector. In the meantime, we sold all hedge positions yesterday and continue to actively research the sector for the absolute best opportunities. The next few months could be your last best chance to accumulate the companies poised to benefit from the coming revival in precious metals.

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

Gold and Silver Stocks Begin Oversold Bounce
Heading into this week it looked like the miners would fall further before finding support. However, over the past two days the sector clearly reversed its short-term course.
Jordan Roy-Byrne    

The bottoming process for gold and silver shares has been arduous as they've oscillated back and forth for almost a year. My firm noted a month ago that the failed breakout in March was strong evidence that an interim top was in place. Heading into this week it looked like the miners would fall further before finding support. However, over the past two days the sector clearly reversed its short-term course. For now, this appears to be a rebound from an oversold bounce.

We plot the Market Vectors Gold Miners ETF (NYSEARCA:GDX), the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), and the iShares Silver Trust ETF (NYSEARCA:SIL) in the chart below. As of Monday's low, the miners were very oversold in a small space of time. From recent highs, GDX was down 18%, GDXJ 27%, and SIL 21%. Thus the miners were ripe for a bounce. The bullish reversal on Monday coupled with confirmation on Tuesday signals that a rebound is underway. The initial upside targets are the open gaps from six days ago and the 50-day moving averages.

apr22edminers

Is this low the right shoulder of a head-and-shoulders pattern and the low that springboards the sector to a sustained advance?

It is really difficult to tell. My gut says no. Most of the precious metals sector failed to rally all the way back to the 2013 summer highs. I previously noted that this, in addition to the strong weekly reversal, was a sign of weakness. It seems unlikely the market would begin a major move higher only a single month later. Thus, at my firm, we think more weakness is possible after this rally. However, we always should keep an open mind when the outlook is uncertain.

The chart below plots the strongest indices which include Canadian indices such as the TSX Global Gold Index and ZJG.to (the Canadian GDXJ) as well as the Global X Gold Explorers ETF (NYSEARCA:GLDX), the PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ), and the Tocqueville Gold Fund (MUTF:TGLDX). While a right shoulder could be forming, it appears that more time and consolidation could be necessary. The time between the left shoulder and head is about five and a half months. Translate that forward for the right shoulder and June could be apt for the next low.

apr23miners2


We should be vigilant and note the various possibilities. Inflation is starting to creep higher, by the preferred indicators of the market. Last week the Labor Department reported that wages increased at the fastest pace in more than four years. Both the CPI and PPI accelerated from February to March. The Wall Street Journal reported that big banks are ramping up lending. Meanwhile, commodity prices (CCI index) broke out of their multi-year downtrend and have held firm close to 12-month highs.

The capital markets only care about the margin. Just a small sustained increase in inflation expectations could drive precious metals to confirm a bottom and the miners to begin a move that would break out of this long bottoming base. We are not saying this is imminent. We are thinking about what could be the driver of the future breakout in this sector. In the meantime, we sold all hedge positions yesterday and continue to actively research the sector for the absolute best opportunities. The next few months could be your last best chance to accumulate the companies poised to benefit from the coming revival in precious metals.

Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
< Previous
  • 1
Next >
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.

More From Jordan Roy-Byrne
Gold and Silver Stocks Begin Oversold Bounce
Heading into this week it looked like the miners would fall further before finding support. However, over the past two days the sector clearly reversed its short-term course.
Jordan Roy-Byrne    

The bottoming process for gold and silver shares has been arduous as they've oscillated back and forth for almost a year. My firm noted a month ago that the failed breakout in March was strong evidence that an interim top was in place. Heading into this week it looked like the miners would fall further before finding support. However, over the past two days the sector clearly reversed its short-term course. For now, this appears to be a rebound from an oversold bounce.

We plot the Market Vectors Gold Miners ETF (NYSEARCA:GDX), the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), and the iShares Silver Trust ETF (NYSEARCA:SIL) in the chart below. As of Monday's low, the miners were very oversold in a small space of time. From recent highs, GDX was down 18%, GDXJ 27%, and SIL 21%. Thus the miners were ripe for a bounce. The bullish reversal on Monday coupled with confirmation on Tuesday signals that a rebound is underway. The initial upside targets are the open gaps from six days ago and the 50-day moving averages.

apr22edminers

Is this low the right shoulder of a head-and-shoulders pattern and the low that springboards the sector to a sustained advance?

It is really difficult to tell. My gut says no. Most of the precious metals sector failed to rally all the way back to the 2013 summer highs. I previously noted that this, in addition to the strong weekly reversal, was a sign of weakness. It seems unlikely the market would begin a major move higher only a single month later. Thus, at my firm, we think more weakness is possible after this rally. However, we always should keep an open mind when the outlook is uncertain.

The chart below plots the strongest indices which include Canadian indices such as the TSX Global Gold Index and ZJG.to (the Canadian GDXJ) as well as the Global X Gold Explorers ETF (NYSEARCA:GLDX), the PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ), and the Tocqueville Gold Fund (MUTF:TGLDX). While a right shoulder could be forming, it appears that more time and consolidation could be necessary. The time between the left shoulder and head is about five and a half months. Translate that forward for the right shoulder and June could be apt for the next low.

apr23miners2


We should be vigilant and note the various possibilities. Inflation is starting to creep higher, by the preferred indicators of the market. Last week the Labor Department reported that wages increased at the fastest pace in more than four years. Both the CPI and PPI accelerated from February to March. The Wall Street Journal reported that big banks are ramping up lending. Meanwhile, commodity prices (CCI index) broke out of their multi-year downtrend and have held firm close to 12-month highs.

The capital markets only care about the margin. Just a small sustained increase in inflation expectations could drive precious metals to confirm a bottom and the miners to begin a move that would break out of this long bottoming base. We are not saying this is imminent. We are thinking about what could be the driver of the future breakout in this sector. In the meantime, we sold all hedge positions yesterday and continue to actively research the sector for the absolute best opportunities. The next few months could be your last best chance to accumulate the companies poised to benefit from the coming revival in precious metals.

Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
< Previous
  • 1
Next >
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.

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