Charts courtesy of (http://www.stockcharts.com).
Are Precious Metals Nearing Completion Of A Long Term Bullish Setup?
“Dullsville” would be an apt description of the “action” or lack of volatility in the Precious Metals Sector over the last decade, and especially over the last 3 or 4 years. We last commented on the Precious Metals Sector in early March, 2018 (http://markonomics101.com/2018/03/08/amid-dire-circumstances-precious-metals-set-for-explosive-move-higher/) Some excellent proxies for Silver and Gold are the ETFs (or Exchange Traded Funds) whose symbols are SLV and GLD, respectively. SLV is designed to mirror the price of an ounce of Silver while GLD is reflective of 1/10th of an ounce of Gold. Over the last 4 years, SLV has traded in a fairly narrow range bounded by $20 on the high side and $13 on the lower end. GLD has been constrained by roughly $132 on the high side and roughly $110 on the lower end.
The long term chart in Silver is especially promising. It’s “Rounding Bottom” pattern coupled with the recent “Pennant” or Triangle Pattern suggests a period of consolidation is close to completion, prior to a large move ahead, but also a BULLISH one. A BULL move in Silver can easily result in a 10 to 1 return within a year, as was the case in 2011 as it touched $50 per ounce.
At the moment, Gold appears to have a more NEUTRAL chart, but one which could easily turn BULLISH with a move above $132. A BEAR move would be suggested by a move below $115. A move lower appears unlikely in light of the unequivocally BULLISH set up in Silver, Junior mining stocks (GDXJ, illustrated below) and the US Dollar Index (USD, also illustrated below).
The Exchange Traded Fund or ETF which tracks Gold and Silver Miners trades under the symbol GDXJ and its long run monthly price graph is shown below. It has also completed a BULLISH Rounding Bottom and is now approaching the end of a Pennant or Triangle Pattern. The implications of this chart are EXTREMELY BULLISH long term. With the metals and the underlying equities in sync, we continue to anticipate seeing an explosion in prices in the not too distant future.
Gold and Silver typically trade inversely to the US Dollar (USD). Often used as a hedge, Gold and Silver are priced in Dollars, so a higher Dollar means a lower Dollar price for Gold or Silver. What you may notice is that the USD bottomed in 2008 and 2011. The latter low coincides almost perfectly with Highs in GLD and SLV. Since then, USD has been strong, and peaked in 2017, close to the lowest levels for GLD and SLV.
The “Megaphone” Pattern, which is aptly named, is actually a “backwards Pennant” and more often than not a reversal pattern. Megaphones are usually accompanied by higher volatility as each swing is of greater amplitude. The Megaphone is consistent with our outlook of a large move in Precious Metals since such a move will REQUIRE great Volatility. (Chart courtesy of (http://www.stockcharts.com)
Another indicator of Precious Metals’ outlook would be the Junior Gold and Silver Miners which trade as an ETF with the symbol GDXJ. The equities of Miners tend to magnify the moves in the Commodities themselves as they are leveraged to the prices of Precious Metals. Higher prices translate directly into both higher revenues and profitability.
The Junior Miners have also experienced a “Rounded Bottom” or Saucer Pattern, with a several year Triangle or Pennant that appears to be nearing completion. The Pennant is typically a continuation pattern, so we’d expect to see an Upside Breakout as Metals and Equities move higher while the USD moves lower.
While the near term action in the Precious Metals Sector has been less than impressive, the best time to take positions is when the sector is performing poorly as it now. While it tempting to “bottom fish”, interest investors would be prudent to wait for a definitive upside breakout before adding to any positions. Trying to pick an exact bottom is impossible and more than often than not does not produce good trades. Should the breakout occur, (http://www.Markonomics101.com) will promptly keep potential investor and traders updated as to when the “coast is clear”.