Gold Stocks are Oversold, Gold Bullion is Not
The precious metals sector continues to correct and consolidate.
Gold remains in a Bullish consolidation.
It recently tapped resistance again and even though it has failed to breakout, it remains above long-term MS (moving averages) which are sloping upward.
The Gold stocks and Silver remain in correction mode.
They are trading below the long-term MAs, and at the lower end of their ranges over the past 12 months. That provides an opportunity, but these markets may not truly perform until Gold is ready to breakout.
Bullish Silver commentaries (because of its CoT) are in the news.
In the chart below plots the net speculative position as a percentage of open interest. It is at 7.4%, which is the lowest reading in nearly 3 years. Interestingly, the daily sentiment index for Silver is not at an extreme, as its at 40% Bulls.
Technically, Silver is wedged in between Support and Resistance. A break does not look imminent.
Like Silver, the Gold stocks are oversold, but do not see an indication of an extreme oversold condition.
In the chart below we plot GDX along with the difference between new highs and new lows.
Plotting GDXJ along with the percentage of stocks that we follow that are trading above the 50-Day MA and 200-Day MA.
GDX recently held above $21 again, even with over 20% of the index making new 52-wk lows, while GDXJ is starting to show a bit more strength relative to GDX.
At the low last Wednesday, 19% of 50 Tier 1 juniors were trading above the 50-Day MA while 27% were trading above the 200-Day MA.
Gold, unlike Silver and the Gold stocks, has not corrected and remains much closer to resistance than support.
Sentiment in Gold is more optimistic than in Silver.
The net speculative position in Gold is 37%, which dwarfs the 7.4% reading in Silver. Gold’s daily sentiment index is 56% Bulls which is comfortably above Silver’s.
During Bull markets, corrections in Gold tend to push the net speculative position below 30%. Gold continues to maintain support at $1300, but…
The Big Q: Does it have break that mark and flush out some speculators before breaking out of its larger consolidation.
The precious metals sector is at an interesting juncture and it remains to be seen how the current disparity will resolve.
One scenario is Gold breaks $1300 and this causes a mini-washout in the Gold stocks and Silver.
The other scenario is Gold continues to consolidate above $1300 and the Gold stocks and Silver firm in anticipation of a major breakout in Gold.
This might take weeks to answer.
So, if you are a Gold Bug, then continue to remain patient and continue to accumulate the Tier 1 juniors that have potential, if an when they break out the returns may be very strong, perhaps 5X.
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