It's amazing. Suddenly, everyone is bullish again. Two months ago you couldn't
give away mining shares or Silver. No one wanted to buy. After back to back
weekly gains (for essentially the first time since January) the gold bugs
are back and proud. Bullish calls are coming out of the woodwork. This is
good and all but as analysts our job is to stay ahead of the market, rather
than react to or follow it, as so many professionals do. That being said,
today we give you a quick synopsis of where things stand and the potential
risks coming into play.
Below we chart Gold and Silver in weekly form. Gold has a bit of resistance
at $1700 but strong resistance at $1800. Silver has initial resistance at
$32.50 followed by stronger resistance at $35.00 and $37.50. The numbers
reflect public opinion readings (source: sentimentrader.com).
While we believe the rebound has more room to run we have to note the sudden
large increase in bullish sentiment. As you can see, public opinion in Silver
has surged from only 32% to now 70% bulls. Two months ago only 47% were bulls
on Gold. Now its 70%. Commercial short positions have increased by a similar
degree. In Silver, commercials are now short 38K contracts, which is a large
increase over 23K contracts from two weeks earlier. In the same period, the
net short position of commercials in Gold increased from 140K contracts to
over 200K contracts. Again, Gold and Silver have more room to rebound but
be wary of the increase in bullish sentiment and overhead resistance levels.
Meanwhile, on the equity side, GDX last closed at a key pivot point. A break
past $48 would take the market to at least $52-$53, where the 50% retracement
and 80-week moving average lie. The W bottom pattern is nine points deep
so there is a potential measured target of $57, which marks the 2012 highs
and strong resistance from the first quarter.
To conclude, the trend in the precious metals complex is up and remains healthy
though a great deal of speculative money has come aboard in recent weeks.
In addition, one should understand that precious metals markets are in recovery
mode and not impulsive advance mode. There is a long way to go before the
next major breakout. These markets will have to grind through the supply
created from the previous downturn. Moreover, October is typically a bad
month for precious metals. However, we are in September and according to
the charts, this rebound has more room to run.
Good Luck!
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the equities poised for big gains, then we invite you to learn
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