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Precious Metals & Miners Flash Short-Sell Signal

August 29th, 2013 · Chris Vermeulen · 9 Comments

It has been a bumpy ride for precious metal investors over the past couple of years and it unfortunately I do not think its over just yet. The good news is that the bottom has likely been put in for gold, silver and gold miners BUT the recent rally in these metals and miner looks to be coming to an end. While we could see another pop in price over the next week or so the price, volume and momentum seem to be stalling out.

What does this mean? It means we should expect short term weakness and lower prices over the next month or two.

Below are three charts I posted several months ago on my free stockcharts list. These forecast were based off simple technical analysis using cycles, Fibonacci and price patterns. As you can see we are not trading at my key pivot level which I expect selling pressure to start to increase and eventually overpower the buyers sending the prices lower.

Gold Trading Weekly Chart:

Here you can see that gold is technically in a bear market when viewing it on the weekly chart. If you were to pull up a daily chart you would likely notice how the price of gold is trading at a key resistance level on the chart and has reached its full flag measured move.

What does this mean? It means the odds are pointing to lower prices for gold in the next few weeks. Keep in mind though I do feel as though a major bottom has been put in place for the precious metals sector. So buyers are likely to step back in around the $1300 area.

goldoverbought

Silver Trading Weekly Chart:

Silver has a little bit different looking chart but the same analysis applies here as it did in gold.

silveroverbought

Gold Miners Trading Monthly Chart:

Gold miners may have bottomed on this monthly investing timeframe chart but the daily chart which you will see next clearly shows short term weakness has started.

GDXLongtermBottom

Gold Miners Trading Daily Chart:

This daily chart really shows my thinking for miners and the overall precious metals sector as a whole. The recent weakness in gold miners to the down side point to distribution of shares. This is very negative for the price of physical gold and silver as gold mining stocks tend to lead physical metals.

The yellow box shows a possible major stage 1 basing pattern forming. If this is the case, then we will have a great opportunity in the coming months when the precious metals down trend completes a reversal and start heading higher.

gdxoverbought

How to Trade Precious Metals & Gold Miners Conclusion:

In short, I think that staying in cash or shorting metals is the play for the next couple weeks. After that anything can happen and until price breaks down or finally completes the basing pattern and confirms a market bottom I would be very cautious trading here.

In the last week members of my trading newsletter took profits on our short SP500 trade and we closed a long trade in natural gas for a quick 6.5% gain. Join our community of traders and have your money on the right side of the market!


9 responses so far ↓

  • 1 Lachlan // Sep 4, 2013 at 6:23 am

    After checking the charts today I am happy to see that strength in the metals prices has been good lately as they push against resistance. The strength displayed into technical resistance zones normally indicates higher odds of pushing higher now. We just gotta be careful though. Normal ain’t so normal these last few years.

  • 2 Greg Atkinson // Sep 11, 2013 at 9:56 am

    Lachan maybe gold has found a pretty solid support level now? I thought it may head nearer to $1000 USD/Oz but that doesn’t seem likely this year.

  • 3 Lachlan Scanlan // Sep 12, 2013 at 2:07 pm

    The odds were against 1000 two years ago Greg but after what has transpired since then we mere mortals should now know that anything is possible….but yes probably not this year. We are just now heading for a test of short term support and if it fails then the shorts may get us down to the recent low or to a slightly lower low… which may be part of a broadening pattern which forms a drawn out bottom. Just one possibility.

  • 4 Lachlan Scanlan // Sep 15, 2013 at 5:27 pm

    And since I wrote that there has been some sharp selling once more. So if we don’t bounce just as sharply here we may see the recent lows again, even possibly this week.

  • 5 Greg Atkinson // Sep 16, 2013 at 9:55 am

    I will admit that I lost my nerve and bailed out of a small position in Newcrest Mining (NCM) recently. I just don’t have the confidence to read where precious metals prices are heading so I figured the best thing to do was take a set on the bench for now.

  • 6 Lachlan Scanlan // Sep 17, 2013 at 7:36 pm

    Greg I am not about to sell physical gold but i did liquidate my etf on the bounce into 1550 AUD…around early resistance areas. My business needed money anyhow because I am stalling on my w/sale sales to keep stock for my retail efforts. Anyhow as a technically minded bloke I’ll be watching to see if we get back to the bottoms around 1300 AUDs and if so the strength of support there will be crucial. If we get a weak response then we’ll likely head lower. It could be just a fake out (down) OR the next major technical support may be found down near 1100. Testing times for the gold bulls! Such is life eh.

  • 7 Lachlan Scanlan // Sep 17, 2013 at 7:39 pm

    A fake out or false break as Mr Dawes at dra well describes it could be just a test to a slightly lower low….in contrast to the complete measured technical breakdown. I am not implying murray trades gold btw…an ASX200 kinda guy from what I’ve seen but the tech talk still applies of course.

  • 8 Lachlan Scanlan // Sep 20, 2013 at 9:24 am

    Sharp little rally on PMs looks like a short cover to me. Mind you imo the best part of the next gold rally will be a short cover. I doubt hard metal drives the big moves. It probably creates the parameters inside which the paper market can push around in. Physical buying is probably responsible for the current hold up at 1300 but was not enough to stop the paper crash to that point. Without paper traders the gold market would be very sedate most of the time.

  • 9 Greg Atkinson // Sep 20, 2013 at 11:00 am

    Yes the little rally does seems to be losing steam. I am not sure what to make of the markets now we are in what Marc Faber has called “QE Unlimited”

    This clip of Marc Faber talking about QE is worth watching.

    http://www.bloomberg.com/video/marc-faber-we-are-in-qe-unlimited-Yjm9jXf~SmmaYpLEiJ7PIQ.html

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