Prepare for the Coming Opportunity

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. 

(Click on image to enlarge)

Gold & Silver Daily Candles

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. 

(Click on image to enlarge)

GDXJ (top) & GDX (bottom) Daily Candles

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.