The precious metals complex has been on a tear to start 2014. It’s one area of the market where we have had good success over the past 2 months – GG is our best winner in our investment portfolio, and we had a near double on our GLD call spread.
Many technical factors point to a change in trend for the broader sector, which I discussed in a CotD post 3 weeks ago. My conclusion from that post:
The larger resistance levels are 130 for GLD and 22 for SLV. Those are the levels that are likely going to be more difficult to break on the upside on the first test. However, the broader trend has likely changed for precious metals, where the bias for now is to buy the dip rather than sell the rip.
Since then, GLD and SLV have indeed encountered resistance near those levels, though GLD has shown better relative strength overall. GLD’s price action over the past week solidifies the importance of the $130 level going forward as a crucial pivot point:
Encouragingly, GLD has remained above its 200 day moving average ever since its break above $125 in mid-February. The $125-$126 area should serve as strong support in the coming weeks.
Similarly for SLV, it has remained above its 200 day ma, though it did not show as much strength as GLD, since it was not able to test its longer-term resistance level around $22:
Miners (both GDX and GDXJ) are also consolidating above their 200 day moving averages, with both of those ETFs also running into resistance near their Apr 2013 lows ($27.27 for GDX, $45.28 for GDXJ).
Considering that precious metals declined for more than 2 years from the summer of 2011 until the end of 2013, I don’t expect a rip-roaring rally through those major resistance levels anytime soon. Rather, consolidation after this year’s initial move higher would set the stage for a healthier breakout on a retest of resistance in the coming weeks or months. Moreover, it might also set the stage for silver to start outperforming gold, which would be a strong signal of more demand for the sector as a whole.
For now, we will sit on our hands and see how the situation develops, with a continued bias to buy the dips.