Many gold and silver
Investors are now confused and worried about their long-term holdings because
many analysts are talking about this being a long and deep correction.
Therefore, it's natural for one to wonder if it looks like the long-term gold
and silver holdings are threatened.
The situation is tense
because mining stocks are very close to their 2008 highs (XAU Index is
slightly below the 2008 high and HUI is right at it), and this is the most
important technical development that we see right now. Mining stocks often
move along with metals, so it is likely that whichever way mining stocks move
from here will be the direction also for the next move in gold and silver.
It's important to
become neither greedy, nor scared of the market at any point, and situations
like the one we have today are particularly tricky. Consequently, let's stick
to the facts, and then analyze the situation and estimate what is the most
let's take a look at the charts featuring key mining stock indices: XAU and
HUI. They both provide us with the similar information, and thus the
importance of the signals is even bigger.
On the chart below, we
clearly can see that mining stocks are very close to a very strong support
level – the abovementioned 2008 highs (charts courtesy by http://stockcharts.com).
The XAU Index clearly
illustrates that the 2008 highs are being verified. Since we created the
above chart prices of mining stocks have declined and are currently slightly
below this key support level. Up to the very recent price declines, the price
action seen above appeared as a simple correction of the previous breakout
and a part of the verification process.
However, based on what
we've seen recently - a quick move below the 2008 highs - we may need to take
a serious breakdown in a consideration as well.
The comparable situation can be seen in
the HUI Index (gold stocks) as well. Please take a look below for details.
In the HUI Gold Bugs Index chart, we
have also seen only a verification of a previous breakout up to the very
recent downswing that took the index below 520. At that time, there was no
evidence justifying a medium-term bearish sentiment. Although the index level
had previously declined below the first of the two important support levels,
it has quickly moved back above this level and the move below it appeared to
had simply been a form of correction of the previous rally. Finally, RSI
appeared to had bottomed. The outlook appeared slightly bullish.
Things changed when
gold, silver and mining stocks moved lower - and the latter moved decisively
below the first support level marked above (with the thin, slightly rising
line). The decline stopped at the lower support level - at the 2008 high,
however the abovementioned temporary breakdown in the XAU Index makes the
whole situation uncertain.
Can we have a bigger
decline from here? Yes. Gold, mining stocks, and especially, silver moved
higher significantly and a correction - even a sharp one - would not
invalidate the whole bull market, and thus would be somewhat in tune with
long-term positive fundamentals. In other words - positive fundamentals do
not invalidate the possibility that a correction may take place.
Can we see another
huge rally from here? Yes. Precious metals have been correcting for more than
a month and are not short-term overbought at this point. Which of the above
outcomes is more probable? The bullish case is slightly more probable,
because - after all - this is a secular bull market, and the previous real-inflation-adjusted
high for gold (over $6,000) is not even close to where gold is today.
Summing up, we believe
that the situation is currently not bearish enough to justify getting out of
the precious metals with one's long-term investments. Given favorable
fundamentals, the risk is to be out of the market, not to be in it. The
situation could certainly become more bearish, and if we believe that is the
case, we will send out a Market Alert or message to our Subscribers. Join
us today, to make sure that you won't miss it.
make sure that you are notified once the new features are implemented, and
get immediate access to my free thoughts on the market, including information
not available publicly, I urge you to sign up for my free e-mail list. Sign
up today and you'll also get free, 7-day access to the Premium Sections
on my website, including valuable tools and charts dedicated to serious PM
Investors and Speculators. It's free and you may unsubscribe at any time.
you for reading. Have a great and profitable week!