Chart of the Day – Heavy Metal: $GLD, $SLV, $GDX

by Enis October 30, 2014 3:49 pm • Chart of the Day• Commentary

Precious metals are getting walloped again today, continuing a vicious downtrend that has been in place since July.  That also happens to be when the U.S. dollar started on its very strong run, which has resumed after the Fed’s removal of QE yesterday.

Silver and precious metals miners are making new multi-year lows, while gold is very close to trading at its lowest level since early 2010.  I became bearish on the precious metals ever since silver broke down to a new low in September:

SLV weekly chart, courtesy of Bloomberg
SLV weekly chart, courtesy of Bloomberg

Since the break of that longer-term support, SLV has meandered in a tight range before breaking to a new low once again today.  Silver’s continued under-performance is a continuing negative sign for the sector as whole.

On top of silver’s weakness relative to gold, the gold and silver miners have also hit new multi-year lows this week.  The miners have generally been a good tell for the entire sector, as investor interest in the stocks has generally led broader investor interest in precious metals as a whole over the past decade.  The breakdown in GDX the past 2 days has sent it nearly 10% below the prior support level:

GDX daily chart, courtesy of Bloomberg
GDX daily chart, courtesy of Bloomberg

That’s a very convincing breakdown in the miners, leaving oodles of overhead supply that is going to make it difficult for the sector to rally in the near-term.

Which brings me to gold…I am expecting gold to finally break down to a new multi-year low given the weakness we’ve seen in silver and the miners this week.  GLD is within 1% of its early October low:

GLD daily chart, courtesy of Bloomberg
GLD daily chart, courtesy of Bloomberg

This is also the fourth test of support, which is getting weaker with each test.

Finally, the continued strength in the U.S. dollar is a major headwind for commodities in general, and precious metals in particular.  Given the Fed’s relatively hawkish stance compared to other central banks around the world (in particular the ECB), I would expect the dollar to remain strong and precious metals to remain weak in the coming months.