Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Strong PM Reversal Augurs Rough September

Published 09/05/2014, 10:12 AM
Updated 07/09/2023, 06:31 AM

In recent weeks we wrote about the ongoing consolidation in precious metals miners. We touched on the history of September, not as a bullish month but as an important inflection point. With the miners holding up well and Gold still holding its lows we thought a breakout could be coming. Yet we’ve been whipsawed before. Several times over the past year -- and as recently as late July -- we’ve written about the possibility of a final low in Gold to precede the next impulsive advance in the miners. These scenarios came to a major head this week and the nasty decline across the entire sector suggests the bears are back for one last time.

Below is our chart for Gold’s bear markets which are scaled to the 2011 peak. We exclude the two extreme bears (one lasted six years while the other was the post bubble crash). Longer bears tend to be less severe in price whereas the most severe bears in price tend to be short in time. Examples of that include the 1975-1976 and 1983-1985 bears. The 1987-1993 bear (the longest) only shed 35% while the 1996-1999 bear, which lasted three and a half years bottomed well above $1100 on the current scale. History makes a strong argument that while a new low is likely, anything much below $1100 appears unlikely.

Past Bear Markets

The next chart shows all of the bear markets in Silver sans the 1980-1982 bubble crash. A close below $18.82 would mark a new weekly low. This analog makes a very strong case that Silver’s bear is likely to end in the coming weeks or months.
Silver Bear Markets

Staying with Silver, we note that while Silver could make a new low it would soon find 11-year trendline support. This is another reason we will be very bullish on Silver if it breaks to a new low.
Thursday's Silver Price

How Does It Affect The Miners?

Until days ago the miners looked very strong and on the cusp of a breakout. That possibility has gone out the window. The chart below shows a nasty reversal in our top-40 index which is down 7% on the week and officially broke its consolidation low on Thursday. The index closed Thursday at 382 and the next strong confluence of support is near 350.

Gold And Silver Stocks

Market Vectors Junior Gold Miners (ARCA:GDXJ) is down 9% this week and sliced through support on big volume. The next strong support is the previous low around $33. There is nearly 15% downside to that strong support.

Junior Gold Miners

Going forward, $1240 Gold and $1200 Gold on a weekly basis are key levels to watch. The miners are very oversold in the short-term and should bounce along with Gold (from $1240). However, the bears have regained control. The bear analogs are quite clear and the miners have suffered major damage which implies more downside. I don’t envision a buying opportunity for the miners until Gold and Silver make new lows. This week could mark the start of that final plunge that has eluded us several times over the past year.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.