FALLING DOLLAR CONTINUES TO PUSH GOLD HIGHER -- GLD AND SLV CLEAR 200-DAY AVERAGE -- BOTH ARE TESTING TRENDLINE RESISTANCE -- GDX IS TESTING JUNE HIGH WHILE SIL HAS ALREADY BROKEN OUT -- SILVER WHEATON IS A PRECIOUS METAL LEADER
U.S. DOLLAR REMAINS ON THE DEFENSIVE... The dollar continues to weaken. Chart 1 shows the PowerShares US Dollar Index Fund (UUP) slipping to a three-month low today. It's also threatening its 200-day moving average, and is nearing a test of trendline support drawn under its September, October, and April lows. Meanwhile, most foreign currencies continue to advance. Part of the dollar selling may be tied to hopes for another round of quantitative easing (QE3) in the U.S., and European efforts to strengthen the Euro. Dollar weakness has resulted in new buying in commodity markets. That's been especially true of gold and silver and stocks tied to those two metals.
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Chart 1
GOLD AND SILVER ETFS TEST RESISTANCE LINES... Charts 2 and 3 show Gold Trust Shares (GLD) and Silver iShares (SLV) bouncing off chart support and clearing initial chart barriers to turn their short-term trends higher. Both ETFs have also cleared their 200-day averages. The next major hurdle, however, facing both markets is a major down trendline drawn over the highs of the past 12 to 15 months. The circle near the bottom of Chart 2 also shows a nice pickup in gold trading during the recent adance. That's a good sign and increases the technical odds for continuation of the new uptrend in both metals. That's also good for gold and silver stocks.
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Chart 2
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Chart 3
GOLD MINERS ETF BOUNCES OFF CHART SUPPORT... Gold mining stocks have been market laggards since last summer. But they're starting to look better. The weekly bars in Chart 4 show the Market Vectors Gold Miners ETF (GDX) starting to bounce off potential chart support along early 2010 lows (which happens to also represent a 50% retracement fo the 2008-2011 price advance). In addition, weekly RSI and MACD lines have turned up. Daily bars in Chart 5 show the GDX forming a pattern of "higher lows" between May and July before rallying during August. That puts the GDX up against its June high, a yearlong resistance line, and its 200-day average. An upside breakout through those chart barriers would be a bullish sign for the GDX and precious metal prices.
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Chart 4
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Chart 5
SILVER MINERS ETF CLEARS SUMMER HIGH -- SILVER WHEATON BREAKS OUT... Last Tueday's message showed a couple of gold leaders -- New Gold (NGD) and Royal Gold (RGLD) -- having already broken out to the upside. This week, I'm going to focus on silver stocks that have actually done better than those tied to gold. Chart 7 shows the Global X Silver Miners ETF (SIL) having already exceeded its June peak. It is still, however, testing its 200-day average. While the SIL includes only silver miners, the GDX includes miners tied to both metals (although it is more heavily weighted to gold). Silver stocks are among the strongest in the GDX. The biggest of the silver group (and a top 10 GDX holding) is Silver Wheaton (SLW). Chart 8 shows SLW already trading a five-month high and well above its 200-day line. Other silver leaders include Coeur D Alene Mines (CDE), Hecla Mining (HL), and Silver Standard Resources (SSRI). Since precious metals usually trend in the same direction, however, stronger silver stocks are also a good sign for gold miners -- not to mention the two precious metals themselves.
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Chart 6
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Chart 7
GOLD MINERS BULLISH PERCENT INDEX GIVES BUY SIGNAL ... Chart 8 shows the Gold Miners Bullish Percent Index ($BPGDM) having just given a point & figure buy signal. The index plots the percent of stocks in the GDM that are on p&f buy signals. [A p&f buy signal is triggered when a rising X column exceeds a previous X column]. That happened earlier this month. The fact that the index turned up from oversold territory below 20 is another positive sign.
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Chart 8
MARKET INDEXES ARE TESTING SPRING HIGHS... Today's last two charts show the Dow Industrials and S&P 500 testing their spring highs. That's an important test. If a downside correction is going to occur, this is where it is most likely to start. The RSI line (above Chart 9) is starting to weaken. The RSI line for the SPX in Chart 10 has reached the same overbought reading (70) that existed during March (see arrows). In addition, daily MACD lines (below Chart 9) have already turned down. There has also been a noticeable decline in volume during the last phase of the price advance as shown in Chart 10. That shows a lack of upside enthusiasm and some caution on the part of traders as the market enters the dangerous month of September. Traders are anxiously awaiting Mr. Bernanke's speech at Jackson Hole on Friday in hopes of some announcement of more quantitative easing (QE3). That leaves room for disappointment if that doesn't happen. That could also cause some profit-taking.
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Chart 9
