SILVER LEADS TEST OF 2010 HIGHS AND IS STARTING TO OUTPERFORM GOLD -- THAT MAY GIVE A BOOST TO SILVER STOCKS LIKE CDE, HL, AND PAAS -- NEWMONT MINING NEARS RECORD HIGH IN GOLD GROUP -- MARKET VECTORS GOLD INDEX NEARS UPSIDE BREAKOUT
SILVER LEADS TEST OF 2010 HIGHS... I wrote a bullish message on precious metal assets last Tuesday which showed gold and silver prices nearing test of their 2010 high. That test has come a bit sooner for silver. Chart 1 shows Gold Trust Shares moving closer to its June high which represents the previous record for bullion. Chart 2, however, shows Silver Trust Shares (SLV) having already reached its May high. The weekly bars in Chart 3 show that an upside silver breakout would put it in position to challenge its early 2008 record high. The SLV/GLD ratio below Chart 2 shows that silver has risen faster than gold over the last month. Let's take a longer view of that relationship.
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Chart 1
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Chart 2
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Chart 3
SILVER LOOKS CHEAP RELATIVE TO GOLD ... Chart 4 compares the two precious metals over the last four years. There are a couple of points worth noting. One is simply the fact that both precious metals usually trend in the same direction. They don't rise and fall at the same rate however. You can see that by comparing the two price lines or the SLV/GLD ratio at the bottom of Chart 4. Chart 5 plots the SLV/GLD ratio by itself. The colored arrows show which of the two metals did better over the last three years: gold in summer 2008 (down arrow), silver at the end of 2008 (up arrow), gold in October 2010 (down arrow), and silver at present (up arrow). A second inference may be that it's time to take a look at silver stocks which have been group laggards.
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Chart 4
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Chart 5
SILVER STOCKS... By far, the strongest silver stock is Silver Wheaton (SLV) which has skyrocketed to a new record high (not shown). Three other silver stocks, however, that had been laggards in the precious metals group have started to do better. They include Coeur D Alene Mines (Chart 6), Hecla Mining (Chart 7), and Pan American Silver (Chart 8). All three have turned in a strong performance over the last month -- absolutely and relatively. CDE has just cleared its late June high. Hecla has just cleared its 200-day line (on strong volume). PAAS has surged to a two-month high on strong volume as well. All three RS lines (below charts) have turned up for the first time in months. That suggests that silver stocks may present good value in the precious metals group. Having said that, most of the strongest trends still belong in the gold group.
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Chart 6
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Chart 7
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Chart 8
NEWMONT MINING NEARS RECORD HIGH ... On August 17, I identified Eldorado Gold and IAMGOLD as gold leaders. I highlighted Barrick Gold last week. Today's gold leader is Newmont Mining. The daily bars in Chart 9 show NEM nearing a new 52-week high. The weekly bars in Chart 10 are even more impressive. They show the gold leader having already cleared major overhead resistance formed during 2006 and 2007. The rising relative strength line below both charts show Newmont outperforming the S&P 500 by a wide margin over the last two years.
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Chart 9
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Chart 10
MARKET VECTORS GOLD MINERS INDEX NEAR BULLISH BREAKOUT... Last Tuesday's message showed the Market Vectors Gold Miners Index (GDX) nearing a test of important overhead resistance. I'm showing its point & figure version today. The chart shows the GDX on a p&f buy signal since August at 50. A close at 55 or higher is now needed to exceed the two previous peaks formed during May and June. The GDX includes all of the gold and silver stocks featured in this and previous messages. [Newmont is the third largest holding at 11%].
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Chart 11
GOLD MINERS BPI NEARS BUY SIGNAL ... As along as we're looking at a point & figure chart, let's round out the outlook for precious metals by consulting a p&f chart of the Gold Miners Bullish Percent Index (BPGDM). That index measures the percent of stocks in the GDM that are on point & figure buy signals. [The GDM is the cash index of gold and silver stocks on the which the GDX is based]. The chart shows the GDM to be on the verge of a buy signal at 68. Although the current level isn't cheap (it fell as low as 20 during February), it does appear to be headed higher. I'll become a bit more cautious on the group when the BPGDM reaches previous highs near 86%.
