Precious metals started off the year quite well after closing 2013 at multiyear lows. However, the metals have struggled for the past few weeks. Yesterday was an especially aggressive day of selling for the miners, which closed at their lowest level in more than a month.
Our most recent thoughts on the precious metals complex was in a Chart of the Day post in early March, which concluded with the following thoughts:
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.
Looking at the current situation, the recent selloff does look like a buy the dip opportunity. Our friend Carter Worth laid out the long-term bullish rationale for gold on Friday’s Options Action:
Overall, I tend to agree with Carter on the long-term picture. In the short-term, there are a few more concerning signs. Let’s start with the positive – the daily chart shows the pullback to important support near $125 in GLD, where the rising 50 day ma and the flattening 200 day ma coincide:
The mid-February gap also is at $125.49, so GLD has pulled back to significant support.
On the negative side, silver continues to underperform gold. SLV has moved below both the 50 and 200 day ma’s:
SLV is still positive on the year, and above the $18-$18.50 support area. However, it would be much more encouraging to see SLV recover above the $20 level in the coming weeks. That could happen quickly given SLV’s volatility.
Finally, miners, as represented by GDX, also fell below the 50 and 200 day ma’s yesterday:
The large volume yesterday on the break of $25 indicates the technical importance of that level for the market.
Having said all this, it’s quite rare that a steep, long-term downtrend, such as the one experienced by the precious metals complex in 2013, would be reversed on a dime. That’s one big reason why I’ve said on several occasions over the past month that I expected consolidation rather than a continued breakout. Now that the correction is here, I’ll be looking to buy the dip with the right vehicle to play for further upside in the coming months.