Precious Metals Market Overview

Today we’re taking a high level look at the precious metals market. I am neutral/bearish this market right now. Gold and Silver daily charts look toppy/H&S-eque to me. The excessive long positions by non-commercial speculators in Gold is bearish (not to mention Bonds too). Who’s left to buy when everyones bought?

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The summer is also not the best seaonal period for these guys. We can also argue they don’t seem to be following seasonal trend here in Septemeber. This is only one piece of the puzzle, but important to note if seasonal trends ARE ignored.

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All of the following are weekly charts, and I am using the 30 week sma. I like this best as a guide for the trend and when to buy/sell positions.

I think we head to $1,230 in Gold. We ran into the 38.2% fibonacci extension of the entire 2011-2015 bear market and have only gone down since. Gold is sitting on important support here and if we break through and below the 30wma, this is a no touch.

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Silver is in a similar situation and has been leading Gold lower. As the riskier and more alpha producing of the two, keep an eye on it for what happens to Gold. I think we head to $17 in Silver.

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An interesting ratio, I credit JC Parets at Allstarcharts for pointing out, is the market neutral Gold/Silver ratio. We crash everytime above 80 and looks like we are heading to ~50. I think this will rally rather than fall due to my outlook above at the moment. Long term this is a great trade to have on regardless of your views. I do.

It also provides that we are in a bullish environment for metals overall going forward. I agree with the recent action from Decemeber 2015 as well as industry related stocks.

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After a monster failed breakdown and 100% rally, I think we head to $20 in GDX. Miners lead the metal so this also fits our narrative of bearish Gold right now.

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I am not going to give a price target for SIL becuase I am not confident to say. This group has been a MONSTER, and definitely something I want in my portfolio when the time comes again. We broke the uptrend from January and are close to the 30wma. Lets see what happens.

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Sidenote: the amount of volume pouring into this sector does let me confidently say gold & metals will continue higher over the long-term picture.

I think we head to $20 in XME. After the false breakdown below 2008 lows, XME has been strong as well. This is the closest to getting below the 30wma and I think its heading under it.

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While everyone is obsessed with Gold, I think Platinum is going undercover here. Platinum is very undervalued relative to Gold here, and come the next bull run I believe it will outperform Gold just like Silver will.

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Next I have a stocktwit post from Brian G. or @alphahunt. He is one of my favorite follows. he keeps it clean, clear and concise. His calls have been spot on as long as I have been following him.

“Real Bonds & Franc, Monthlies. 2 of the cleanest proxies for GLD are longer-term bearish”

Take it as you will.

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Bank of America Merrill Lynch’s Stephen Suttmeier (who is an alumnus of my school as well) notes an interesting pattern change. In brief, rising stock volatility has led to declining yields. Now, it looks like higher yields and stock volatility are a potential new correlation pair:

“Higher yields = higher volatility
Pattern change: higher yields = higher volatility Friday’s breakout in US 10-year T-note yields coincided with an upside breakout in the CBOE Volatility Index (VIX). Higher yields and higher volatility is a pattern change as recent upward spikes in the VIX prior to last week were associated with sharp declines in US 10-year yields rather than a sharp rise in yields”

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I know what you’re thinking: Well if Stocks may drop more Gold and Bonds should go up. Sure they can, for a daily move, but correlations are not what CNBC will always have you believe. What happened last friday when Stocks fell a few percent? Gold was down and has been since. Bonds were down and have been since. I think this correlation of buy everything may come to a change in the near term.

Especially since I am bearish Bonds due to rising yields right now (about half of my portfolio), I feel we may get a full on correction among all assets.

Source: Tactical breakdown on a complacent 90% down day as higher yields = higher VIX
Bank of America Merrill Lynch – September 11th, 2016

Have a good weekend.

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