Briefly: In our opinion no speculative positions are justified from the risk/reward perspective.

The situation in the precious metals sector remains tense – miners have broken above the declining resistance line, while gold hasn’t. However, taking Friday’s intraday move in the USD into account, we can say more about the gold-USD link. Let’s take a closer look (charts courtesy of http://stockcharts.com).

Click here for reference chart.

Much of what we wrote previously remains up-to-date:

(…) the session itself was very specific. We marked similar sessions (similar volatility + significant volume) on the above chart with orange rectangles. It turned out that these sessions didn’t necessarily mark the final bottoms, but they have practically always (at least recently) been followed by short-term rallies (very short-term in early December 2013). Consequently, while the medium-term trend remains down, the short-term implications are bullish.

(…) we also saw a move below the previous April low and the immediate invalidation thereof, which by itself is also a bullish sign.

Gold has indeed moved higher, but it hasn’t moved above the declining resistance line, so the short-term outlook here is rather mixed. We have already seen a short-term rally that was possible based on the above-mentioned comments, so this move might be over or close to being over. The volume was not low during Friday’s move higher, but it was not high either, so the implications are rather unclear.

The same goes for the silver market, the situation is a bit more bullish than not, but overall rather unclear.

Click here for reference chart.

The mining stocks to gold ratio moved higher on Friday after a daily decline and overall closed slightly lower than it had on Wednesday. We don’t view this action as a breakout just yet.

Click here for reference chart.

If we take a look at gold stocks from a broader perspective, we get a picture in which gold miners are declining in tune with the previous declines. By zooming out we stop to see individual short-term upswings and downswings and start to see the general direction in which the market is moving. At this time, the trend that we see is down and the pace at which gold stocks decline is normal – there has been no divergence so far. The implications are bearish.

Click here for reference chart.

On a short-term basis, we saw a breakout in the GDX ETF, which, of course, is a bullish sign. It hasn’t been confirmed yet, and given what we wrote below the 2 previous charts, it’s not strongly bullish just yet. The overall pace of the decline and the lack of breakout in the GDX:GLD ratio make waiting for the GDX’s breakout necessary.

There is also another ratio that we would like to comment on today.

Click here for reference chart.

The above chart features the junior mining stocks to the general stock market ratio. In the majority of cases when the ratio of volumes was huge, gold was about to form a top or at least pause the rally. The signal was a bit too early in the early part of this year, but please note that gold’s price at this time is lower than it was when we saw the huge ratio of volumes.

Last week we saw a huge spike in the volume ratio – a record one. As explained above, the implications are bearish.

Click here for reference chart.

Meanwhile, the previously-completed head-and-shoulders pattern in platinum was invalidated in the final part of last week. The invalidation itself is a bullish sign and the above chart now suggests higher platinum prices (which also, to a smaller extent, indicates higher prices for gold, silver, and mining stocks).

Click here for reference chart.

We started today’s alert by writing that we can say a bit more about the gold-USD link. The USD Index moved lower in the first part of Friday’s session and taking this move into account, we now have a clearer picture.

Comparing the 2 most recent price moves (mid-April move higher in the USD and the last several days of lower values) in the USD and gold we see that they were quite alike. The dollar corrected some of its rally and gold corrected some of its decline. There’s not short-term underperformance or outperformance to speak of and the implications are neutral.

There is, however, one thing that can tell us more about the near future of the USD and precious metals prices and that’s the fact that the turning point is just around the corner. In the first days of May, we can expect to see a local extreme in both markets. At this time, the short-term direction is up in case of the precious metals and down in case of the USD Index, so we are quite likely to see a downturn start in metals and miners within a week or so.

We were asked if we still think that there is real downside in the precious metals sector. The answer is yes, because the medium-term trend is still down in metals and miners (note the pace of decline in the HUI Index) and the medium-term trend is still up in the USD Index. The negative gold-USD link remains in place. We are keeping our eyes opened and will monitor the market for signs of strength.

The bottom line is that the situation in the precious metals market remains too unclear to open any speculative position and the medium-term trend remains down. The situation in gold is unclear, unclear with a bullish bias for silver and mining stocks, bullish for platinum, but with bearish indications coming from the USD Index and the juniors to other stocks ratio. “When in doubt, stay out” – and so we do.

To summarize:

Trading capital (our opinion): No positions
Long-term capital (our opinion): No positions
Insurance capital (our opinion): Full position

Thank you.

Przemyslaw Radomski, CFA of Sunshine Profits, Guest Contributor to MiningFeeds.com

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.