I received the following question (late last night) regarding yesterday’s price action in precious metals & the CDE (Coeur Mining) trade idea, posted below:
Q: Wow, what a turnaround today. Was looking so strong in the early afternoon and they got dumped like all gold mining stocks. Curious as to your thoughts on it now.
A: My take is that the selling in the broad markets is starting to trigger forced selling/margin calls on both retail and the fully leveraged institutional traders which forces them to liquidate gold & silver (along with their long-side/bottom calling bets on crude). Hard to say how much more of that is left but my take remains that commodities and metals has a lot less downside at this point than do equities. I may be proved wrong but even if I’m right on the stocks down/commodities and metals up in 2015 call, just about everything gets sold during panic sell-offs. Therefore, it could get worse before it gets better in the metals & commodities although putting all that aside, CDE still looks fine from a longer-term technical perspective.
FWIW- I learned (the hard & costly way) years ago to keep my trading light during the month of December as trading volumes dry up which in turn opens the door to a few big “stop-clearing” counter-trend days in just about every asset class out there.
As long as gold remains above the 1180 (spot gold)/114.50ish (GLD-gold etf) levels I remain cautiously bullish on gold. Both yesterday & today (so far) have seen gold backtest that key support level following the recent fake-down (false breakdown) and break back above that level, which was defined by the mid & late 2013 lows as well as the early Oct 2014 reaction low (i.e.-triple-bottom). As previously stated, I view the fact that gold was able to reclaim the 1180 level as quite bullish (a bear-trap) although there is still quite a bit of work to be done in order to help solidify the longer-term bullish case for gold and with prices still precariously flirting with the 1180 level, it can (and most likely will) break either way sooner than later.
As per yesterday’s update on gold, I believe that the 1250 area is an important overhead resistance level, defined by both the downtrend line as well as horizontal resistance. Any solid & sustained break above that level would considerably strengthen the longer-term bullish case for gold while a break below the recent lows around 1130 would likely usher in a new wave of selling. Although my read on the charts is for an upside resolution of this recent trading range, trading is likely to continue to be difficult with large prices swings as gold chops around in what I refer to as “no-man’s land”, which is a battle ground between the bulls and the bears.
Silver has moved sharply lower over the last two days, moving back below both the 16.05 horizontal support/resistance level which it had just recently broken above, as well as the downtrend line (see previous daily chart or click the link to the live chart of $SILVER on the “Live Chart Links” sidebar). However, for now, both silver and gold are clearly in short-term uptrends which began with the Nov 5th lows (and uptrend simply being a series of higher highs & higher lows).
Again, I remain “cautiously” bullish on silver & gold at this time primary for a few reasons: 1) Both are still trading not far above multi-year lows within a larger downtrend. Despite the short-term uptrend, it is much too early to say with a high degree of confidence that the recent rise off the Nov 5th lows is anything more than a counter-trend bounce. 2) Both gold & silver have yet to take out their primary downtrend lines which are generated off their respective 2011 highs, i.e.- both silver & gold are trading below significant resistance. 3) Although my scenarios on the US Dollar, Euro, & Yen appear to be playing out as all three appear to have recently reversed trend, as with gold & silver, it is still too early to say with a fair degree of confidence that these are anything more than brief, counter-trend moves in these currencies.