As my staff and I navigate the twists and turns of Hurricane Matthew here in Florida, it reminds me of another hurricane that’s had our attention lately. The hurricane in precious metal investing—specifically, the gold and silver markets.
Much like Florida residents trying to anticipate the impact of Hurricane Matthew, gold and silver investors are trying to understand if the recent sharp corrections will be a passing inconvenience or the beginnings of a direct hit on their portfolios.
I favor the former … but with some caution and concerns.
Gold triggered an SSI Entry signal back in February of this year. Gold was on an absolute tear from January through June but has been making lower highs now for the past three months.
I warned last week of my short-term concerns for gold … and we did indeed finally see a breakdown in the price of gold and related assets. Gold did finally cross into the SSI Yellow Zone. It has now corrected about two-thirds of the way to its SSI Stop Loss.
The SSI chart above also shows that the SSI Trend is rolling over for gold. This is a concern. When I see an asset move into the Yellow Zone, I like to see strong support from the SSI Trend. We’ve seen more breakdown in trend than I would prefer to see.
What about the gold miners?
They have also dipped solidly into the Yellow Zone … but they have stronger support from their SSI Trend indicator.
So … what’s a gold investor to do?
Let’s dig a little deeper.
The volume-at-price (VAP) chart on GDX shows strong support at current GDX price levels. Together with the strong SSI support for GDX, I’m feeling pretty good about the likelihood of a bounce in GDX.
On the other hand, when I look at the combined picture of all of my favorite time-cycles on gold itself, I continue to be concerned.
As I’ve said many times, however, time-cycles are part art and part science. When I look at individual time-cycles, the shorter term time-cycles are very bullish while the longer term-cycles are very bearish.
In the following chart I am showing a few of my favorite individual time-cycles for gold. The longer-term 311-day cycle won’t bottom until February 2017. The shorter-term 46-day and 101-day cycles are bottoming together very soon.
Advantage short-term bounce.
Do I “know” that GLD and GDX are going to bounce from here? Absolutely not.
Am I willing to bet that we’ll see a bounce over the next few weeks? Yes.
Do I know what my risk is in making a wager on GLD or GDX today? You better believe it … and I will “right-size” my investment amounts accordingly.
Investors have a lot in common with residents in the path of a hurricane – especially in volatile sectors like precious metals and miners. We do our best to be informed. We’ll never have all the information we want. After that, it’s a matter of making smart bets.
Myself and other south Florida residents escaped the worst-case scenarios of Hurricane Matthew. Hopefully the coastal areas further north will do the same.
I hope I’ll be breathing a sigh of relief about the gold markets next week too.