Gold, Silver, and Mining Stocks: Keep an Eye Out for Signs of a Bottom
Where the price of gold, silver, and miner stocks are currently trading, and what to look out for in the coming days and weeks.
First you have seasoned investors who are waiting for the right opportunity to get long or short for the next move. Then you have the active traders playing the day to day price swings. Finally you get the gamblers who are salivating over the potential to double their accounts and are riding the commodity on pure emotions (fear and greed). All these things compound the volatility for the investment, making it headline news and what everyone wants to be involved in.
The focus of this report is to show you where the prices of gold, silver, and miner stocks are currently trading, and what to look out for in the coming days/weeks. Below is a chart of gold, but silver has a similar pattern and will follow -- or should I say, lead -- the price of gold in percentage terms because of its volatility.
Gold Weekly Chart
Gold has been testing its long term support level for three weeks. I expect we see price start to move quickly sooner than later, but there is potential for it to tread water here until the second half of April. We all know the saying “sell in May and go away,” and as we get closer to that date we should start to see money flow into the “safe havens” -- gold, silver, and miners. While this has not happened many times on the charts, I am thinking beyond them and of what the masses are likely to flock to when stocks lose their luster.
If you have been following the price of the dollar index you know that it's getting a little overbought, and when it starts to correct, the falling dollar should help send precious metals higher.
Gold and Silver Miners Vs. Gold Bullion Performance
The stock market has certain chart patterns that tell chart readers what the holders of that particular investment are feeling emotionally. Knowing how to read these extreme patterns can yield some big gains and works for most investment types (stocks, bonds, commodities, and currencies).
Without getting into the boring technical details, precious metal stocks are starting show signs of panic selling, which typically happens before a major bottom is put in place. It generally takes a week or two for some type of bottoming pattern or base building to form. This is the most volatile time to be trading these investments, so trade with caution.
Gold Miners Bullish Percent Index
Bullish percent indexes are a great way to see how popular an investment is. The way I read it is as follows: when it’s up over 75-80, it’s a popular investment and everyone is buying it. It also means it’s in a major uptrend. But you must be aware that when everyone is buying something, once price starts to turn down you better be one of the first few out before everyone else runs for the door and price crashes.
It’s similar but reversed for investments that are below 20. Everyone is selling, no one wants to own it, but once the selling momentum stops, price should rebound and rally. Keep in mind this indicator is not great for timing, but confirms that what you are looking at is either oversold, neutral, or overbought in the big picture.
Weekend Precious Metals Trading Conclusion
In short, I still like gold, silver, and their related mining stocks. I am watching them very closely for signs of a bottom and will be jumping on that train when the selling momentum looks to have stalled. Keep in mind that all these investments are still in a very strong downtrend, and trying to catch a falling knife is not what I do. Waiting for momentum to shift is my focus as there should be big upside if metals and stocks can find a bottom soon. If gold breaks down below key support as posted on the weekly chart, then the uptrend may be over and it will be time to start looking for short positions.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
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