It has been a while since my last article, simply because we have been busy developing a range of tools for investor and traders to use, but we have now completed renovations to our site and have once again opened our doors to the general public, and that in turn has freed me up to write a bit more regularly. We have added a great many new features of which you can avail yourselves, and I think you are going to like the tools on offer - certainly, we do, and our fine tuning has been paying dividends over the last 3 months. 

Since gold (GLD ) and silver (SLV) appear to be perched at resistance and are likely to pullback in the near term, the timing is pretty good for an article on the metals. In my last article (Nov 2016)  we were looking for a low to form in the near term, and should you re-read it you’ll see that the support range we quoted held and we have been rising fairly steadily into our resistance target ever since. 

Now we are at a logical place to pause, and the question we need to ask is whether the prospective top forming at present is simply consolidation before the next leg higher, or a more sustainable swing high. 

Headline Risk Will Dominate This Summer

There is a confluence of scheduled national votes throughout Europe this summer, with elections coming thick and fast among the powerhouse economies of France, Germany and Britain. The polls going into these dates, and the outcome of the elections themselves will very likely result in currency volatility which in turn will affect the performance of the metals, especially gold which is still viewed by many as a quasi-currency or monetary metal. 

If we look back to the Brexit referendum and the Trump election, we can see that the British Pound and the US Dollar both moved wildly into and then after their respective events. Metals held up well in both cases going into the votes and we expect a similar outcome here, with the twists and turns in play this summer keeping a bid under the metals markets as many will look to hedge against what may be extreme moves in the FX market subsequent to the election results. 

What comes after the election are decided is another matter of course and in terms of a Le Pen victory in France, given her supremely negative views on the European Union, we feel that this would be very bearish for the Euro and by extension bullish for the US Dollar. So while gold and silver may hold up relatively well going into the election, we perhaps have a bearish catalyst should she win. Regardless, headline risk as poll results are announced will be a factor for the metals this summer, and readers would do well to keep one eye on developments. 

Trader Positioning Shows Divergence Between The Metals

Looking at the Commitment of Traders report we can see divergence between gold and silver in terms of the speculator positioning. In silver we have a net long position once again at an extreme high level, whereas in gold the speculators have been less inclined to take on new long positions despite the fact that gold has made higher highs. One explanation is that in terms of sustainable rallies in the metals we often see silver lead the way, so if positioning has become a little crowded in silver and participants are looking for a pullback, gold can be ignored in anticipation of a drop. 

In terms of our own model we are currently overbought on the weekly and daily timeframes. The chart below features our proprietary indicator, the Wolf Oscillator, which is formulated from a number of inputs, but the biggest weighting comes from trader positioning data meaning that it directly tracks buying and selling in the chart you are viewing. When the indicator turns down it indicates that sellers have overpowered buyers, and at that point we typically see a price decline. 

The trader panel to the right of the chart gives us the current position of the indicator on the 4 hour, daily, weekly and monthly timeframes. Here you can see that the 4 hour has already started to turn lower, and we therefore expect gold to pull back this week. These charts update in realtime during the day and can be found on timeframes from 5 minutes up to monthly. For a technical overview of the indicator and the system we have developed for use by traders and investors, please click the link here.

For silver, the weekly timeframe is now overbought and starting to top out, and our 4 hour and daily chart timeframes picked the recent high very well. 

Additionally, our market perspective charts are pointing to the rally having become extended in recent weeks. The chart below is based upon the ratio of gold to the gold VIX (GVZ). When the indicator turns lower it indicates that market participants are buying more protection than the metal, and that typically precede a decline in the gold price:

In terms of the gold price itself, we see immediate support in the 1258-1271 range with an outside chance at hitting 1237. As long as we now stay above support while the shorter timeframes reset, the chance for the rally continuing is very good. The bigger picture trend has improved a great deal since the start of the year, and the monthly signal will flip to bullish should we close out April at or above 1243. 

For silver, support comes in at 17.25-17.37 and should we remain above while the 4 hour and daily timeframes reset, the chances at a bigger rally targeting the low 20s are good. The bigger picture trend flipped to bullish at the end of March, and the prospects for a continued advance are very good at this point. 

Under-Performance In The Miners Continues 

Despite the bullish price action in the metals, the mining companies (GDX) have not fared nearly as well over the last few months. Partly this has been to do with the re-balancing process in the junior miner ETF (GDXJ), and partly i suspect due to concerns over the prospective strength of the US Dollar. We feel that this divergence will not last for too much longer, and should the metals themselves remain in bullish posture, the miners will eventually follow along. 

We offer trend analysis on all timeframes for both the junior and major mining indices, but the chart below comes from our Market Perspectives folder which helps us to form an overall opinion on market directional bias. This one is based upon the bullish percent index for the mining companies (the number of companies on point and figure buy signals), and while the weekly chart has turned higher recently, the daily chart shows that caution is warranted in the very near term:

For GDX we have support in the 22.50-23.00 range, and as long as we now stay above that zone while the daily and 4 hour charts reset, the chances for a continued rally higher are good. resistance comes in at around 25.50-26.00 and sustained trade above would be very bullish for the longer term and give us our next target in the lows 30s. 

We hope this article has been of benefit to you, and we wish you good luck in your metals investments for the coming months.