The Technical Picture for Gold and Silver

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The world is awash in central bank money printing, with Japan this week joining the US and the EU central banks in announcing new stimulus efforts. As long as these programs continue, investors should be bullish on gold, silver and their miners and look to accumulate on any pullback (the same can be said for other inflation-related assets as well).

While there are a number of options for buying gold, silver, and their mining stocks it is best to analyze them using the GLD for gold, SLV for silver, and GDX and GDXJ for miners. All are ETFs with GDX representing a portfolio of senior miners and GDXJ junior miners (companies doing exploration and those in pre-production). More aggressive investors can buy leveraged products such as DGL and UGLD for gold, AGQ and USLV for silver and NUGT for miners.

Technically speaking, the charts for gold, silver and the miners are strong and getting stronger. The 50-day SMA (simple moving average) of GLD crossed the 200-day SMA on Thursday. This is considered a major buy signal among technicians and ironically it's known as the golden cross.  SLV hasn't made this cross yet, but it is a mathematical certainty that it will do so. This will most likely happen by the end of next week. The miners GDX and GDXJ are somewhat behind SLV and it looks like the cross might not take place until the beginning of October. As long as the 50-day moves above the 200-day and stays above it, the bull move is confirmed.

The DMI technical indicators however already gave buy signals for GLD, SLV, GDX and GDXJ in late August. The positioning of the indicator was bullish and the trend line moved up sharply. The RSI and MACD were also properly situated to support a bullish interpretation for all the daily charts. In the last few days, the trend line has gotten too high and has moved sideways or slightly down for GLD and SLV. It is still moving up for GDX and GDXJ.

While the DMI is indicating some pullback should be coming soon, the RSI offers even more support for this view. The RSI on SLV became overbought in late August and really overbought in early September. It reached the overbought point for GLD twice in September and recently for GDX. It is high, but not overbought for GDXJ. This pattern is bullish in the intermediate term and indicates a multi-month rally is likely, but it is bearish in the short-term. Too much buying has taken place too quickly and some pressure needs to be taken off. A drop down to the 50-day SMA would be healthy at this point.

There is also a very distinctive chart pattern for GLD and SLV that should be noted by investors. So far, GLD has made a textbook perfect cup and SLV has almost as good a match (GDX and GDXJ need to build the right side of the cup more). Ordinarily, this would be followed by a handle and then a breakout from the handle and the ensuing rally should last for some time (seasonally gold tends to peak around March). A drop of say 3%-7% soon would complete the textbook pattern. 

Investors have every reason to be bullish on the monetary metals and their miners. Both the fundamental backdrop (money printing from here to eternity) and the technical picture look good. This doesn't mean that they will be going straight up without occasional drops. Just use the drops to increase your positions. Of course, like all rallies, this one too will eventually come to an end. Until then, I will be tweeting daily updates with the charts attached from my twitter account which is @nyinvesting.


Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security

Gold Rockets Higher

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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In a bull market there is always a higher price down the road for those who wait for it. Gold amply demonstrated this concept by hitting a new all time high yesterday (and again this morning). Tuesday's move was sudden and vertical and it took place even though the U.S. dollar was rallying strongly and stocks were selling off. While investors constantly worry about sharp sell offs, they don't usually consider that sharp rallies are also possible for bullish assets. While gold led the way up, silver and then the miners started tagging along shortly thereafter. Eventually all of the inflation trade assets followed. Look for this pattern to repeat.

At the 5:15PM end of New York trading, spot gold closed at $1085.30 yesterday, up almost $25. This took out resistance around the $1070 level. Gold was in a trading range between approximately $1050 and $1070 for awhile before testing its $1025 breakout point. Spot gold has gotten as high as $1094.30 early this morning. This is important implied resistance at $1120. Spot silver closed yesterday at $17.20 up 73 cents. It was up almost a dollar at one point. The 200% leveraged gold ETF DGP was up 4.7% and the 200% silver ETF AGQ was up 10.4% yesterday. Some mining stocks did even better. Novagold (NG) was up 13.2% and Hecla (HL) was up 18%. The U.S. trade-weighted dollar, after rallying strongly in the morning, lost its momentum and essentially closed flat.

What seems to have caused yesterday's gold burst is a story of karma worthy of a Hindi movie. As reported in this blog early Tuesday morning, India bought 200 tonnes of IMF gold. The sale took place during a two-week period that ended on October 30th. This news was generally available in the evening New York time on Monday. Nevertheless, more the one U.S. media outlet reported that India would be or was buying 200 tonnes of gold during the trading day on Tuesday. Gold which had been meandering in price suddenly started moving straight up on the intraday charts blowing out the shorts along the way. The karmic element comes into the story if you know India's past with the IMF. In 1991, during a financial crisis, India had to borrow money from the IMF and was forced to ship its gold reserves to London as collateral. Now they are buying the IMF's gold! Will a future time come, when a Western country has to borrow money from India and in turn be forced to ship their gold to New Delhi?

The movements of gold and the U.S. dollar in the last few days are significant for another reason as well. Since the Credit Crisis began the dollar has rallied before Fed meetings, during the meeting and at least into the day after the meeting. Gold has sold off in response. Things have changed noticeably this time. The Fed met yesterday and is meeting today. The dollar had the usual pre-arranged rally before the meeting and gold was weak, but then things went screwy. Gold suddenly shot to news highs on a big rally and the dollar rally faded as the meeting began. The dollar is already selling off strongly today before the meeting has even ended. Perhaps gold is just too strong and the dollar is just too weak for this manipulaton game to go on any longer.

NEXT: Inflation Trade Picks Up

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.