Precious Metals Stocks Alert: Powerful Upleg Believed Imminent

Technical Analyst & Author
July 30, 2017

The significant increase in Large Spec long positions this past week in gold and silver from a very low level might be cause of concern to some, since it of course increases the risk of a reaction in these metals, but there is another much more positive way of looking at it, which is that, in the face of a continued albeit incremental rise in the prices of gold and silver, the Large Specs have suddenly realized their mistake in bailing out over the past couple of months, and are scrambling to get back on board.

On gold’s 1-year chart we can see that it actually made an important breakout last week, from the Dome pattern shown. So far the breakout is marginal, and there is still no confirmation by momentum, which has not broken out of its downtrend, but that is not the case with silver, which as we will see HAS broken out above a similar Dome pattern. Gold is approaching a zone of considerable resistance approaching its April and June highs at the top of the Dome, and once it breaks out above this it should really get moving.

While there was a considerable increase in Commercial short and Large Spec long positions in gold last week, they are still at modest levels that permit a big rally by gold from here. Certainly they are a long way from being bearish.

Click on chart to popup a larger clearer version.

Silver, meanwhile has made a more decisive breakout from its Dome pattern, after putting in a capitulative low a few weeks ago, and is in position to push on past its moving averages towards resistance in the $18.50 near to its February and April highs. Like gold there is still no momentum breakout (MACD) but it is close to it.

After falling to extremely bullish levels a week ago, there was an uptick in Commercial short and Large Spec long positions in silver last week, shown on the latest COT chart below, which is taken the mark the dawn of the realization of their mistake by Large Specs in dumping all of their long positions over the past couple of months, and such an uptick often occurs at the start of a major uptrend.

Click on chart to popup a larger clearer version.

It is enlightening and useful to observe the long-term silver to gold ratio chart at this juncture, as it shows that the ratio is still close to levels that typically mark an important sector bottom. This chart by itself clearly says there is plenty of room for a major bull market to develop from here.

Lastly we will look at the important gold stocks to gold ratio, with stocks being represented by GDX. This ratio is at its lowest at bear market bottoms, because that is when fear is at its peak, and when investors are fearful they choose bullion over stocks, as they regard it as a more solid investment. At the end of 2015 we saw an extreme low in this ratio which marked the final bottom, and what has been happening since as far back as mid-2013 is that a giant relative Head-and-Shoulders bottom has been forming, and right now we appear to be at a great entry point for stocks, because the ratio is very close to the Right Shoulder low of this relative Head-and-Shoulders bottom. The huge surge by the ratio out of the Head of this pattern that occurred during the 1st half of last year was a game changing move, which showed that the tide was turning and that a new bull market was being birthed. Note that the ratio has to get to 0.26 before it even breaks out of the H&S bottom, which is quite a way above its current level, and once it does break out of the base pattern it is likely to push on quickly to the resistance level shown in the 0.36 – 0.38 zone, which will mean BIG gains for stocks.

We will now look at the GDX to gold ratio in more detail on its 2-year chart, for important guidance re timing. The 2-year chart is quite dramatic as it shows the massive advance in the ratio during the first half of last year, and remember that gold was rising at the same time, so this chart is showing the outperformance by gold stocks during that period, which was certainly very impressive and marked the birthing of a new bull market. After such a huge outperformance, stocks were certainly in need of a rest and that’s why the ratio bedded down into a big consolidation Triangle, but as we can see this Triangle is now fast closing up, which is why we have been buying the sector aggressively in recent weeks, because breakout should be to the upside and lead to a big uptrend, an outcome which is made much more probable by the now strongly bullish gold and silver COTs following the Large Specs giving up and bailing out at the worst possible time in recent months as they are always prone to do.

Conclusion: it couldn’t look better for the sector, which suits us, because we are bullish and now heavily long.

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Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Clive Maund

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

Nevada accounts for 75% of U.S. gold production.

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