In last weeks newsletter, I mentioned the potential for a terminal spike in gold above $1550. Prices hit $1565 early Monday morning but failed to maintain $1550. Gold futures finished the week below support at $1535. A collapse below $1500 in the coming days/weeks would support a replay of the 2002 pattern and perhaps a backtest of the $1360 breakout area.
Silver broke sharply higher jumping to $18.76 by Thursday, and I see the potential for a bull market breakout. However, gold failed to confirm the move above $18.00. To defend the breakout hypothesis, silver must maintain critical support near $17.20 in September.
Miners formed a bearish evening star candle pattern, and I see the potential for a meaningful top. Significant downside follow-through would advance this perspective. A multi-week correction would setup an excellent buying opportunity in several individual mining companies.
CONSUMER SENTIMENT
University of Michigan consumer sentiment broke to a multi-year low in August. Gold performs best when sentiment declines. It looks like the breakdown is complete, and sentiment should trend lower over the next decade.
2002 BREAKOUT
I’ve noted before the similarities between the 2002 breakout in gold and now. In December 2002 gold broke out of a multi-year consolidation. The initial breakout rally surged to the bear market infection point before finally correcting. From there, prices declined to backtest the breakout point and 200-day MA.
2019 BREAKOUT
Fast-forward to now. Gold broke out of a multi-year consolidation in June and confirmed a new bull market. The initial breakout rally surged and spiked above the bear market inflection point ($1550). A breakdown below $1500 in the coming days/weeks would support a cycle peak and advance the possibility for a backtest of the $1360 breakout area. If established, I would consider that an excellent buying opportunity.
SILVER DAILY
Silver is above the long-term trendline, and we may have a bull market breakout. I’m a little skeptical for a couple of reasons.
1) Buying volume above the trendline was unimpressive.
2) Gold didn’t confirm the rally above $18.00.
From a technical perspective, silver formed an outside reversal day on Thursday followed by a Doji on Friday. A breakdown back below $18.00 could signal a failed breakout. Progressive closes below $17.20 would confirm. To endorse a breakout, silver needs to maintain the trendline. Slipping below it, would support a failure and more consolidation.
HUI
The HUI mining index produced a bearish evening star candle formation into the 237.34 high. Downside follow-though next week would support a decline back towards the 180 level.
Prices may have topped. Downside follow-through and a close below $27.61 would recommend a correction back to support near $24.00.
Prices spiked higher with silver to retest resistance near $5.80. A breakdown and close below $4.70 would establish a double top and project a decline back to the gap (possible right shoulder) near $3.70.
Another silver stock I’m watching is Endeavour. If prices peaked, I see the potential for a decline back to the $1.80 area in the coming months.
All in all, precious metals are breaking out and should rally well into the next decade. Consumer sentiment turned lower and is presumably starting a new downtrend – that’s great for gold. The long wait is over, and precious metals investors should be rewarded going forward. It’s probably best to focus on buying dips with a long-term approach versus attempting to trade every swing. Timing bottoms will be easier than timing tops.
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