The precious metals sector has been on the defensive since gold's COTs reached extreme readings in August, and silver broke down from its parabolic uptrend in September. Many think that the sector correction has now run its course, but has it? That is the question that this update is intended to answer.
On gold's latest six-month chart we can see the correction in force from the start of September and how it has unwound its earlier overbought condition and brought it back to a support level. Given the bullish alignment of moving averages, which shows the existence of a larger uptrend, many are concluding that all this will be sufficient to get it moving north again from here. However, there are several bearish factors in play, which suggest that instead we are likely to see another sharp drop before this corrective phase is done. The quite sharp drop early this month was on heavy volume, and the feeble rally of the past week or so looks like a countertrend rally—a bear flag—that will lead to another sharp down-leg very soon. This will break gold out of the channel shown and take the price to our downside objective in the $1,380–$1400 area.
Gold's COTs are still decidedly bearish. The Large Specs haven't given up—they need a good kicking so that they retreat back into their holes. When this happens the picture will look a lot healthier.
These COTs by themselves make another sharp drop soon highly likely. The latest COTs are shown just below the gold chart so that you can see for yourselves, and note that new COTs will be available in a couple of days.
The latest chart for GDX by itself actually looks quite positive, with the corrective downtrend back toward a rising 200-day moving average looking like a bullish falling wedge. It's the gold and silver charts that spoil it, suggesting as they do that a nasty sharp down-leg is in the works, which will bust GDX out of this channel to the downside. Note, however, that stocks will sense the impending bottom in gold and will likely turn up before it, so precious metals (PM) stocks indices are unlikely to drop much further.
If gold looks like it's going to drop, what about silver? On silver's latest six-month chart we can see a similar pattern completing—a bear flag following a nasty, high-volume drop early in the month. This pattern suggests a high probability that silver will break down out the channel shown and head for the support level shown in the $15.30–$15.55 zone.
Originally posted on CliveMaund.com at 6.40am EST on 20 November 2019.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.[NLINSERT]
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