The precious metals sector is at an important juncture. Let’s take a look at the potential upside targets.
First lets start with Gold. Gold has formed a bullish cup and handle pattern, which is more bullish than usual due to the handle being formed at a higher level than usual. The pattern projects to $1450. Initial support is $1235-$1240 followed by $1225.
Note that volatility is low. This is bullish coming into a potential breakout as it means momentum can be added to the breakout in the form of rising volatility. Also, note the ratios at the bottom. Gold in real terms isn’t as strong as it was and this bodes well for the more leveraged plays.
Silver of course is one of the leveraged plays on Gold. Silver has also formed a cup and handle pattern, which targets $24. Note the ratios at the bottom of the chart. Against foreign currencies, Silver has already broken to a new bull market high and Silver is breaking to the upside against Gold. As long as Silver holds above $18.50, one has to be bullish for the medium term.
Another leveraged play on Gold is the gold stocks. This chart shows the HUI index, which is testing resistance at 500 and eventually 520. A clean breakout to new highs and then we can focus on targets of 640 and 660.
Interestingly, the juniors have already broken out to a new high. The breakout projects to targets of $36.50 and $39.00. The juniors look a bit extended in the short-term, so it is advisable to wait for a pullback. A pullback below $32.00 would present an opportunity.
Certainly these technical targets look bullish but what about sentiment? Excessive bullish sentiment can mitigate what appear to be very positive technicals. Judging from the COTs and Sentimentrader.com’s public opinion, there does not appear to be that excessive bullish sentiment.
As you can see below, public opinion on Gold is 68% bulls, which is not so enthusiastic relative to 2006 and 2008.
With Silver knocking on the door at $20/oz, the public is not yet fully on board. Public opinion is 64% bulls, which is low compared to 2006 and 2008.
Remember that sentiment follows the trend most of the time. When a market breaks to the upside, there will be bullish sentiment. We just don’t want to see excessive bullish sentiment as the market is breaking out. And we don’t see that in the sector at the present time.
This analysis is only a small piece of what we do in our premium service. In recent weeks and in recent commentaries we’ve focused on Silver and the juniors. As you can see, these markets have already broken out, while Gold and the larger miners are the laggards. If you want to learn more about how to navigate and prosper from this bull market, then consider a free 14-day trial to our premium service.
Jordan Roy-Byrne, CMT
Disclosure: positions in junior miners.