Friday, June 27, 2014

A Closer Examination: Gold and Silver Miners (GDX, GDXJ, SIL)

Of course it's wonderful to be examining commodities and precious metals, but some comments need to be made about the miners which is where I got my start in the charting game many years ago. Please understand this is a subject near and dear to my heart as my own father was in the Junior mining game until 2008 with the plunge in copper wiping him out. Paying for medical school was promised to be easy, but what followed was five years of stress for myself and my family. The decline since 2011 for GDX should be coming to an end.

I believe a long-term bottom has emerged for the gold miners with a modest correction likely taking place in the immediate term. The long awaited breakout and acension of prices will take place in the medium term.
  • We have had 22 days of good upward movement which should be followed by about 11 days of retracement (so say some commentators, although I'm not sure how they came up with that number).
  • Daily charts have the PPO and MACD indicators showing downward direction.
  • I do not advise shorting - this retracement may be shallow and might only go as far $24.60 (on GDX). There's a good gap up a few days previous (bullish sign) as well as a lower high back in February that together might act as our first resistance zone.
  • Looking at a longer term chart one will notice a peak achieved in August of 2011 and a lower high back in September 2012. The resistance area produced by those two peaks appears well synchronized with events that have been taking place in the last year (which is rare).
  • The imminent to medium term breakout from our current declining channel should go to about $36.00 before retracing one final time.
GDX at 1 year.
GDX at 5 years.

Looking at the Junior Gold Miners (GDXJ) and Silver Miners (SIL) and similar pattern emerges. You will notice however that the overall slope of SIL's decline is much less steep in addition to occurring over a much larger percentage of its range than either GDX and GDXJ. I haven't decided yet if this difference is due to the fact that silver is an industrial metal with chemical-oriented purchases buoying declines but it does offer a hint that any future ascension in precious metals might be greatest for silver rather than gold.

GDXJ at 1 year.
SIL at 1 year.

Jakob Richardson © 2014