Precious Metals and Mining Stocks Analysis
USD/JPY took off higher and that is putting pressure on metals, knocking them down to the levels we have discussed. Further analysis below.
It’s clear that Funds are not buying this rally in the dollar index because they remain net short. This means that the possibility of a massive short squeeze is very real.
However, though this may be negative for metals, I am not sure it will be. $/JPY has been trading independently of DXY, which is euro dominated, for quite some time. If DXY does rise, $/JPY could still fall, boosting metals. It’s not a slam dunk. Gold and the $ could rise together, though I agree that a general dollar rally could hit metals too.
COT Data on the dollar.
- DXY back to neutral, worked off its overbought condition, now ready to head higher again imho. RSI 50, MACD H flat, MACD line moving sideways to down but about to turn up again imho. 96-98 here we come.
- Holding support at 93 on a weekly basis – key pivot. Weekly up from 24 to 40 RSI, lots of room to go on the upside. MACD H just broke zero and heading higher after a massively overextended low. MACD line even moreso and just turned up and just broke its signal – lot of room higher here!!
- Monthly just turning up also – dollar going higher based on technicals!!
- DSI: 71 (Can go higher and stay there for a while)
Arguments For and Against Gold
Arguments that Gold goes higher from here…
- Has held daily support trendline since Jan 27 at ~1278 for 3 days in a row. A higher low and about to head higher from here.
- Bullion Banks are maintaining a low net short position in anticipation of a mega rally shortly and leaving the heavy lifting on the short side to the Producers / Miners.
- Sentiment has fallen back again but to a higher low and is about to take off again. Fact that Silver has outperformed on this pullback, based on its DSI divergence to Gold (52 vs 32), is bullish as Silver leads in bull markets.
- USD/JPY becoming O/B (RSI 63) and also needs to head lower based on the daily MACD line which is still over-extended to the upside
Arguments that Gold heading lower still before the next rally can occur…
- After a brief pop up, Gold looks ready to fall even lower… Hugging daily trendline support but cannot seem to bounce. Once thru, will slide fast.
- RSI & MACDs turning down again. MACD H about to cross zero to the downside. Not a buy until RSI hits 30, now 42.
- Weekly momos also heading south too. Monthlies sideways to lower also.
- Funds’ net long position and open interest both remain too high for a bottom worthy condition. Open interest has to fall below 500k contracts “at least”, currently 530k. Funds’ net longs need to get a lot lower, closer to neutral.
- Daily sentiment index, 32, has fallen back but is still 9 points above the low on Oct 5th at 23. For a true low to be in place, need to see the teens or lower, single digits. This implies there is further downside to come.
- Gold leads at turns, not Silver or Miners, and Gold is leading to the downside now, Silver lagging but it will catch up.
- That said mining stocks look awful. GDX momos all falling and below 50/0. Weeklies heading south now too. GDXJ broke a ST support TL Fri. All momos falling. Weekly MACD H about to cross zero to the downside.
- 114.50 USD/JPY is the key double top level that is like a magnet here, it’s so close. We need to see at least a retest, possibly break higher to as high at 115-115.20 before lower. Daily MACD H heading up towards zero. Weekly momos all heading UP… bullish USD/JPY, bearish Gold ST.
- TIPS keep falling. Hit a low of 113.30 Fri. 113.20 gets taken out and LOB. Close the gap to 112.30 next? RSI sliding to 42. MACD H just broke below zero. MACD line just turned down also, breaking signal line. 113 huge support on a weekly basis but momos look ominous, heading south. Monthly momos look like they’re running out of steam too.
Support and resistance levels below. Gold bulls need the areas highlighted in yellow to be broken for the next leg up. It will come. Keep the faith.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.