Once again the perma-bulls are euphoric over the recent rallies put in by gold, silver and the precious metals mining sector, however, the question still remains; is this the real deal or another false dawn? We can look back to early July when gold traded at around $1200/oz and say there it is; the bottom is in, as many of our peers have already done, but is it? Despite being a gold and silver bull, I’m not a perma-bull and am still somewhat sceptical about this recent resurgence as we have already experienced a number of false starts in this sector.
Taking a quick look at the HUI chart above we can see that the RSI had dropped to one its lowest levels before turning higher and heading north, but the '70' level appears to present some resistance. The MACD has experienced a crossover and is heading north from a very low level, which is a positive sign for higher prices. The STO has peaked and looks to be rolling over suggesting that the near term direction is south.
Since making a high of 630 the HUI has struggled to mount a meaningful rally. The formation of the cross of death, at the start of the year along with gold prices getting battered, has sent the precious metals mining sector tumbling. If we look back to August, 2012, we can see that the HUI rallied from 400 to 525 for a gain of 125 points, only to run out of steam and tumble towards the ‘200’ level. This collapse brought much pain especially to the retail investor who may not have an abundance of wealth to help cushion the blow. If we fast forward to today we have a HUI that has rallied from 210 to 280 for a gain of 70 points, before slipping back to 260. Now ask yourself does this sector look like it has the strength to double and triple from here?
The answer might well be yes, but we do have the small hurdle of the September FOMC meeting and the possibility of tapering to overcome. The printing of money via QE has been oxygen for gold prices, should this phase be coming to an end then gold will struggle to rally much higher from here.
Also take note of the US Dollar as it has been driven down from 85 to 81 over the past 6 weeks or so and the selling may have now come to an end. A bounce from here will hinder gold’s ability to push higher.
Finally, these are volatile times with traders looking to hit the buy or sell button based on the latest rumor, financial results, political statements, spin, etc., so keep a clear head and don’t be rushed into a decision until you are good and ready.
Break a leg as they say in the theatre.
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With gold, silver and Uranium stocks being out of favor one must decide if this is a problem or an opportunity. We have steadfastly refused to buy gold and silver mining stocks for the last two years and as evidenced by the HUI we feel that our decision to hold back has been vindicated. The damage done to the mining sector may not be over yet but this demise is starting to offer up some exciting opportunities in my view.
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