Precious Metals Sector Correction Starts As Risk On And Seasonal Factors Weigh
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The Precious Metals sector is now set up for a correction that could be quite severe, which is evident on the charts, but also made more likely by the fundamentals where we see a return to “risk on” as a result of ongoing massive money injection by the Fed coupled with this being a seasonally weak Summer period for the metals ahead of their seasonally strongest time which runs from late July through September. The return of “risk on” will be greatly encouraged by the stockmarket breaking out to new highs which will suck money out of the PM sector to be deployed in biotech, blockchain, the FAANGS and the better cannabis stocks, but it should return as the economy gets going again and all the newly created money starts to drive inflation sharply higher.
Starting with gold’s 6-month chart we see that it is weakening following a failed upside breakout from a Symmetrical Triangle, and is it now close to breaking the 1st line of support shown. Once that fails it is likely to head down to the next support level near to its 200-day moving average.
On gold’s 13-month chart we can see that while gold is firmly in a bullmarket there is plenty of room for it to react back significantly without breaking down from its uptrend channel.
The 6-month chart for GDX shows it completing what looks like a Head-and-Shoulders top at a quite a high level, and with this morning’s drop it could soon break down from the pattern leading to a potentially steep drop.
On the 13-month chart for GDX we can see that there is plenty of room for it to drop, and the minimum objective in the event of it breaking below nearby support is the support in the $26 zone, and given that once the psychology changes, declines in the sector tend to be self-feeding, it could go quite a lot lower than that.
Silver just topped out at the resistance at a line of peaks and looks set to react back at least to the support shown on the 13-month chart, and could easily drop further if that fails.
One silver stock that actually has a strong chart overall that we bought a few weeks ago, Kooteney Silver, hit a trendline target as we can see on its 13-month chart and could get dragged down significantly with most other stocks in the sector. So it is thought better to take out now modest profits in this immediately and then wait for the chance to buy it back when the sector correction is thought to have run its course.
The conclusion is that the correct tactics with respect to the Precious Metals sector are to either step aside, or hedge with either leveraged inverse ETFs such as DUST, or better still Puts in say GLD and GDX, or a combination of the two. The corrective phase will probably be over by early August.
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Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.
Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.
The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.
Visit Clive at his website: CliveMaund.com
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