Precious metals ended a quiet week with quite a reversal. Gold surged above
its 200-day moving average for the first time since November, only to lose
the gains and then close below the 200-day moving average. Silver was already
trading above its 200-day moving average before it moved higher but it then
reversed strongly and even below its 200-day moving average. The miners, which
have been much weaker than the metals were mostly unchanged but after opening
higher. Today's bearish reversal could signal an imminent decline in the entire
complex or just signal that more time is needed before the next attempt at
a breakout.
As you can see below, the metals reversed course as the 10-year Treasury yield
formed a very bullish reversal around key 2.30% support. Precious metals have
been tightly correlated to falling bond yields and today provided more evidence
of that. It is also a concern that the metals formed their reversals at the
200-day moving average. Gold went from below to above then back below while
Silver started the day above its 200-day moving average but closed below it,
at $17.99. (Note, there appears to be a data error in the Silver chart).
Turning to the miners, we see increased risk for an immediate decline. The
failure and reversal in the metals is one reason. Another reason is the failure
in the miners to hold Friday's opening strength. At the open, GDXJ appeared
to be breaking out of its triangle and GDX appeared to be breaking out from
its flag formation. From false moves come fast moves and therefore we must
be wary of selling in the miners next week. In particular, focus on GDXJ's
trendline support (blue arrow). If that breaks, GDXJ could test its March lows.
Precious metals traders and investors should be on guard for more weakness
in the days and weeks ahead. We certainly have been early with this call but
Friday's bearish reversal could be the catalyst that starts the decline. Metals
and miners would need to close above today's open to invalidate this analysis.
Today's reversal in the metals was not a surprise given recent relative weakness
in the miners. For precious metals bulls and speculators, continue to be patient
and wait for more weakness. For this year we want to buy weakness, not chase
strength. We continue to look for high quality juniors that we can buy on weakness
and hold into 2018.
