Heads Are Turning Towards Precious Metals

Gold miners and silver moving toward breakout levels.

Gold mining stocks are painting a rather compelling technical picture now. Charts for four miners – Agnico Eagle Mines Ltd (NYSE: AEM), Newmont Mining Corp. (NYSE: NEM), Silver Standard Resources Inc. (Nasdaq: SSRI) and Goldcorp Inc. (NYSE: GG) – show these stocks poised for breakouts from inverse head-and-shoulders patterns.

If you’re not familiar with chart talk, a head-and-shoulders formation is a very reliable prognosticator of price movements. Recent research credits the pattern with 83 percent accuracy in price forecasts.

It’s one thing to see an individual stock exhibit this pattern; quite another when four sector mates do so simultaneously.

There’s definitely something going on in the precious metal sector. You can see gold prices, as well as a key indicator of investor bullishness, moving into breakout patterns in the chart below. The indicator – a price ratio of the VanEck Vectors Junior Gold Miners ETF (NYSE Arca: GDXJ) and the VanEck Gold Miners ETF (NYSE Arca: GDX) – is a reliable predictor of cyclical turns in gold. Juniors usually lead gold producers ahead of these shifts.

Further evidence of a gathering storm in the juniors is an inverse head-and-shoulders in the ALPS Sprott Junior Gold Miners ETF (NYSE Arca: SGDJ).

But that’s not all. Another exchange-traded product – the Credit Suisse X-Links Silver Covered Call ETN (Nasdaq: SLVO) is set for its own breakout from a head-and-shoulders bottom. Investors often look to silver as a bellwether for gold movements.

SLVO simulates the return of a covered call strategy on the iShares Silver Trust (NYSE Arca: SLV). SLV broke above resistance earlier this week.

In the SLVO note’s underlying index methodology, one-month calls are nominally written at strike prices six percent above the current price of SLV shares, generating a continuous though variable stream of option premium. A covered call strategy is neutral to modestly bullish with a capped upside and modestly hedged downside. It’s equivalent, in fact, to selling a naked put on SLV.

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DisclosureBrad Zigler pens Wealthmanagement.com's Alternative Insights newsletter. Formerly, he headed up marketing and research for the Pacific Exchange's (now NYSE Arca) ...

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