Above is the weekly chart of silver. We can see how prices as of late continue to grind higher. Right now we are in the yellow congestion zone. Most PM stocks have basically been in a large consolidation range since September 2009.
The long term charts of gold and silver continue to hold up like champs. The miner charts the past couple of months are looking much better with a series of higher highs and higher lows. Here is the GDX gold mining index weekly chart. After last year’s double top we formed a bullish flag - which was not pleasant - unless you were looking to get into the miners on a good pullback. Most of the technicals on the weekly chart look considerably bullish - in particular the MACD. No doubt there is a lot of resistance near the old highs and it should prove a tough row to get through.
The recent pullback looks like it really recharged the miners and is setting up for the next move to new highs. The price action as of late is very stealth as it creeps higher. We are currently potentially tracing out the handle of a larger cup and handle with a breakout north of 55 on GDX. The price objective for this formation would indicate chaos for fiat currencies.
Gold’s implied volatility measurements - basically the anticipated price fluctuation that gold option traders are pricing in - is considerably low. Traders are pricing in a slow grind upward/downward or potential range bound trading over the summer and into fall. There appears to be little consideration for a sharp move either direction right now. These traders could be right or gold stocks could be undervalued substantially right now. We’ll find out soon enough. One thing is for sure: if the metals or PM stock indexes start making new highs - the move north should be very explosive as lots of new money piles into the tiny sector.
Overall, relative to the price of the underlying metals, the PM miners continue to lag. See the long term monthly chart of NEM for an example of this disconnect. Miners are valued based upon several things including cash flow from operations and reserves in the ground. You could argue that untapped reserves in the ground are being heavily discounted right now by investors. There needs to be a catalyst to change this thinking. It could come in the form of:
- New highs in gold and silver in all currencies as the trend away from fiat to hard assets continues.
- A new phase of buyouts and mergers like we’re beginning to see proposed between Lihir and Newcrest
- Excellent earnings and guidance by the miners
One or multiple of these catalyst could lead to a substantial rotation of money into this, as of late, under performing sector. Most of the miners will report earnings at the end of April and in the first half of May. The first ones out of the gate next week will be the following:
4/27 - Newmont - before the opening bell
4/28 - Goldcorp, Hecla, Barrick
4/29 - Agnico-Eagle, Buenaventura
Good luck and good trading!
