Bear markets end with extreme bearish sentiment but positive price action
is needed before a trend change can be confirmed. That can include (among other
things) breaking downtrends, breaking resistance and breaking the pattern of
lower lows and lower highs. There have been positive developments for precious
metals beneath the surface but Thursday's breakout in Gold is more significant.
If Gold holds this breakout then it will be all but impossible to argue that
it remains in a bear market.
Below is a weekly candle chart of Gold and Silver. Thursday's Swiss-induced
strength helped propel the yellow metal above key resistance at $1240-$1250.
Over the past four months Gold has had every opportunity to sustain prices
below $1200. Within that period Gold made four different lows from $1150 to
$1200. The action of the past two weeks and the break above resistance is a
strong signal of an important trend change. Silver breaking its resistance
would offer further confirmation of a broad trend change in the sector.
We've written often about Gold's relative strength and its importance in signaling
a forthcoming trend change. On Thursday Gold closed at a 20-month high in Euro
and foreign currency terms and is nearing a two year high against commodities.
For months Gold had remained weak against US and global equities. At present
Gold is starting to break those downtrends. Below we plot Gold against various
equity indices (NYSE, Dow Jones World, MS World, S&P 500).
Meanwhile, the miners have confirmed the rise in Gold. With the exception
of GDXJ, every major index has completed a double bottom and is trading around
three month highs. The chart below shows the daily line charts of GDXJ and
GDX. We include the 400-day moving average which is often an excellent indicator
of the long-term trend. The next important resistance figures to be the 400-day
moving average. That could coincide with Gold at $1280.
We continue to see signs that precious metals are moving into a new bull market.
Gold has broken key resistance and is now breaking its downtrend against various
equity indices. The miners are confirming Gold's rise. Moreover, let's consider
the context of these recent developments. They are occurring on the back of
the second worst bear market (in price and time) in precious metals in 70 years.
While I believe the bear market is over, I'm looking for more confirmation
in the weeks and months ahead. The next important confirmation will be if and
when Gold and miners reclaim their 400-day moving averages.
Good Luck!
