Jordan Roy-Byrne CMT, MFTA on 2020-10-14 21:06:37.0
I don't mean to be a broken record, but the precious metals sector remains in a correction.
Although the miners have outperformed Gold in recent days, their prognosis has not changed. Do you think a 180% rebound (in GDX) will only be corrected by 19% and in less than two months?
Even after the initial 2009 rebound (which was not as strong), the correction was 23%.
The miners have outperformed Gold in recent days, but Gold and Silver appear at risk of more selling.
We plot the Gold and Silver daily charts below.
There is a potential bearish flag pattern in both Gold & Silver (in red).
There is a risk the metals could dump lower towards their 200-day moving averages. Gold has a confluence of solid support around $1775, and Silver does around $20-$21.
The miners have outperformed Gold in recent days, but that could be a function of strength in the broad market rather than an indication of future strength in Gold. (When the stock market is performing, that can give a lift to the miners relative to Gold).
At present, GDX (bottom) and GDXJ (top) are sitting between support and resistance.
Today (Wednesday), GDX traded to almost $41 and GDXJ to as high as $59.22. There is stiff short-term resistance in the high $42s and mid $61s.
We should be skeptical of immediate upside potential because precious metals are currently underperforming the stock market. Large, impulsive advances usually don't begin with a lack of relative strength.
Within a larger correction or consolidation, it is best to avoid chasing strength and buy weakness. Unless the consolidation is a mature one, it is best to buy the dips.
I cannot tell you how this will play out, but if metals break lower and miners decline again, don't be afraid. That is precisely when you should be a buyer.
Successful investing requires a minimal number of decisions.
In the current case, don't chase strength yet. Hold, and buy weakness. I suspect there will be another good entry point in the next month or two.