-- Posted Wednesday, 21 November 2012 | | Source: GoldSeek.com
By Jordan Roy-Byrne
We’ve
been surprised at the recent action in the precious metals complex.
During the recent correction the shares were showing quite a bit more
strength than the metals. Then the shares took a dive below support yet
the metals maintained their recent lows! How do we interpret this wild
volatility in the relationship between the shares and the metals? Quite
often we look at daily and weekly charts. Now is the time to take a look
at the monthly charts which can help us get a better read on the larger
trends at hand.
The
monthly chart of Gold shows the yellow metal in a very healthy
consolidation between $1550 and $1800. Gold’s current retreat from $1800
has lasted two months. Back in 2009, Gold brokeout to a new all-time
high in the seventh month of its consolidation. Presently, Gold’s
bollinger band width is at a multi-year low and its three-month volume
average is at a two year low. Also, the RSI has bottomed and made a
higher low. Even if Gold touched $1600, it would remain in healthy
position for a breakout in 2013.
Gold’s
companion Silver is currently trading in a tighter consolidation with
$35 as resistance and $27 as support. Note that Silver has tested and
held above $27 six times in the last fifteen months. Silver also held
above the rising 40-month moving average which supported the market in
2009 and 2010. The RSI has also made a higher low and volume has trended
down during the past seven months.
Meanwhile,
the gold stocks (HUI) look weaker than the metals. Momentum hasn’t
confirmed its bottom as the market is in a clear range from 400
(support) and 525 (resistance). Note the current 11% decline in the HUI
for the month while Gold and Silver are still in positive territory.
Nevertheless, if and when the HUI prints a monthly close above 525, this
chart would like quite bullish and general sentiment would certainly
pick up.
The
evidence argues that the bottoms remain well intact and the metals are
consolidating before the next breakout which entails Gold breaking $1800
and Silver $35. However, these breakouts are by no means imminent.
Since we are dealing with monthly charts that means potentially three or
four more months of consolidation. Furthermore, sentiment data such as
the COT structure and public opinion polls need some improvement before
the market could sustain a breakout. Thus, more consolidation could be
the order of the day for the metals.
Continued
consolidation in the metals also helps explain recent weakness in the
HUI, which is simply testing the lower half of its own consolidation.
The shares see the weakness in the overall market and perhaps sense that
an immediate breakout in the metals is unlikely Furthermore, while
central banks have put themselves in position to act they haven’t
actually done anything yet. When the market senses their action it will
likely mark a final low within this consolidation.
The
good news is the metals remain in fine shape and so to do most of the
mining equities we follow. If we are indeed correct that the metals and
shares will remain range bound then your task is simple. Prepare
yourself for further consolidation by having your buy list ready and
then be ready to act when the time comes. A wise friend once told me
that in a bull market the goal is to accumulate positions at the lowest
prices possible. With
mining equities trading well off their highs, now is the time to do
your research and find the companies that will lead the next leg higher
and outperform the gold stock sector.
