A Paradigm Shift For Precious Metals Investors

posted in: Gold, Gold Stocks | 0

Gold finished higher by more than 5% on the week and the gold miners as represented by the GDX rallied an eye-popping 20% for the week. There are signs of over-exuberance beginning to show up in the gold space beginning with the surge in assets in the GLD exchange-traded fund and the shift in speculative positioning in the CFTC Commitments of Traders Report, however, the rally is undeniably powerful and indicative of large institutions piling into the precious metals space after being out for quite some time.

 

GDX (Daily)

GDX_Daily_2.5.2016

¬†Powerful breakout from broad based 7-month bottom – Thursday & Friday’s ‘gap & go’ rallies gapped above the 200-day simple moving average and never looked back. GDX ended the week 10% above the 200-day SMA after beginning the week nearly 10% below it!

Meanwhile, gold rallied right into the teeth of major support/resistance and also achieved its measured move target from the rounding bottom pattern with a late Friday afternoon rally which saw the gold price rise above US$1174/oz:

Gold (Daily)

Gold_Daily_2.5.2016

US$1180 was major support during 2013 and gold in fact made a double-bottom at this level from which it rallied more than $200/oz in early 2014. There was also a lot of volume churned in the $1170-$1200 area last year. While anything is possible, it is quite likely that gold will have to consolidate its recent gains before surging past the yellow area above.

There are two main assessments after last week’s action in the precious metals arena:

  • Gold put in a quiet bottom last December and nobody noticed until the last couple of weeks.
  • The precious metals mining stocks are coiled springs; the gold miners have never been better positioned to generate leverage to a rising gold price for shareholders. Judging by last week’s performance the stock market had been pricing the miners for a lower gold price and with the realization that gold may have bottomed the market was forced to make a rapid and violent correction to mining stocks’ valuations.