Suspicious Strength In The Miners: More Signs Emerging

Just like it was the case on Monday, gold and silver haven’t done much yesterday either, but we saw some interesting action in the miners – they formed a bullish reversal after testing the rising support line. The performance of the USD Index provides us with clues as well. It declined and this should have triggered a move higher in the metals and miners. It didn’t. What really happened?

Let’s start with the miners.

Gold Miners’ Short-term Reversal

Gold Bugs Index

Just when it started to appear like the mining stocks are going to break below their January high and below the rising support line, they reversed their course. In mid-February, when gold stocks moved to their previous (early January) high and then moved back up, it was the local bottom and a start of the next quick upswing. The natural question is if we are about to see the same thing once again.

As always, there are no sure bets in any market, but it does appear likely based on the above chart alone. We see the sell signal from the daily Stochastic indicator, but we saw it also many times in the previous weeks, including the mid-February case, and miners moved higher nonetheless. Consequently, it doesn’t seem that the daily version of this indicator alone can really be trusted. Naturally, this doesn’t change the very important and bearish medium-term implications of the weekly Stochastics.

There’s one very important difference between now and the middle of February that needs to be taken into account and that practically nullifies the bullish implications of the above.

The Hidden Power of the USD Index

US Dollar Index - Cash Settle

The USD Index was rallying when miners moved lower in mid-February and it topped at that time, which triggered a rally in the precious metals sector. Right now, instead of rallying, the USD Index is after a decline and quite likely to form another local bottom soon. This is not what we saw in mid-February – it’s the opposite thereof.

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