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The Critical Shift in Precious Metals That Analysts Are Missing

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The outlook in this sector for 2013 filters down from this important discovery.

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Turning to the technical outlook, we find gold well entrenched in a consolidation. While momentum is turning higher, gold is unlikely to break out anytime soon due to the strong resistance at $1750-$1800. If gold is able to firm up here and now then it has a good shot to rally back to $1750-$1800 over the next few months. If we get the bullish scenario and a fundamental catalyst shift then expect gold to break past $1800 in Q3. That would mean that Gold consolidated for two years which would be its longest consolidation on record. The longer the consolidation, the more explosive the breakout. A breakout in the second half of 2013 (with momentum already rising) would bode extremely well for 2014.



Silver is in a much larger and slower consolidation. It will take longer to evolve but eventually build stronger momentum than gold. The initial upside target is obviously $35. Assuming gold breaks past $1800-$1900 then silver should break past $35 and at least test $44, the August 2011 high. It is very encouraging to see the silver stocks outperforming silver (bottom row).



Turning to the shares, I love the clarity from the monthly candle chart. It details just how important the key levels are. Note the strength of support at $40. In addition, we see that while the market has been weak, it has failed to close below $45 in each of the past three months. If Market Vectors Gold Miners ETF (NYSEARCA:GDX) is able to close at or above $46 this month then we believe the secondary bottom is in. In that case, look for GDX to test $52 (extremely important pivot point). As we've written in recent updates, the $52-$55 area for GDX stands between the current market and an impulsive advance that could last a few years.



Over the short-term it appears that the gold stocks are forming rounding bottoms. These are slow bottoms that take time to form. At the same time, the action in gold and silver is looking more and more constructive. Generally speaking, we see precious metals starting the year well and potentially finishing the year very well. However, do realize that while this could be the low for 2013, it could be many months before precious metals experience their next breakout. Conventional investments still have momentum and it will take some time for that relationship to shift. The bad news is, you are going to have to continue to be patient. The good news is I see this being the most explosive breakout since 2005 and you have plenty of time to try and identify the mining stocks poised to be big winners when this cyclical bull begins in earnest.

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.

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