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Will Gold and Silver Stocks Follow the General Stock Market?

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The outlook for juniors and silver stocks looks quite favorable relative to gold stocks based on Thursday's and Friday's closing prices.

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On Friday, my firm wrote that the precious metals sector rallied strongly last week on the "fiscal cliff" issue "solution" and then experienced a significant correction on Thursday. The general stock market rallied as well but without such a dramatic plunge afterwards, which is clearly a bullish sign. Today, we'll discuss the mining stocks sector and try to figure out whether this bullish outlook for stocks translates in any way into a bullish (technical) outlook for them as well. But before we move into this sector, we'll have a look at the general stock market, using the S&P 500 (INDEXSP:.INX) as a proxy. (Charts courtesy of http://stockcharts.com.)


Click to enlarge

As mentioned above, we see that stocks rallied last week, almost reaching their 2012 high, and that the uptrend remains in place. Once the 2012 high is taken out, stocks will likely move to the 2007 high and then consolidate once again. This could bring stock prices up nearly 10% from current S&P 500 levels.

Let's now have a look at the intermarket correlations to see whether the above bullish picture could influence the precious metals sector in any way.



The Correlation Matrix is a tool that we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. We have recently written about the abnormal correlation values between precious metals, currencies, and the general stock market. Fortunately for precious metals investors, in the very short-term 10-day column this week, we see that the correlations appear to be going back to normal.
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No positions in stocks mentioned.
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